People who own property in countries at the heart of the euro sovereign debt crisis are being warned to review their euro-denominated mortgages ahead of a possible break-up of the single currency.
Experts claim countries that abandon the euro will see house prices collapse and some homeowners left with a euro mortgage that far outweighs their property's value in the new currency.
Specialist overseas mortgages advisers say a country leaving the euro will see its replacement fall between 40 and 50 per cent against the euro, causing "financial catastrophe" for foreign homeowners.
If Greece were to exit and revert to the drachma mortgage, broker Dominik Lipnicki of Your Mortgage Decisions says the overnight fall in the value of people's homes would push "people to posting their keys through the letter box".
Some of his clients have already switched euro mortgages into sterling . "Some are 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," he says.
But Clare Nessling, a director at overseas mortgage specialist Conti, explains that if the property has been financed with a local currency mortgage from a local lender, it should help insulate borrowers.
A fall in the currency's value would mean the value of mortgage payments falls in line with the value of the property and the value of the mortgage balance, leaving borrowers no worse off.
"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," Ms Nessling says. "That advice would remain unchanged even if the country in question leaves the euro."
Estimates suggest there are around 200,000 Britons with euro mortgages on properties in eurozone countries, but Kevin Macadam of Overseas Mortgage Broker says it's important not to panic. "People most at risk are those who have to sell during the period of break-up," he says. "No one really knows what may happen. But the vast majority of people are best off with a mortgage in the same currency as the country the property is in."
Borrowers worried they could be affected should speak to their lender to review their terms and conditions and speak to a specialist adviser to get a clear idea of what options are available.
Miranda John, an international mortgage manager at SPF Private Clients, says depending on the location of the property borrowers could look to replace the existing debt with a local currency mortgage. "There are still lenders who will do this but borrowers may need an international broker to help them as banks are constantly changing their criteria," she adds. "By and large, local lenders will not offer a sterling loan on a property overseas."
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