Borrowing in a foreign currency is often an option for real estate buyers seeking a mortgage at an interest rate lower than they could get in their domestic currency. While there has been some foreign currency borrowing by Spanish investors, this has been more limited. The attraction of a foreign currency loan depends largely on the interest rate differential. The favourite currency in recent years in many parts of the world has been the Japanese yen, which has consistently offered low interest rates. But interest rates in Spain over most of the past decade have been low, especially in real terms, and have on occasion been negative. Compared to some countries with higher interest rates, in Spain there has been less of an incentive to seek out foreign currency loans. Among foreign buyers in Spain, mortgages in foreign currencies are more common. Many buyers prefer to borrow in the same currency as their earnings in order to eliminate currency risk. Of course for the large number of buyers of Spanish property from the eurozone, such as Germany or the Netherlands, this means that they will have euro mortgages. For the British this may not be the case, and many have taken out sterling mortgages to pay for their homes in Spain. Currency risk will be a significant factor for anyone from outside the eurozone who invests in Spanish real estate. The current strength of the euro makes investment in Spain expensive for those coming from economies with weaker currencies, even if the market has already come off its peaks. And without a currency hedge, this may be a risky business. Any decision to invest in Spain will depend on the view taken of the euro. Given that most observers believe that real estate values in Spain will be more attractive next year, it would be wise to wait. Views on the euro are divided. Much will depend on the performance of the United States and eurozone economies, and the decisions of the respective central banks. A weaker euro in the coming year, combined with lower real estate values would make Spain a more attractive prospect for many foreign investors.
