Should we borrow in euros?

We are considering buying a property in Southern Spain for £150,000. Our home in the UK is worth £250,000 with a £60,000 mortgage outstanding, we have a £10,000 deposit to invest and our combined income is £65,000.

Initially we though it would be best to re-mortgage our UK home but we have seen a number of Spanish euro mortgages available. Which is the best way to fund the purchase? BG, Bucks

Darren Fretwell from NatWest International Spanish mortgages replies: Typically most lenders will look for a contribution of between 25-30% of the purchase price.

It is also important when calculating your budget that you allow about 12% of the purchase price to cover the associated fees, taxes and land registry charges that come with buying property in Spain.

In this example it may be appropriate to raise equity from the property in the UK to cover the contribution and fees. The balance could then be raised by taking out a mortgage on the property in Spain.

This will give you the opportunity to take advantage of the potential financial planning/tax benefits available by having a mortgage on the Spanish property, together with the opportunity to take advantage of current lower interest rates on a euro denominated loan, compared to sterling borrowing.

If taking the loan on the Spanish property in euros this is then in the reference currency of the property in Spain albeit consideration also needs to be given to the exchange risk of your earnings being in sterling.