What happens to fixed rate loan if we go euro?

[scm5436]

Just wondering what would happen if a person/business took out a fixed rate loan/mortgage in sterling, and then the government dumped sterling for the Euro during the term?

Would the loan just convert to Euro's? Would the loan become invalid? Would the consumer/business automatically get the option to opt-out early without penalties?

An argument could be made that in the next few years we could go into a period of rapid inflation and higher interest rates, so a long term fix might be prudent. But that might not be so prudent if we then switched to the euro and got stuck with a long term euro loan that you can't get out of...

[oldeagleeye]

In answer to your question. Should we get into the Euro there will be a process called convergence when the exchange rate will be fixed. On the face of it then there will be little change if any to mortgage payments. The only way this convergence can take place however is if the government allow the pound to fall.

I predicted this would happen over 6 months ago and it now makes for an extremely attractive option for the government because they will in effect be de-valuing the £1 note. We had what was a smaller stealth devaluation when we joined the Common Market and went decimal. A 25% devaluation now would virtually wipe out the governments borrowings and you can bet a pound to a penny the treasury are already working on it.

Then they will be gone forever and the government spin doctors have the perfect excuse for getting rid of it. After all WHO is going to want to see Camilla Parkers craggy face on our dosh. Trouble is it will probably be a grinning Blair as President of the European Parliament. We just can't win - can we. Rob

[scm5436]

So during the period of 'convergance' we would still have the £?

How long would this convergance last, and what happens if the fixed loan extends beyond the convergance period?

[oldeagleeye]

It's been lasting ever since we joined the EE and who knows. If the ound had fallen to say 1.2 Euro it would probably have happend last week. I wouldn't worry too much if I were you. A bill would have to go through parliament and ratifying it could take a couple of years and lets not forget. Tradionally intrests rates in Europe are lower that in the UK.

[scm5436]

A bill would have to go through parliament and ratifying it could take a couple of years and lets not forget. Tradionally intrests rates in Europe are lower that in the UK. But I'm looking at a fixed deal of say 10 years or so. So if it took them another year to think about it, another year to have a vote (fat chance), another couple of years to ratify it, another couple of years to implement it then that's still going to only partway through the my loan.

And as you say, euro rates are traditionally lower - so if I took out a 10 year fixed rate loan @ 6% (just as a an example), that would be a good idea if I thought Sterling interest rates could rise significantly in the next 2-5 years (because of monatory inflation, and an attempt to stop the currency being destroyed). But it wouldn't be a good idea if we suddenly changed to the Euro where interest rates may not have shot up and I would be stuck in a crap deal that wasn't the one I agreed to in the first place (ie. a sterling loan).

That's why I need to underdstand the implications of a currency change in the middle of a fixed rate and fixed term loan. Someone must know - it happened to Europe when they all joined.

[oldeagleeye]

GET REAL POSTER. No-one has ever offered a 10 year fixed rate and if that did it would be high to cover thei backsides. Sorry buddy but your questions are getting stupid. I am gone.

[scm5436]

Really?

Took me about 30 seconds to find this example in google -

http://www.co-operativebank.co.uk/servlet/Satellite/1193206374759,CFSweb/Page/Bank-Mortgages

10 year fixed rate (5.69% fixed until 2019)
25 year fixed rate (6.69% fixed until 2033)

[oldeagleeye]

No-one has ever offered a 10 year fixed rate and if that did it would be high to cover thei backsides.

Read the reply again OP. That is almost double the tracker rate and there will be another interest rate t/morrow. It is and always has been a choice. Pay more for piece of mind on a fixed rate or go with the variable.

[scm5436]

Read the reply again OP. ok. I did. It says "No-one has ever offered a 10 year fixed rate". Which is complete nonsense. They've been freely available in the Uk for donkeys years, and in many other countries they are the norm.
It is and always has been a choice. Pay more for piece of mind on a fixed rate or go with the variable. Yes, I know how it works. But the situation has been complicated by the possibility that we will change to a completely new currency at a completely unknown conversion rate and a possibly quite different interest rate.

All I want to know is what would the implications be of this change to a long term fixed rate sterling loan. If you don't know the answer please just stop replying.