Can I get a German mortgage on a British home?

Q My in-laws have a flat in Germany with a low mortgage rate from a German bank. Is there any reason why I can't shop around in Europe for a mortgage on a house in this country? if so, can you offer any advice? Many thanks.

KD

A There's nothing to stop you trying but the main reason for not bothering is that you are unlikely to find a lender in another European country willing to lend to you (unless they have already set up a subsidiary in the UK). The reason for this is principally the difficulties posed by differences in legal systems throughout Europe which mean different rules for taking a mortgage over a property (which is what lenders need to do to obtain security for the loan). For the same reason, some UK lenders will lend only in England and Wales (which share a common legal system) but won't lend in Scotland where laws differ.

But even if you could take out a mortgage in Euros in another country, whether it would be a good idea is a different matter. Taking out a mortgage in a different currency means exposing yourself not only to the risk of ups and downs in the interest rate (as with a standard UK mortgage) but also to the risk of currency fluctuations. This would mean that not only would your repayments go up and down in line with the currency market but so would the mortgage debt. So, you could start out with the equivalent of a £100,000 mortgage in Euros, for example, but if sterling fell sharply against the Euro, the debt could go up to £110,000 (because you'd need more sterling to buy the Euros necessary to repay the debt).

However, there is a half-way house because some lenders periodically offer mortgages where both the mortgage debt and repayments are denominated in sterling (as with a normal UK mortgage) but the interest rate is based on those applicable to a foreign currency. This means that you can take advantage of low interest rates in other countries without the exchange rate risk. There is no current Euro-based residential mortgage (there was one until last month), but a mortgage linked to the Swiss Franc with an interest rate currently of 3.99% is available through independent mortgage experts John Charcol (go to www.charcolonline.co.uk or phone 0800 71 81 91). The most you can borrow is 80% of the lender's valuation of the property and early repayment charges apply if you redeem the mortgage before 31 March 2011 although you are allowed to overpay 10% of the loan each year without penalty.