Mortage EURO or CHF for main residence in France

Hi all

We are living in Geneva with my wife and we are envisioning to build and or buy an an house in France close to Switzerland in the next +/- 12 months.

This house will be our main residence and our revenue would reamin in CHF.

With this in mind I was wondering what is the best option for the loan:

  • should we opt for a loan in EUR or in CHF and why?
  • is there any particular advantages or disadvantages of choising a bank in France or in Switzerland for the mortage (I understand for instance that my bank in CH, the BCGE can loan in both currencies for a purchase in france) ?
  • in case the rates are falling in the future, after we bought the house, it possible as a general principle, to renegociate loan rates no matter the currency (EUR or CHF) and the bank (FR and CHF) that we choose

Beyond your answers on these questions, do not hesitate to share any recommendations that you might have on this topic :slight_smile:

Thank you all !

If you don’t want to gamble with forex on your most expensive investment and Home, keep it with the currency of the country you will build/buy it.

Major life event (divorce, france taxation update, carrier opportunity overseas, not able to find work in Switzerland as cross-border) could force you to sell your house without notice or to rent it in euros.

You won’t be able to time the rate when you’ll need to sell it Therefor it’s best to be refund a mortgage in euro.

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Well given income is in Francs it will be nearly impossible to avoid currency exposure altogether - a euro mortgage will be harder to service should the currency strengthen. Still seems a more contained risk than your scenario though.

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I would argue for CHF from 2 angles:

  • interest rates of SNB tend to be lower than from EUR central banks
  • assuming CHF is the main currency of your salaries, it would expose you less to forex issues with a strengthening EUR.

On the other hand, you could speculate on a higher EUR inflation rate (and weakening EUR) and benefit from a purchasing power loss of any EUR denominated debt.

I remember that some Polish and Icelandic people once hade huge issues with CHF denominated debt in their respective countries. Better to avoid that.

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Is it even possible for you to get a mortgage in €? Usually swiss banks will not finance property abroad. And french banks; I doubt they will give you a CHF mortgage.

It’s an interesting question.

Not considering what banks actually to support, what worries you more? Lose your equity OR face higher rates in % of your income?

These examples from Poland were different, since those buyers didn’t have a CHF income. When CHF appreciated 20% in a single day, they lost their equity AND faced higher rates.

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My own view, to minimise risk I think there are 2 schools of thought for people working in a cross-border area like Geneva. Match the loan to your income (CHF) or to the currency of the asset (Euros).

Arguments in favour of CHF would be:

  1. You expect to remain employed in Switzerland long term and paid in CHF

  2. The house will be attractive as a primary residence to other buyers working in Geneva when you come to sell. If so the price should be somewhat linked to the Geneva economy over the long term.

  3. The house will be your permanent home for decades i.e. no intent to sell in 5 or 10 years time. Meaning less chance of getting caught out by mid term fluctuations in FX

On the other hand if you buy a house in France 1 hour’s drive away or with low quality that won’t appeal to someone working in Geneva then I would take the loan in Euro

Be careful not to decide on the basis of lower central bank interest rates in CHF alone. The market expects Euro to decline vs. CHF to the point that interest rate differential gets off-set. Google “Interest Rate Parity” if you want to know the theory and “EURCHF futures” to see the rates the market expects.

Couple of real examples:

  • colleagues working in Geneva buying houses on the border ~15 years ago for (say) 1 Millon Euro /1.5M CHF with CHF loans. I doubt their houses are worth 1.6M Euros today but they enjoyed their own homes and had low monthly payments

  • Bad example: colleague working in Geneva bought a nice house ~60 mins drive away with pool and a large CHF mortgage fixed at EURCHF 1.5. Probably overpaid. Ended up with a large debt and negative equity. 2hrs per day commute, poor performance reviews at work whilst being paid above market rate and over 50 years old meaning few opportunities to change (not sure what happened in the end)

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Are we sure EUR has higher correlation than CHF to the value of a house near the Swiss border? I mean the EUR is also influenced by faraway places like Berlin, Lisbon, Helsinki, or Athens.

Because if not, the risk of the EUR mortgage being called by the bank could actually be higher. It is probably important to know what the bank uses to calculate the value of this house.

