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Beware, banker involved, but so's the exchange rate!

mint

By mint,
in French Finance

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Northender Newbie

Northender

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Couple of things from the report.

1) Quote "French lenders in particular are offering cheap fixed rates on euro mortgages to buy French property and offer up to 100% of the purchase price ."  And I thought the French were so much more responsible than us Brits.

2) Reading the comments from the couple who are taking out a Euro mortgage , they make it sound like they are manipulating the system to maximise gains. Where's all the romance gone in buying your little old place in France??

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Northender Newbie

Northender

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[quote user="sweet 17"]

Do you think Happy Days are Here Again?[8-)]

[/quote]

Who knows?

After Gordons performance last night , maybe he'll get enough votes to cling on.

If , heaven forbid , that happens the couple in the report will not be happy Bunnies , unless they upsticks and move to France selling 100% mortgages of course.

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Quillan Newbie

Quillan

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I wonder what they would call the Euro if it got back to 1.60 odd (against the pound), like when the Euro first came in to use? If it goes back to 1.5 etc then its only going back to where it was(ish) and depending on how you look at it then it does not necessarily make it weak. If it went to say 1.70 or 2.00 Euros to the pound then yes that would be weak.

I also wondered, when talking about French banks and the domestic market, what happened to the 1/3rd rule on monthly income, has that gone away or are these people earning a shed load of money?

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Chancer Newbie

Chancer

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Payslips and P60's or is it P45's bought on E-bay are sufficient proof of earnings for French mortgage brokers, they are of the same mould as UK IFA's (motivated by thri commission) and like british clients because A, they are willing/stupid enough to borrow recklessly and B, very little checking up can or will be done compared to someone who works in France.

The other crazy thing is even if someone doesnt bend the truth to get the mortgage approved the broker knows full well that as soon as they buy the house they will be moving and no longer have an income to repay the loan except for perhaps some pie in the sky dream of how much income their gites/chambre D'hotes will bring them in.

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Quillan Newbie

Quillan

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[quote user="Chancer"]

Payslips and P60's or is it P45's bought on E-bay are sufficient proof of earnings for French mortgage brokers, they are of the same mould as UK IFA's (motivated by thri commission) and like british clients because A, they are willing/stupid enough to borrow recklessly and B, very little checking up can or will be done compared to someone who works in France.

The other crazy thing is even if someone doesnt bend the truth to get the mortgage approved the broker knows full well that as soon as they buy the house they will be moving and no longer have an income to repay the loan except for perhaps some pie in the sky dream of how much income their gites/chambre D'hotes will bring them in.

[/quote]

Well I can find blank payslips on Ebay, if you want to buy 500 or more but then you need the software. As for P60's and P45, not a sign of them.

As for the Pie in the sky thing, well I do agree with you there. Even if you own a B&B outright in France there is not enough money in it to support you. Sure you can turn over 30k Euros or more but profit wise, not a chance, either a pension or an alternative income is required. Golden rule with B&B's here, if you need a loan to buy it then don't.

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mint Newbie

mint

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Er............could you please give us those figures again?  Have you made a typo?  I can't quite follow your post.

Not important really as I have no intention of getting (and indeed would never be considered good for) a mortgage [:)]

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Richard51 Newbie

Richard51

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Sorry Sweet, I just used one of the many online mortgage calculators with the approximate figures cited by the interviewees (http://www.mortgage-calc.com/mortgage/simple.html).  The term of the loan wasn't stated so I put used two scenarios that would seem to fit with the apparent age of the borrowers (one assuming I was being complementary...one not so!).  On looking at the calculator again, it's for a repayment rather than an interest only mortgage - so the interest only option (which I believe they had taken out) would have monthly repayments that are even lower.

I have taken as read that the couple are employed in the UK not France - there's probably not a cat in hells chance they could earn enough in France!

Edit - Just to add context the average London salary is £46k (http://news.bbc.co.uk/1/hi/england/london/7802792.stm) so for a couple both earning average London salaries their combined net monthly take home pay would be ~£5,300.)

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Boscoe Newbie

Boscoe

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A VERY risky strategy... This all works out if

1. You believe the pound is at it's lowest it will go against the Euro and will stay like that for 20 years

2. You can time the loan change to GBP and have a crystal ball to let you know what the exchange rates and interest rates will be in the future.

