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Brits in Euro-equity alert

Equity in overseas properties could be a godsend during the credit crunch, claims one company…

There has been much media interest of late into the travails of the majority of the world’s financial institutions following the unravelling of the bundled debt packages that included much sub-prime debt. It is anticipated that further announcements will be made over the coming months as further losses are reported.

If the effects turn out to be as bad as some analysts predict, with the American economy facing its worst recession since the ‘great depression’ and reports suggesting that UK estate agents are more pessimistic about the UK economy than at any time over the past 30 years, the credit crunch should not be taken lightly by any means.

There is a current silver lining however for those with an interest in overseas mortgages in the Euro-zone. Since the Northern Rock debacle became public in late 2007, the Sterling exchange rate has gradually weakened against the Euro, such that record lows are now being hit.

Tackling negative equity

Alistair Riddle, Credit Manager for Piraeus Bank UK explains: “If you purchased your property more than 7 months ago, any equity that you may have in the property will be exaggeratedly bigger in Sterling terms.

“This could be of use if you face UK negative equity, are looking to jump up the property ladder if UK house prices slip or if you need a deposit in the UK to cover the shrinkage in loan-to-values that banks are generally currently offering.�

Alistair further comments, “It should be noted that just because your overseas property is now worth more in Sterling terms, to release funds you either have to have had equity in the property in the first place or are able to sell the property (naturally bearing in mind any applicable taxes for doing so).

�If you are looking to take some equity out, it is critical to remember that as the debt level in your investment rises, so does the repayments on the debt and this cost must be factored into your calculations. If you are renting out your property and are receiving constant rental streams, preferably in the currency that you have borrowed in, then this is ideal as there is no exchange rate risk.�

Affordable properties abroad

What if you wanted to purchase an overseas property and are now concerned about the worsening strength of Sterling? Piraeus Bank UK Head of Retail Banking, Irini Tzortzoglou, responds, “As with all investments, what and where you buy is very important – so long as you do your research fully and understand and accept the risks of purchasing property in a different currency, then there remain affordable properties to be purchased abroad.

“If you believe that the UK housing market is set for a tough time over the coming months or the medium term, perhaps the opportunity to purchase bricks and mortar in a different country will prove attractive. Certainly, we have not seen a slow down in the volume of applications for mortgages to purchase properties in the overseas markets that we provide mortgages for purchasing properties in.�

In summary, Piraeus Bank UK offers the following tips to making the most out of your overseas property during the credit squeeze:

• A Euro mortgage on overseas property can be utilised whilst the Sterling exchange rate is in a weakened position.
  
  
• UK buyers can release equity from their overseas properties to alleviate negative equity on a UK property and generate a larger deposit to purchase UK property using a mortgage.
  
  
• Renting the overseas property should be explored as a means to reduce or fully cover mortgage repayments.
  
  
• First time buyers can consider purchasing in countries where property price increases are expected to be higher than in the UK in the next two-three years so as to get on the property ladder.