Quelle Mortgage

[New Life]

Hi again,

We are now nudging towards concluding a deal on purchasing our Maison Secondaire ( with the C de V being drafted now - fingers crossed). We are now shopping about to find the best French mortgage deal and would appreciate input. We’ve got an offer from BNP & I’m taking a quote from Banque Populaire...but would welcome comments, observations or suggested alternatives. Better still, any idea of what terms would represent a good deal borrowing say 85% on a 20 year Capital & Interest basis? Many thanks in advance.

[Hereford]

We have no idea of mortgage companies but would be very wary of having a mortgage in a foreign currency (i.e. euros) if all income is in UK pounds. You will need to be sure to send enough money each month to cover repayments regardless of exchange rate.

If you must have a mortgage it would be better, if that is possible, to get one in the UK - perhaps on a house you own there.

We speak as accountants!!

H.

[frexpt]

[quote user="New Life"]Hi again, We are now nudging towards concluding a deal on purchasing our Maison Secondaire ( with the C de V being drafted now - fingers crossed). We are now shopping about to find the best French mortgage deal and would appreciate input. We’ve got an offer from BNP & I’m taking a quote from Banque Populaire...but would welcome comments, observations or suggested alternatives. Better still, any idea of what terms would represent a good deal borrowing say 85% on a 20 year Capital & Interest basis? Many thanks in advance.[/quote]

I'd suggest consulting a good broker and have PM'd you details of someone.[B]

[New Life]

Hereford: Many thanks for your reply and input. To be honest though, I’m not sure if I agree (sorry!).

According to my calculations, if I borrowed say €100,000 by way of a French Mortgage, repaid capital & interest over 20 years, I think I could get a deal offering circa 3.5% fixed for the first few years, then reverting to a variable rate. This would cost me in the region of €580/month.

By comparison, and assuming exchange rate of 0.85 / 1.175…then the equivalent would be a UK mortgage of £85,000, probably offered a rate of nearer 5.5%, which would require a monthly payment of £585/mth.

So the way I see it, particularly with the potential volatility right now…I feel I’m better reducing my short term currency risk in relation to the purchase price (where a swing against me could be very costly) and run the longer term risk month on month, which, after allowing the cost of exchanging, then euro/pound could reach parity…and I’d be no worse off.

Hope that makes sense…or am I wrong in my thought process?

[New Life]

Any other suggestions on which Banks might offer a good deal...and be good to deal with generally?

[Hereford]

New Life:  You obviously understand the risks so that is fine.  Good luck.

[PaulT]

You rubbished Herefords suggestion. However, I know someone who has a Spanish euro mortgage on a property in Spain and the fluctuating exchange rate as well as the cost of transferring money in to their Spanish account to service the mortgage is adding greatly to the costs - with hindsight think she would have prefered a sterling mortgage.

Paul

[andyh4]

I also know someone who had exactly the same view as the OP back in the 1980's - nearly went bankrupt when the exchange rate went from 10.something to nearly 7 in just a few months.

[Benjamin]

[quote user="New Life"]

Hope that makes sense…or am I wrong in my thought process?[/quote]

The problem is no one knows, which is what Hereford was trying to point out. As an example in 2002 (I think from memory) we received €1,67 to the pound.

In January 2009 on one small pension payment we received 99.7 eurocents to the pound.

What's it likely to be in five years time? The answer is no one knows.

[New Life]

PaulT: To be fair, I most certainly did not “rubbish” Herefords suggestion. In fact I tried to be polite in my response and to seek reassurance that my thought process was not flawed.  

Indeed, I have over recent weeks been considering the merits of borrowing in UK and have considered both the French vs. UK options in detail. Surely the truth is that it’s a judgment call you make based on the known facts at the time you make the decision.

 As you have clearly demonstrated in the example you give, hindsight is a fantastic measure of good or bad decisions. Many factors come into play, and if I could confidently predict that it would be best having a UK mortgage rather than a French mortgage, then I’d be doing just that. Either way, I’ll either be right, wrong or neither.

 

Hererford: I trust no offence was taken. I just thought I’d share with you my thought process for some reassurance

[New Life]

Benjamin: I agree 100% .

 

 

[Stan Streason]

Life without a bit of risk wouldnt be half as much fun!

New Life.  I am making a big assumption.  I would never advise anyone to buy a second home if it totally extends their financial resources and they cannot afford to take any knocks.  As long as you are not totally stretched then a little bit of active management can reduce costs. 

