What are Foreign Currency Mortgages?
The Mortgage Credit Directive defines these as:
- Mortgages denominated in a currency other than that in which the customer receives the incomes or holds the assets in.
- Mortgages denominated in a currency other than the currency of where the consumer is resident.
The interest rate charged is based on the interest rates applicable to the currency in which the mortgage is denominated, and not the rates applicable to the borrowers’ own domestic currency.
Borrowers should bear in mind that ultimately they have a liability to repay the mortgage in another currency and currency exchange rates constantly change. This means that if the borrower’s domestic currency was to strengthen against the currency in which the mortgage is denominated, then it would cost the borrower less in domestic currency to fully repay the mortgage. Therefore, in effect, the borrower makes a capital saving, equally if currency was to weaken, then the opposite is true.
Borrowers can appoint a specialist currency manager to reduce risk exposure – this manager, through a limited power of attorney, is able to switch their mortgage between different currencies as they change in value.
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Regulations require firms to ensure that either:
- The customer has the right to convert the foreign currency money into an alternative currency under special conditions.
- There are arrangements in place to limit the exchange risk-rate to which the customer is exposed.
Lenders on our panel that consider
foreign currency mortgages
Lenders that consider foreign currency mortgages are required to monitor their clients’ risk exposure and notify them if it deviates adversely by 20% or more from the exchange rate at the point that the mortgage was completed.
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