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Wednesday, 2 January, 2002, 16:14 GMT
Q&A: Should I get a euro mortgage?
Q&A

Switching your mortgage away from pounds to euros may seem attractive for pro-Europeans or a chance to make some money on the currency markets, but is it worth risking your biggest financial commitment?

What is a euro mortgage?

A euro mortgage is basically the same except it is denominated in euros rather than pounds, and its rate will be allied to the interest rate set by the European Central Bank.

One reason you may be attracted to a euro mortgage is that the ECB's rate is currently - at 3.25% - lower than the Bank of England's base rate of 4.0%.

Barclays and Abbey National offer euro mortgages for properties in the UK.

Will I save money?

Switching to a euro mortgage for most people is a high-risk gamble, which could easily backfire.

Currency markets are fairly volatile - and you could get caught out.

This is because buying a property valued in one currency, but borrowing in another could be very risky if the currency moves against you.

For example, a 100,000 repayment mortgage over 25 years at 5.02% paid in Euros would cost 14,754 more if the euro strengthened from 61p to 70p per pound.

Conversely, if the euro weakened against the pound to 50p then the loan would equate to 81,967.

But aren't rates better?

Just because the ECB is lower than the Bank of England Base rate does not mean that you will cut your debts and save on payments.

Switching to a euro mortgage will not necessarily guarantee a cheaper interest rate.

Abbey National, for example, currently charges interest at 5.3% for its euro mortgage for properties in the UK.

But this is not the cheapest deal on the market.

Lenders are offering as low as 3.70% for sterling loans.

The UK's mortgage market is fairly competitive and there are many good deals on the market in sterling loans.

According to the European Mortgage Federation, average UK mortgage rates in the second quarter of last year were 6.1%, compared with 6.22% in Germany and 7.25% in Belgium.

So, I should forget about it?

David Hollingworth of London & County, a mortgage broker says: "If you don't have income in euros, then you shouldn't get one.

"There is an exchange risk and your mortgage debt could increase in value."

But why wait? We will adopt the euro anyway?

Although there is growing momentum to have a referendum, it is not inevitable that the UK will adopt the euro.

In fact, recent opinion polls reveal that most Britons are against joining the single currency.

"The bottom line is that for the vast majority of people it is not an advisable route to go down, " says Mr Hollingworth.

What if I am buying a property on the Continent?

If you are buying a home on the continent, there is a stronger argument for taking out a euro mortgage, especially if you are receiving rental income from the property in euros.


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