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Product matters

Borrowing in euro looks cheap at the moment so Charcol’s decision to launch a euro mortgage is a timely one.

But while the idea is good, the mortgage itself is not as competitive as it might be. It tracks three-month Euribor at a margin of 2.15 per cent for five years, giving an initial payable rate of 4.29 per cent.

This is a very high margin when you consider that most UK variable-rate trackers are only slightly above base rate. For example, Alliance & Leicester is charging 0.09 per cent above base rate, giving a payable rate of 4.84 per cent for two years.

The fact that this mortgage is variable is also a source of concern as the borrower has to tie themselves in for a long period. Five years is a long time over which to take a punt on what will happen to the euro. The 999 arrangement fee is not unreasonably high for such products but is likely to preclude borrowers in need of small loans as it works out as a disproportionately large percentage of the amount borrowed.

Another option for those keen on the whole idea of the euro, which may work out better value, is to delve into the currency itself. Given that borrowing in euro is so cheap at the moment, homebuyers could opt for a euro-denominated loan. These are obtainable at a margin of 1 per cent over Euribor, giving a pay rate of just under 3.5 per cent.

However, borrowers should bear in mind the potential upside/ downside of exchange rate movements and seek advice from their broker first.

Mike Boles is head of the international division of Savills Private Finance


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