Foreign Currency
Taking out a foreign currency mortgage does not mean that the mortgage has to be in a single currency denomination, indeed, depending on currency movements, the loan can be transferred between a number of different currencies.
This is known as a multi currency mortgage with a multi currency switching facility, which allows you to switch between the currency the loan is held and hence the interest rate which is charged. This may be more effective in reducing your risk elements and increasing your monetary gain if used to good effect.
Tara Finance has an existing arrangement with the UK’s only debt currency switching specialist. Typically the original loan is offered through an off-shore private bank in Jersey with which Tara Finance also holds a close relationship. The currency specialist watches currency fluctuations 24/7 to enable the swift transference of funds from one currency to another... i.e. Should your debt be in $US dollars and the USD exchange rate weakened against the £pound this would reduce the capital debt in sterling, without having made any capital payment off the loan whatsoever. The original debt is taken out on an interest only basis.
This model can be used across a number of currencies, namely the Japanese Yen, Euro, Swiss Franc, Australian Dollar, US Dollar and Sterling. Another benefit to consider is the interest rate applied to the outstanding debt is that of the country/currency it’s in, plus the offshore bank's margin, generally 1.25-2% depending on loan size.
It is important to remember that this type of mortgage does carry with it the obvious risks, currency movements can fluctuate quickly and were they to move in the wrong direction could effectively increase the debt, which is why it is important to use the currency specialist rather than go it alone and attempt to watch markets yourself. The currency specialist will charge a management fee, the percentage of which will be based on the loan amount.
There are also certain criteria which need to be met, a broad outline of such directly below:
- Minimum Loan Size of £250,000 (this can be met through a portfolio of property residential loans, some commercial considered)
- Debt/Equity ratio must not exceed 65% of the value of your property
- Income multiples of 3 x principal earners income or 2.5 x joint (subject to a minimum of £100,000p/a for principal earner, can be confirmed by accountant)
- Must be able and prepared to tolerate sizeable adverse currency movements
- Terms up to 20 years
- All loans interest only
- The bank's spread over the London Inter-Bank Offered Rate (LIBOR) is typically between 1.25% and 2%
Clearly this type of mortgage is not for the faint hearted, but mortgagees do receive a monthly statement to keep them informed of current balances and any capital debt reduction which might have occured. Any potential client's attitude to risk will be assessed as there are emotional considerations.
Below is a graph demonstrating Past Performance:
The above chart illustrates the comparative gross performance in both capital and interest rate terms of a £1,000,000 interest only loan in sterling and a multi-currency loan managed by the currency specialist (interest being charged on both loans at 1.75% above the weekly closing 7 day inter-bank cost of funds applicable to the currency(ies) borrowed).
N.B. The gross interest rate saving used in the chart above is non-cumlative. The gross interest rate saving, cumulative of interest (at a rate of 0.5% below the inter-bank deposit rate) would increase the total profitability from £1,213,165 per £1m (121%) to £1,773,023 per £1m (177%).
CHANGES IN THE EXCHANGE RATE MAY INCREASE THE STERLING EQUIVALENT OF YOUR DEBT
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
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The guidance and/or advice contained within this website is subject to the UK regulatory regime and is therefore primarily targeted at consumers based in the UK.