Written for Expat Network by Guy Stephenson of Offshoreonline

Currency stability should be high on the list of factors to consider, when buyers of Spanish property are working and paid in one currency and buying property in another currency, in this case, the euro. The issue is the relationship between the currency you are paid in which might be the UK pounds, Singaporean dollars or Swiss francs, for example and the currency of the debt, in this case, the euro.

If your home currency appreciates or gets stronger, your debt in euros effectively gets smaller, as you need fewer units of your home currency to buy the same repayment amount in euros on your mortgage in Spain. Note the opposite is also true, though, your home currency could decline, which makes your debt more expensive.

Which is where a quirk highlighted by expat and euro mortgage brokers Offshoreonline could be very helpful for buyers in Spain, who are paid in any one of, at present, 19 currencies. The list includes UK pounds, Swedish krone, Swiss francs, Singaporean, Australian and New Zealand dollars. The 19 currencies are defined as “convertible” by at least one major lender in Spain, meaning that at one point in the life of the mortgage, the borrower has the right to convert their existing debt in euros against a home in Spain into their home currency, wiping out currency risk in one quick move.

Commenting on the feature, Guy Stephenson of Offshoreonline said, “A lot of buyers do not fully understand the importance of currency risk in a long term contract, such as a mortgage. Over time, the relationship between currencies can and does move – look at sterling versus the euro since the Brexit vote. Buyers of Spanish homes in the UK have seen the effective cost of their euro mortgage repayments rise by around 20% since 2016.”

“For an older buyer or someone whose earnings are not on a steadily upward trend, that borrower may well want to convert their loan back into, for example, sterling, if they are UK resident or paid in sterling and so remove currency risk entirely. This could be a very attractive option for some.”

Safety features such as this or the ability to extend a loan to reduce monthly repayments are often a characteristic of a euro mortgage. Buyers need to therefore consider the longer term and what strategies they could deploy in an emergency, thinks the broker.