Which Is Better- A UK Or French Mortgage?
By: Nick Dowlatshahi
There are a number of reasons for taking out a mortgage to finance your property in France aside from the obvious necessity for extra funds. Firstly it can be a good way to invest even small amounts of capital if it is possible to leverage a sizeable mortgage that will be covered by the rental return of the property. Any increase in the value of the property could reap great rewards on just a small investment of say 10 or 15% of the value of the property. Secondly you may have other priorities for your money such as your own business investment, shares or renovation works to your property that you view as bringing a greater return on your investment. Thirdly, it can be a great way to reduce the inheritance tax liability on your French property by lowering its net value especially if the inheritance rates are higher in France than back home. Fourthly your mortgage interest repayments can be off-set against income tax thus lowering your French income tax liability on your property.
Increasing your domestic (UK) mortgage
-This can be the easiest way to get your mortgage as there will be far less paperwork and initial set up fees -Money comes out of your bank account in the currency in which you are paid thereby making it easier to forecast your budget
BUT
-Interest rates in the UK are currently higher than those on the continent so repayments could be reduced substantially by raising the mortgage in France.
Getting a mortgage in France
-Interest rates are likely to be lower than current UK rates -Your assets and liabilities will be balanced so that if the mortgage cannot be paid you do not lose your home in the UK, just the one in France. -Your UK property will retain its equity so that it is available if you need to use it to borrow money in the future in the UK -If your French home is rented out then you can offset the mortgage repayments against rental income so that your tax liabilities are reduced -Inheritance tax can be reduced by taking out a mortgage on your property in France as this will reduce its net value.
BUT
If you live and work in the UK then you are at the mercy of exchange rate fluctuations so that if the Euro suddenly appreciates in value you will have to make larger repayments from your English account to cover the mortgage. For example, if the Exchange rate moves from 1.6 to 1.4 Euros to the pound (an appreciation in the value of the Euro) on a 200,000 Euro mortgage with an interest only basis of 5% p.a. then annual repayments rise from £6250 to £7143. The reverse can also happen but you must calculate if you can cope or not with such fluctuations. You can of course also enter into forward contracts with currency specialists where you buy your Euros up to two years in advance to protect yourself against currency fluctuations.
What next?
If you decide that you do want to take out a mortgage in France then we can help you by putting you in touch with trustworthy mortgage brokers and banks who will endeavour to offer you the best quote possible. This should be arranged "in principle" before you set off to France in order to avoid any untimely delays once you go ahead with your property acquisition. Both fixed as well as variable rates of interest are available depending on your financial situation and although interest and capital repayment mortgages over a 10 or 15 year period are the norm there are also interest only mortgages available.
Leapfrog Properties is a French Property agency specialising in sales across France and Niclas Dowlatshahi is the Managing Director. Visit http://www.leapfrog-properties.com to find out more.
Article Source: http://www.ArticleBiz.com
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