Potential rewards of a foreign currency mortgage
One advantage of a foreign currency mortgage may be obvious - the opportunity to borrow money at a lower rate of interest. This can be achieved by choosing a currency that has a lower lending rate of interest than UK sterling.

In the UK a £250,000 Interest Only mortgage with a pay rate of 4.5 percent would equate to monthly interest repayments of £937.50. If you transferred the borrowing into a US Dollar mortgage, for instance, at a rate of 2 percent, your interest payments would reduce to £416.67 saving £520.83 a month.

More importantly, if the currency markets work in your favour, there is scope for further savings to arise. If sterling subsequently increases in value against the currency in which you took the loan, you will need to spend fewer pounds to buy the same amount of foreign currency you initially borrowed. This means that, in real terms, your mortgage debt has decreased and so will your monthly interest payments if interest rates remain the same.

Foreign currency mortgage – the inherent risks
As previously mentioned, foreign exchange markets can be volatile. Just as the value of sterling can go up against the foreign currency of your choice, it can also go down. If the worst happens and sterling deteriorates against the currency in which your mortgage has been arranged you will find your monthly repayments and the sterling equivalent debt rising.

Foreign exchange movements can be sudden and substantial. Clients should only consider taking out a foreign currency mortgage if they are able and prepared to tolerate increases in their monthly repayment and capital debt.

You can borrow up to 55% of the property value or purchase price; whichever is lower. This conservative loan to value ratio protects the lender against sizeable currency swings and ensures that the possession value of the property in sterling will almost certainly be sufficient to repay the currency mortgage debt.