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A CONSUMER&#39s VIEW

The introduction of euro coins and notes has been the headline story since the beginning of the year. But why is it that the financial services industry has failed to provide the euro product that customers want?

Most of the high-street banks are offering euro deposit accounts although some have a minimum investment of £5,000. A few have euro-denominated credit cards attached. But when the euro was first introduced as a unit of account and traded electronically in 1999, the one product that everyone wanted was a euro-denominated mortgage.

Had euro-denominated mortgages been freely available two years ago, anyone who had taken the plunge and borrowed in euroland would have seen their debt shrink by 16 per cent or thereabouts as the euro fell from its introductory value of just over 70p to today&#39s level of 62p.

A £100,000 loan denominated in euros would have represented e142,857 on launch but today you would be able to repay that debt with just £88,571.

Euro mortgages are available for borrowers buying property in continental Europe through the likes of Barclays, Woolwich and Abbey National, which have operations in France, Italy and Spain. With the Continental currencies fixed against euros since January 1999, mortgages have effectively been in euros, anyway.

But reports of difficulties in getting mortgages approved if they are secured against foreign property drive most people to remortgage their existing UK property and buy abroad for cash. For example, one single woman in her 30s who has lived and worked in Italy for years claims Woolwich Italy was not prepared to lend to a single woman.

Part of the problem is that some borrowers who took out foreign currency-denominated homeloans in the late 1980s, secured against their UK homes, got their fingers badly burnt when exchange rates moved against them and lenders have become increasingly wary.

When the euro was first introduced as a unit of account, the few lenders which were prepared to consider a euro-denominated mortgage required the borrower to have euro earnings, which largely restricted the market to UK nationals working for the European Commission in Brussels.

What many sophisticated borrowers want is a eurodenominated mortgage, secured on their UK home, as a means of playing the currency markets. Or at least they did. Speculation is now that the euro will strengthen against sterling, which makes the operation unattractive for a borrower but possibly attractive for an investor.

According to Ray Boulger of mortgage broker John Charcol, foreign currency mortgages are only for borrowers who understand the exchange rate risk. Minimum loan is £100,000 and minimum income is usually £50,000 a year. Maximum loan to value is usually 70 per cent.

But he maintains there have not been many takers because most borrowers are attracted to the euro due to what they perceive as lower interest rates. In reality, the UK sterling market is much more competitive and sophisticated than the Continental market and, as a result, sterling mortgage rates have been lower than euro mortgage rates despite the lower euro bank rate. It is possible to borrow in the UK at below UK bank base rate whereas you will pay 1 or 2 per cent over the euro Libor to borrow in euros, explains Boulger.

He says: “Nothing has really changed since the euro was first introduced in 1999.”

That is the problem. Why have UK lenders not attacked the Continental markets where margins are higher and where it would be easy to be competitive? European lending practices are light years behind the UK, particularly when it comes to lending to women. There are few fixed-rate loans available, much less choice, higher interest rates and the maximum mortgage term is usually 15 years.

An increasing number of UK residents are buying abroad, particularly in France. But it is still simpler for them to remortgage their UK property rather than borrow in euros against the second home abroad. What are the mortgage lenders waiting for?

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