If it goes up (and stays up for the length of your loan) then yes, no problem and you can make some money but if it then goes back down (and lower) you're in real trouble and the bank will be margin calling you...

I'll keep it at 100% LTV and round numbers to illustrate, I have also not taken into account any capital appreciation although this is never guaranteed short term

Year 1 (eur/gbp @ 0.87)

Take loan in EUR

100,000 eur loan (87,000 gbp)

100,000 eur property value (87,000 gbp)

Year 2 ( eur/gbp @ 0.7)

Decide to convert to GBP loan

70,000 gbp loan (100,000 eur)

100,000 eur property value (70,000 gbp)

A just a few possibilities...

Possibility 1

Year 3 - 5 (eur/gbp @ 0.7)

70,000 gbp loan (100,000 eur)

100,000 eur property value (70,000 gbp)

The Euro stays at 0.7 and you are 'fine' you bought a house in France and instead of borrowing in GBP you borrowed in Euro so 'saved' yourself 17,000 gbp... however your collateral (the house you bought) has devalued by 30,000 in gbp terms.

Possibility 2

Year 3-5 (eur/gbp @ 0.87)

70,000 gbp loan (80,500 eur)

100,000 eur property value (87,000 gbp)

Hoorah... 'made' 17,000 gbp wasn't I clever, that is until the exchange rate turns against you (see point 3)

Possibility 3

Year 3 - 5 (eur/gbp @ 0.5)

70,000 gbp loan (140,000 eur)

100,000 eur property value (50,000 gbp)

The bank calls you and asks for you to give them 20,000 gbp as the loan

is now for more than the property is worth or they will foreclose on

the property.

There is also a possibility that GBP devalues again before you get to refinance, a run on the pound isn't out of the question is it? Then you end up with a property that is worth more in GBP terms but you can't afford the mortgage, taxes, insurance etc etc

Another thing to consider... What happens if the housing market crashes? With a property in valued in EUR and a loan in GBP, more risk of a margin call as multi currency mortgages have small print allowing for revaluation. Also interest rate fluctuations over the next 20 years and I'm not going to get into the risk of deflation :)

It amazes me why people would try and play currency markets with what is basically an illiquid asset and a leveraged one at that... There are much better (and safer) ways of betting on the price of the EUR/GBP including leverage. I know more than a couple of people who have been stung VERY heavily on multi currency mortgages including margin calls by banks when the pound devalued.

I live by the rules -

Keep your assets and liabilities in the same currency and if you can't hedge against an FX change.

If you want to bet on FX then I do it with cash not property!

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Richard51 Newbie

Richard51

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You also need to add in the fact that most French mortgages have a 3% penalty for early repayment (€7,500 on a €250k loan) and there will have been costs involved in taking out the loan (notaires fees, mandatory life insurance etc) and in taking out replacement funding in the UK (valuation, legal costs of recognising the new charge on land registry deeds).

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mint Newbie

mint

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[quote user="dragonrouge"]You are back Sweet17?[/quote]

Hi, Dragon......yes, I am back, lighter of pocket but probably not of weight as I was advised to "eat lots" to have energy for the skiing!  LOL!

Did you enjoy your trip back to the ole' country?  Was your French friend impressed?

I agree with the posters about the risky strategy of taking ou a mortgage as described.  But then, one of the couple is a banker and I guess she's just forgotten that it's her own money this time rather than the bank's that she is risking![:D]

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dragonrouge Newbie

dragonrouge

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Hi Sweet 17 welcome back you have been missed. Cardiff was Cardiff the atmosphere was tremendous.

However you will know Glynneath as in Max Boyce well the rugby club entertain Hawick every two years and Hawick was obviously the late and great Bill Mclarens club.

So BBC Wales the night before the game went there and spoke to all and sundry and in the background by way of positioning the piece so to speak were our Scottish friends resplendent in their kilts. So the TV panned around to them and the presenter was that bubbly little Welsh girl who took over when sadly the again late and great Mr Humphries left us.

All of a sudden one of the Scots just simply dropped his kilt. I am now able to positively comment upon what the Scots wear under their kilts. Afterwards the BBC Wales were full of apologies!

Subsequently I have suffered from an inferiority complex. Fortunately my wife was not in the room at the time.
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