Savvy purchasers, regardless of their budget, have realised that borrowing in Euros, rather than buying in cash, has many benefits. Many of our clients have been very surprised at how much money they can save over the medium to long term by taking out a Euro mortgage, especially as the majority of them will have been working hard all their life to become debt-free! Read our handy synopsis below so that you can be confident that. by recommending your clients speak to us prior to making any purchase, you are giving your clients the best advice.
CLIENTS CONTINUE TO EARN FROM THEIR INVESTED ASSETS
Euro mortgages are available on a repayment basis (with no need to place any other assets with the bank) at rates from 2.70% fixed for 20 years at 85% loan-to-value. The maths is simple – by only paying the 15% deposit in cash and using a French mortgage for the rest, the remainder of their cash savings can be invested in a financial vehicle that would earn them upwards of 5% (and that’s being cautious, average annual returns over past 30 years are over 7%!).
For example, if they bought a property with a purchase price of €1M and purchased in cash, at the end of the 20 years they’d be left with a property they own outright worth at least €1M (and that’s assuming no increase in value due to the property market). However, if they had purchased with a Euro mortgage they would not only own the property outright, but also the €850,000 they kept invested would now be worth at least €2,255,000 (based on a 5% return). Yes, they would pay €250k in mortgage interest but that still leaves them with a home they own in full and an additional €1.1M they wouldn’t have had otherwise! (And remember these calculations are cautious, as whilst their mortgage payments won’t change as the rate is fixed for the lifetime of the loan, the interest they would earn on their savings would increase if interest rates continue to rise. For example, if their investments give them a 7% return they would have earned an additional €2,1M!)
KEEP THE ASSET & LIABILITY IN THE SAME CURRENCY AND HEDGE EXPOSURE TO THE FX
Euro mortgages come with small or no early repayment charges; clients pay off the Euro debt only once the exchange rate returns in their favour. This is particularly pertinent if they are purchasing at a time when the pound is historically weak against the euro. By taking out a mortgage you only need to convert the deposit from sterling into euros, rather than the full purchase price amount. Once the pound has strengthened sufficiently clients can redeem the mortgage, converting the outstanding balance into euros at a much more favourable rate than at the point of purchase – essentially reducing the original purchase price
SAVE TAX WITH A MORTGAGE
Wealth tax kicks in at €1.3M in France and €700k in Spain – but clients are only liable for the net value of the property – i.e. they can deduct the loan amount off the property’s value and they only pay tax on the remainder. (This applies equally to non-residents as well as residents). Likewise, you can offset any rental income you receive from any seasonal or long-term lettings against income tax.
YOU CAN’T RELEASE EQUITY FROM AN OVERSEAS PROPERTY
You can only take a mortgage out on a continental property up to 12 months post-purchase. After that time it is extremely difficult/nigh on impossible to obtain a mortgage on it to take out the equity if you have bought in cash unless you are willing to place considerable assets under management with a private bank. (Yes this seems absurd when compared to the UK, but the European banks just don’t view property in the same way as we do). So, if clients are worried a Euro mortgage might delay the purchase/weaken their negotiating position with the vendor they can buy in cash, AND THEN mortgage it immediately after the purchase (and they can start the mortgage process way before that), but you mustn’t leave it any longer than 12 months as then their money will be locked in – and when mortgage rates are so low, why would they risk locking up their money in this way, when they can keep it much more accessible (and earning a return – see above) so easily?
IPF is authorised by the FCA in the UK and ORIAS in France and hold all relevant EU passporting requirements. We work with a panel of lenders across the retail and private banks in the UK, France, Monaco, Geneva and Luxembourg arranging facilities ranging from €150,000 to €50M and we:
- Hold the highest overseas mortgage approval rating at 97% in the industry (the banks’ direct sales team is 50%)
- Can access exclusive products, preferential borrowing rates, higher LTVS and discounted arrangement fees
- Specialise in understanding the complex international financial situations of HNW individuals
- Benefit from their own dedicated underwriters at each bank to fast-track both the mortgage and purchasing process
Clients will have a dedicated bi-lingual, CeMap-qualified Consultant acting on your behalf throughout the purchase process, liaising with third parties right the way through to completion.
To refer a client to us or for further details of IPF’s service, please email us at SJP@internationalprivatefinance.com or contact us on +44 (0)207 484 4600.
We would be delighted to provide your clients with a free, no-obligation personalised quote.