Foreign Euro denominated mortgage - Risks

[Gekko]

Hi Folks

I have a Euro denominated mortgage from a European bank in respect of a foreign investment property. The bank in question doesn't operate in Ireland. I also have equity from an Irish property tied up in the foreign property. The property "washes its face" and has appreciated in value in a steady rather than spectacular fashion over recent years (and continues to do so).

However, I'm concerned about the possiblity of Ireland defaulting, subsequently being ejected from the Euro and the implications of such events for my foreign property and related loan. Were this to happen, my Irish source income should obviously become "Punt II" denominated and my foreign debt should obviously remain Euro denominated. However, the underlying asset (i.e. the property) and the related income should also remain Euro denominated.

Does this mean that I shouldn't be concerned about the above doomsday scenario (solely in the context of the foreign property - It would obviously concern me greatly if it were to happen)? And what, if anything should/could I do to mitigate the risk? I could obviously sell the property but I don't really want to do that. Is there some kind of put/call option I could acquire or some kind of derivative that might be suitable?

The more I think about it, in my view there's a 15-20% of the above doomsday scenario occuring. It's scary stuff.

Thanks in advance for any input, Folks.

 

[Martin77]

I went through the experience of the UK dropping out of ERM and having salary in GBP and costs in DEM so I know personally how painful exchange rate fluctuations can be.

I think that you are right to think that it could be scary, but who really knows?

Take heart in the fact that you currently have a Euro-valued mortgage, Euro-valued property, and Euro income, so you currently have no exchange rate risks. [Unlike some who already have a Euro-valued income, HUF valued property, and a CHF valued mortgage]

Unfortunately I don't think there's any financial instrument you can buy, simply because the Punt II does not exist. Any other instrument is also a gamble on exchange rates, which may make things worse rather than better.

But even if Ireland were to try to voluntarily leave the Euro [unthinkable] there's no defined mechanism to do so. Ireland cannot be "ejected" from the Euro either. It's simply impossible.

So we can only presume what could/would happen. My presumption is that even in the worst case if Ireland ever left the Euro [and I don't know how that would happen] then you'd still have a Euro-valued mortgage debt and a Euro-valued property, but possibly a Punt II-valued income.

At that point you could still presumably sell your Euro-valued property to pay off the Euro-valued mortgage debt, or not?

So is the problem really as big as you imagine?

 

[Greta]

You can put a bit of money into your bank account in the same country where your (foreign) property and mortgage are, just to build yourself a buffer. So you could pay your Euro mortgage there for a few months even if the property is vacant, or to cover the shortfall between your Euro rental income and Euro mortgage payments, if such a shortfall were to happen.

 

[Melvin001]

If you are looking for any foreign investment then the best way is to search for the options available for you online. Mexico could prove to be the best option to look for when it comes to investment in various trade activities available there to help you reap benefits in the future.