Foreign Currency Mortgages

There are two main types of foreign currency mortgage. By far the most common is the one taken out on an overseas property. However, it is also possible to take out a foreign currency mortgage on a UK property.

So, instead of lending you money in sterling, a UK bank may advance you the mortgage in another currency, for example, Japanese Yen or US Dollars.

The way it works is that while the mortgage itself is converted into pounds, allowing you to buy your property in the UK, the actual value of the debt (two different things, if you like) remains in the denominated foreign currency and interest is charged on it in that currency.

The mortgage itself is then paid off by making monthly payments, as usual, in pounds sterling, which are converted into the chosen currency on the foreign exchange.

The main advantage of currency mortgages is that they enable the borrower to benefit from a lower interest rate than is available in the UK. Over the term of a mortgage, this can save tens of thousands of pounds, especially if, as is the case with some foreign currency mortgages, the mortgage debt is actively switched between currencies to take advantage of the lowest interest rates.

As a rule of thumb, foreign currency mortgages are favoured by higher net worth clients or more sophisticated borrowers who understand the mechanism and inherent risks of the currency markets.

After all, while the value of Sterling can go up against the currency your mortgage is being paid in, so it can go down, which can mean you pay considerably more each month on your monthly payments.

For more information on foreign currency mortgages, please call one of our specialist consultants on 0845 330 0809.