9.9% of mortgage borrowers Eurozone 2.46%
raise the money they need Switzerland 1.03%
to buy their home in pounds Japanese Yen 0.12%
sterling and pay the prevailing
UK based interest rate. But it (Source: 3 month Money Market
does not have to be that Rates, Financial Times, 9/12/05)
way........
Whilst by its' own historical But don't expect to borrow money
standards, the UK's domestic for your mortgage at these 3
interest rates are low, they are month Money market rates. You
still significantly higher than will have to pay a premium for
in the Eurozone, America, borrowing in an overseas
Switzerland and indeed, Japan. currency. Nevertheless, if
Therefore, you can currently interest rates remained as they
borrow the money you need in are now, there will still be
Euros, $ dollars, Swiss Francs or significant interest rate savings
Yen, secure the debt against your to be made.
house in the UK and pay a much
lower rate of interest. So why are less than 1% of UK
domestic mortgages taken out in
The following 3 month money overseas currencies? The answer:
market interest rates illustrate there are extra risks.
the extent to which UK interest
rates are ahead of other parts of Interest rates could buck
the world: historical trends and narrow the
gap between sterling based rates
Sterling "£ 4.64% and the rates for the currency in
which the mortgage has been
US $ 4.48% borrowed. This would reduce the
interest rate saving and indeed, against the currency you
at some stage, could make the borrowed. In other words you have
interest rate more expensive than converted your mortgage and what
for a standard "£sterling is probably your biggest personal
mortgage. liability, into a currency
speculation. And secured your
But by far the biggest risk lies' home against it! You could win
in changes in exchange rates. If but it's not for the faint at
you have borrowed in say, Yen, heart!
you eventually have to repay the
loan in Yen. That would be fine Another point to be aware of is
if the Yen/Sterling exchange that you'll need a deposit of at
rates were frozen together - but least 20% for your house purchase
they aren't. in order to qualify for a foreign
currency mortgage.
If sterling strengthened against
the Yen, then you would have to Incidentally, there is now a
convert less sterling back into second option. You can take out a
yen to repay the loan than the mortgage in "£sterling and have
sterling value of the money you the interest rate you pay linked
initially borrowed. That would be to a foreign interest rate.
great, an interest rate saving Whilst you avoid the currency
and pay back less than you exposure risk, you are still
borrowed. But if sterling fell taking gamble that the overseas
against the Yen the reverse interest rate plus the interest
happens - you end up paying back rate premium you'll have to pay,
more capital than you borrowed. will remain lower than the UK's
So in this context, an overseas domestic interest rates. These
mortgage becomes a currency bet types of mortgage typically have
that sterling will not fall a 5 year tie in clause.
Therefore, you'll have a hefty interest rate has not changed in
penalty to pay if you want to pay 5 years.
it off early, although the
mortgage can usually be moved to Nevertheless, part of the wording
another property. For some that for a regulated investment
represents an acceptable risk, warning comes to mind ..... past
especially if the mortgage is performance should not be
linked to the Swiss Franc construed as a guarantee of
interest rate which has been future performance ......
astonishingly low and stable over
past years. For example, the You pays your money and you takes
interest rates in Switzerland your chance.
have not moved above 1% in the
last 4 years and the Eurozone
About the Author:
Michael writes for Brokers Online who offer life insurance quotes and most UK financial services including info on mortgage rates
Source: www.isnare.com