Also currencies can have rather strange patterns, different from other currencies. See GOLD - CHF correlation for example.

On the other hand interest parity should make any difference disappear over longer periods.

Yes, I have checked in my current banks in both countries (BCGE in Switzerland and Banque de Savoie in France). They offer loans in both currencies

Thanks for your interesting insights.

Well in our case what we are sure is to buy very closed to the border (Pays de Gex) so the market will remain very dependant with Switzerland.
On the other hand what we are not sure that we will stay forever in the area as a consequence we might have to sell the house at a certain point in a couple of years (I don’t know in 10 years maybe…)

So in 10 years your mortgage should not me fully refunded.
By selling the house, you will have euros to convert by the notary bank at future rate of chf.
That will be the notary bank that will fix the (poor) exchange rate to your bank.
The amount maybe huge and adding a forex risk is unnecessary.

Personally, I’d have the loan in EUR.

  • The liability is matched with the housing asset
  • You do gamble on the FX rate, but this is spread over time and only impacts the quarterly payment (whereas FX on the whole loan can create a huge mis-match)
  • I’d take the gamble that EUR value will be inflated away in time
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I think it is odds on that CHF will continue to appreciate against EUR, USD and GBP over the long term. The underlying reasons causing the trend have not changed. In the mid-term it is likely there will continue to be bumps along the way same as always

So I would also lean towards EUR mortgage as a calculated risk if my monthly budget allows it. If the monthly charge is too high then I might go with CHF- to avoid risk of FX and interest hitting my budget at the same time

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To be re-confirmed but I think that if you take out an EUR Mortgage, you have a Tax Advantage over a CHF Mortgage. Reason beeing is that EUR Interest Rates are higher and you could hence deduct a higher Interest on your taxable income… but this is certainly to be re-confirmed as I had no first-hand experience here…

I thought about this too but as a French resident working in Geneva I guess most non-employment income is subject to French taxation. Interest on loans for principal residence are not deductible for French taxes. But I am not 100% certain.

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Hm, a mortgage in TRY would be optimal. Over 40% interest. You will never pay taxes again.:ok_hand:

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Hi Jeanch, I was in the same situation than you few years ago and there are so many parameters to consider, it’s not an easy question. Definitively I would say in CHF (but with a fixed exchange rate!) because the risk of change on a period of 20/30 years is too high. A lot of people bankrupted in the last 10 year because the change EUR/CHF was fluctuating too much. However you really need an expert because I don’t see one here in that conversation. Please ask to a real estate loan broker, you will find several just by searching on Google. And don’t rely too much on your 2 banks, they are not necessary the best banks to provide you with the best loan.
Greg

I was in this position. I took a CHF mortgage in the end.

The way I see it if the CHF depreciates against the euro you get an effective pay cut but your mortgage payments also reduce in EUR terms. You end up owning an asset worth more than the debt. Seems like a win.

By contrast if the CHF appreciates then your mortgage payments become more relative to the value of the asset (since it is priced in Eur). You could end up with more debt than the value of the asset seems like a loss but the effective pay rise on your salary compensates for the extra debt so I see this as quite a good hedge.

The only case where you really lose is where you take the debt in CHF then stop earning in Switzerland. In this case if the CHF appreciates you could end up with more debt than the value of the asset with no upside.

So I’d go CHF if you’re convinced you’ll work in Switzerland for most of the mortgage term

Well, it would be a loss if CHF is your base currency. Plus you run the following risks:

  • You‘d have to take that loss if you had to sell for any reason and pay back the mortgage
  • Your bank may issue a ‚margin call‘ since the value of your collateral no longer covers the debt

Given CHF has appreciated substantially since the Euro‘s inception this is a significant risk.

Yes agreed. The risks are a lot lower with a short repayment term and with higher confidence of not needing to sell.

I’m about 5 years into a 20 year mortgage. By this point i own more than half the house due to a bit of house price inflation, repayments and a fairly large deposit. I think a currency shift that would cause me any trouble would be extremely unlikely at this point. After 10 years even left so.

I think if you have reasonable certainty that you won’t need to sell for 5-10 years it’s not an unduly risky bet but obviously depends how likely you think simultaneous job losses and big currency swings are.