Dominik Lipnicki, director of Your Mortgage Decisions, said he has seen some clients already switch euro mortgages into sterling because the chance of the eurozonecollapsing is so strong.
He said: “Some clients are now opting to convert the debt back into sterling, while this can work for a few it does in reality crystallise their losses. Many are hanging in there hoping that things will improve.”
European leaders are meeting in Brussels today to hammer out plans to save the ailing single currency.
Earlier this week France and Germany agreed to seek tighter fiscal union for euro area countries to enforce budgetary discipline with automatic penalties for nations that breach the rules.
Lipnicki said if the euro collapses banks would have to revalue the affected mortgages to their previous currencies which would have “near catastrophic consequences for many.”
Clare Nessling, director at overseas mortgage specialist Conti, said a euro collapse would most affect borrowers whose income is in sterling but are paying a euro mortgage.
She said: “It's extremely difficult to predict what may happen with the euro but if a specific country leaves the single currency, it's likely that the mortgage for a property there (if denominated in euro from a local lender) would convert to the country's new currency.
“The intrinsic value of the property whatever currency it's denominated in, does not alter. Relative to sterling however, any subsequent devaluation of the new currency would reduce the cost (in sterling) of redeeming the mortgage.”
Nessling added that the most important thing for clients was to ensure their income and mortgage were in the same currency.
She said: "If someone is renting out their overseas home and receiving income in the local currency, that's one of the reasons why a euro mortgage has been recommended.
“That advice would remain unchanged even if the country in question leaves the euro."
GREECE
Ray Boulger, senior technical director at John Charcol, said borrowers who own a Greek property but have a euro mortgage with a bank in a stronger euro area country could be badly hit if Greece exits the euro.
He said: “If you have a Greek house with euro mortgage with a Greek bank then you’re mitigating your exposure to currency changes because even if the Drachma devalues by 50% and the property value plummets, the value of your mortgage falls and so do the payments.
“It gets more difficult if you have a mortgage on that Greek property in euros with a European bank that’s not a Greek bank. Then you could end up deep in negative equity if the property value falls in Drachmas but the mortgage balance stays relatively unchanged in euros.”
DON’T PANIC
Kevin Macadam, principal at adviser Overseas Mortgage Broker, said it was important brokers stop clients from panicking.
He said brokers should review their client files and be sure about why a euro mortgage was advised.
He added: “If a client’s circumstances have changed then there may be a need to address this, although it may now be the case that nothing can be done anyway.”
Yesterday the French President Nicolas Sarkozy said Europe was facing an “extraordinarily dangerous situation”.
The European Central Bank cut interest rates back to their historic low of 1% yesterday.
And earlier this week ratings agency Standard & Poor's put all eurozone nations on credit watch "with negative implications".
S&P said: “Systemic stresses in the eurozone have risen in recent weeks to the extent that they now put downward pressure on the credit standing of the eurozone as a whole.”
