2. French Mortgage or Second Mortgage?

If you are proposing to use mortgage funds to buy your property in France, you will either need to take out a second mortgage on your existing home, or take out a mortgage on the French property.

In making this choice, there are three main factors you need to consider:

1. 2.1. Currency Risk
2. 2.2. Mortgage Tax Relief
3. 2.3. Level of Interest Rates

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2.1. Currency Exchange Risk When Buying French Property

The level of currency risk to which you will be exposed will differ as between remortgaging your existing home and a mortgage on the French property.

2.1.1. Remortgage

If you are able to take out a second mortgage on your existing home then the whole process is certainly more straightforward, and you are offered a higher degree of protection against currency fluctuation.

If you live outside the Euro zone then your main currency risk with remortgaging is at the time you purchase the property, something you can insure against by organising a forward contract at a fixed rate.

If you think your currency is going to strengthen against the Euro then you would be better off getting a spot rate, and then transfer the funds in time for completion.

Once purchased then, with re-mortgaging you have the same monthly payment, irrespective of changes in currency rates.

Only if and when you decide to sell the property does currency risk later become an issue. Of course, it could be a big issue if you do decide to sell, and the currency has gone against you.

Some of the established brokers around are:

• HiFX
• Exchange4free
• FC Exchange
• Halo Financial

2.1.2. French Mortgage

If you are unable to remortgage the full price of the property, you either have to fund the balance from cash resources, or secure a Euro French mortgage on the new property.

One partial solution is, once again, to buy a forward contract, which you can do so for at least two years ahead, with renewal on a periodic basis.

Thus, not only could you secure the mortgage at a fixed rate, but you could continue to transfer funds across to France at the same fixed rate until the expiry of the forward contract.

One other solution is to borrow more than you actually need and maintain funds in a French bank savings account, which could later be used to make mortgage payments in the event of an adverse movement against your home currency.

Thus, even though you many only need to borrow 50% of the purchase price, instead you borrow up to, say, 80% of the value of the property. From your own savings, you then make a substantial deposit into your French bank account, and hold the money there for a rainy day, or make ongoing mortgage payments from the account.

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Next: Mortgage Tax Relief

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