Salar posted on August 23, 2008 09:28
Foreign currency mortgage is nothing but a mortgage deal where you take loan in a different currency other than GBP. Obviously this is for UK buyers where it is mostly used for a couple of purposes namely purchasing property in a foreign country or mortgaging your property in the UK with loan issued in a foreign currency enjoying lower interest rates than those in GBP.
Back in 80s this was very popular due to very high UK interest rates, However, now if you are thinking of mortgaging your property in the UK with foreign currency you must think twice before taking such a step about the risks involved in this kind of transaction. Lenders who offer such kind of mortgages are very few in number and your loan size need to be at least £250,000. In addition, your income should also be £100,000 per annum. Finally the differentials is not there. Back in 80s the UK rates hit 15% whilst some interest rates around the world like German Rate were about 3%.
Now days, the main market of foreign currency mortgages in the UK is UK citizens purchasing property abroad. The UK banks are however, reluctant in to lend for overseas property directly. In most such cases, you may find your bank has a foreign subsidiary or in some case your building society may have one that provides foreign currency mortgage on property in a different country and place of your choice.
Today unlike the situations existing back in 80s, the loan terms of foreign currency mortgages are not so attractive than UK mortgages. You will require a deposit of 20-35% of the value of your property to have your loan-to-value ratio fluctuate between 65-80%. Many UK buyers extend their mortgage in the UK to increase the deposit and then proceed to take a foreign currency mortgage on the balance. You have to repay overseas loan in a span of 15-20 years rather than 25 years which is the case in domestic loans. You must take extra precautions while mortgaging your property abroad as it is not monitored by the Financial Services Authority (FSA), and therefore make deals only with reputable brokers or lenders. Even though rates of interest are lower compared to those abroad, you must be aware of the fact that you can be exposed to currency risk. It is advisable to seek financial advice in foreign currency mortgage.