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   'Holiday home owners feel the squeeze due to weak pound'    


holiday home ownersEuropean holiday home owners are now feeling the squeeze due to the weak pound. 

In theory for any holiday home owner abroad, any increase in the cost of funding the mortgage because of the decline of the pound ought to be offset by an increase in the euro value of the property.

In practice, when you come to sell, most owners of eurozone properties will have to reduce their asking price because buyers are largely British or American and they have a figure in their mind in sterling or dollars, both of which have declined against the euro. They won't want to pay the higher euro asking price.

Even worse, there is a double whammy. Most owners of foreign holiday homes who took out a euro mortgage did so in order to be able to claim mortgage interest against rental income. But with the strong euro, many homeowners are being forced to reduce the euro rental price or suffer voids.



'Quite a lot of owners are looking to re-mortgage in sterling where they have euro rental income, but it depends on circumstances,' says Simon Conn of Conti Financial Services, which specialises in arranging foreign currency mortgages on overseas properties. 'It works both ways. Those who paid cash for the foreign property by remortgaging their UK home are now looking to pay of the UK debt and remortgage their overseas holiday or retirement home.'

If you bought a holiday home in the eurozone three years ago for €750,000 with a €500,000 mortgage, it would have cost you £510,000 and the mortgage would have worked out at £340,000. Assuming it was an interest-only loan your borrowings would now be equivalent to £393,000 an increase of £53,000. The euro has strengthened from 1.47 to the pound to 1.27 today and it doesn't look like reversing this trend any time soon.

If you borrowed at, say, 3.5% your annual interest payments would be €17,500 a year or €1,458 a month. But five years ago the sterling equivalent would have been £992 a month whereas today you will have to find £1,148. Of course, if you have euro rental income nothing may have changed provided the income remains constant and is enough to cover the mortgage interest payments.

But if you have been advertising your property for rent in sterling, and received payment in sterling as many UK owners do  you will be out of pocket unless you are able to increase the rent, which is likely to be difficult in today's market.

Can you switch a euro mortgage to sterling?

Clearly if you are renting out the property you want to retain the mortgage secured against the foreign property so that the mortgage interest payments are offsetable against the rental income. So can you switch a euro mortgage to sterling?

'It isn't a problem in most countries Portugal, France, Spain or the US although Italian banks can be a bit difficult. But we can usually arrange a switch,' says Conn. The trouble with this is that it crystallises the loss. But if your mortgage is large relative to the value of the property say 85% or more this might be preferable to sitting things out and seeing the debt increase in sterling terms and being unable to sell the property except at a loss.

But what about owners of holiday homes abroad who paid cash by re-mortgaging their UK property? 'We are seeing a lot of them raising a mortgage on the foreign property to pay off their debt in the UK,' says Conn.

People may feel under pressure to sell their property abroad because of the current credit crunch. The strong euro means demand for European property has decreased, so owners are finding it more difficult to cash in their asset. One solution is to remortgage their property in Europe, where interest rates are lower, and use the currency-boosted proceeds to repay debt in the UK,' says Conn. But be aware that if the pound continues to slide against the euro this could wipe out all the advantage of lower interest payments.

No shortage of buyers

But Conn is optimistic that if owners want to sell, there are buyers around albeit driving a hard bargain. 'We are finding a resurgence of interest from Scandinavians particularly Finns who have money to spend because of the oil wealth and we are still very busy arranging mortgages. There are still a lot of people who want to buy abroad for holidays or retirement. But it is a buyers' market and there is a lot of negotiation on price.'

Conti Financial Services has been in the foreign mortgage market for over 14 years and can arrange finance in 15 countries across Europe, Africa and the US and can arrange finance on holiday homes, investment and retirement properties in over 45 countries, with more than 225 mortgage products currently available. Maximum loans to value are around 70% in France, Germany, Ireland, Italy, Monaco, Turkey, US, up to 80% in Greece, Portugal and Spain but generally lower elsewhere. 

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