Foreign Currency Mortgage
A foreign currency mortgage is a mortgage where the loan is drawn down in another currency rather than in Sterling. Foreign currency mortgages may be used for one of two purposes: buying property abroad or mortgaging your home in the UK with a loan denominated in a foreign currency.
Anyone borrowing funds in a foreign currency to mortgage property in the UK should think very carefully about the currency risk involved. Such foreign mortgages tend to have a minimum loan size of £250,000 and most of the relatively small number of lenders that offer such mortgages require the main earner's income to be at least £100,000 per annum.
However, by far the biggest market for foreign currency mortgages in the UK is among UK nationals buying property abroad. UK banks tend not to lend directly on overseas properties. However, you may find that your bank or building society has a foreign subsidiary that can offer you a foreign mortgage on property in the country of your choice.
The terms on which foreign currency mortgages are generally offered are less attractive to borrowers than UK mortgages. Typical loan-to-value ratios vary from 65-80%, meaning you would need a deposit of between 20-35% of the value of the property. It is common for UK buyers to raise a deposit by extending their UK mortgage and then take a foreign currency mortgage for the balance.
Overseas mortgage repayment periods are shorter than those for UK loans, usually 15-20 years, rather than 25 years. Most foreign currency mortgages are offered to borrowers as repayment loans.
Foreign currency mortgages require careful consideration. First of all, overseas mortgages on property outside the UK are not regulated by the Financial Services Authority (FSA) , so make sure you are dealing with a reputable broker / lender.
While you may be able to benefit from a lower interest rate abroad when interest rates at home are high, be aware you also expose yourself to currency risk. In some cases in the past borrowers have found their mortgage debt has actually increased as a result of adverse currency movements. You must seek independent financial advice if you are considering taking out a foreign currency mortgage.