You seem to have got a decent idea of the risks involved.  You used 1.17 as an exchange rate and worked out your repayments.  How bad could it get?  What would your repayments be if it were parity for 3 years?  I cant be bothered to do the sums but thats about the worst it could reasonably get.  Of course if it gets "better" and goes up to 1.40 again you could always pay off the French Mortgage with a sterling one (at a lot less cost than now.).  If you are lucky enough to have say a years repayments available in savings at any one time there is no reason why you could not put in buy orders and stock up with euros on the occasions you can get better than 1.17, this would cut down monthly transaction costs and get you marginally better rates.  I dont have a mortgage but over the last 2 years my average rate of buying for my renovations is about 1.175 and the rates have been much lower than that for most of the time.

Just one more thing to think about.  Would your new house be bought by a Frenchman?  If worst comes to worst you have an appreciating asset (in sterling terms).  I have realised that my house would be significantly more attractive to someone as a second home and therefore probably is more accurately valued in Sterling than Euros.  If your new property would be purchased by a Frenchman then if worst comes to worst you probably could at least sell and realise a sterling profit.

EDIT --of course I am a glass half full man

[Hereford]

No offence taken at all.  We too know people, though, who took a French mortgage and had a terrible experience when they got short of money and the exchange rate changed.  Things happen in life - redundancy, ill health etc. and having money owing abroad would add to the stress.

[frexpt]

[quote user="New Life"]So the way I see it, particularly with the potential volatility right now…I feel I’m better reducing my short term currency risk in relation to the purchase price (where a swing against me could be very costly) and run the longer term risk month on month, which, after allowing the cost of exchanging, then euro/pound could reach parity…and I’d be no worse off. Hope that makes sense…or am I wrong in my thought process?[/quote]

With an 85% sterling mortgage and assuming a capital input of say 15000€ (15% equity) I think the greatest risk to the investment would be longer term adverse currency movements, i.e. against sterling.  The equity will always be at risk with a steling loan, whereas a Euro mortgage would eliminate that consideration.

A further thought is that, IMHO, French mortgages are far, far more competitive that anything that the UK lenders are willing to put together at the moment.  Margins over French base or Euribor are far more realistic than the unjustified margins of the UK financial institutions.

Not so many years ago, I was arranging commercial loans for clients at rates between 0.5 - 1.5% over bank base (a payable rate of up to 2% in today's money).  Banks still made a profit on those margins, so how can they justify BBR plus 3 or more percent for residential loans now...........a rhetorical question only, they can't, but we know why they do it...........

Finally, affordability of the monthly payments for a worst case scenario must be factored in from the outset.  I don't know what capital you might have as a fall back , but often with cases where capital was tight, it was prudent to arrange a larger than required loan (say 90%) and hold the balance on deposit as a hedge against rate movements.

As I said previously, a good broker should be able to guide you through all of that[geek]

 

[New Life]

Frexpt: I'm very much on board with you on this and your points summarise my own thought process. In particular, the differential on interest rates is a big factor. Also, affordability is always key...but hopefully we've got that well covered.

[Babbles]

we have a french mortgage and taking the exchange rate out of the equation one of things that I do really like about it is that you agree to a monthly amount and if the interest rate fluctuates the length of the mortgage either increases or decreases so although we agreed to a 20 year mortgage 2 years ago before all the big reduction in interest rates it now be paid off in 14 years.

We're currently looking at refinancing and are keen to get a capped rate for 7 years as there are questions about what will happen to the Euro.

One thing I am surprised at that the OP can get an 85% mortgage normally on a second home its the maximum of 80% and more often 70%

[New Life]

Hi Babbles,

I'm also looking at the option of going for a capped rate, (or possibly a fixed deal for 5 years) because like you, I'm wary of the Euro position and rising interest rates over the medium term. I'm not too keen to go variable. Do you mind me asking which Bank has offered the 7 year cap?

You're right on the 80% as being the norm...but from what I can gather, 85% is offered only on the basis of Capital & Interest repayment from day one with a term up to max 20 yrs. We've certainly been given an offer at 85%...but I'm still shopping about.

Thanks

[Babbles]

Hi New Life, it's with BNP Paribas we've found them to be very helpful and I have to say being able to speak to someone in English is very helpful

[New Life]

Many thanks for this Babbles. Its BNP whom I'm favouring too.