Foreign Currency Mortgages
Are you looking to buy a property abroad, or perhaps you are an overseas investor in the UK property market? Either way, if you want to own property overseas, you may be considering a foreign currency mortgage.
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Foreign currency mortgages have an added level of complexity to loans in your home currency, so using a professional mortgage broker to navigate your options means you can borrow with confidence.
What is a foreign currency mortgage?
Foreign currency mortgages are loans taken in an alternative currency to the usual currency of your income.
For example, if you are paid in the UK in pounds sterling, you can apply for a mortgage to buy property abroad in another currency.
How do foreign currency mortgages work?
If you are a UK investor buying property abroad, the foreign currency mortgage is taken out in the chosen currency and interest is charged based on the prevailing rate in the country where you are buying, which may be a lower interest rate than in the UK.
Mortgage repayments are made in pounds, then converted into overseas currency on the foreign exchange market to pay down the loan. The value of your mortgage balance will also be in pounds.
What currencies are accepted for UK mortgages?
Common foreign currencies include the Swiss franc, the Euro, US dollars and Japanese Yen although you may also be able to get foreign currency mortgages in other currencies such as Australian or Canadian dollars.
Who can get a foreign currency mortgage?
Many lenders will only lend money to borrowers in the currency in which they are paid but there are other lenders who will offer foreign currency mortgages. There are fewer lenders who are prepared to loan to applicants who are self-employed and the country where you work might also mean you are restricted on which lenders will accept your application.
Eligibility may also be affected by which bank you have your income paid into. For example, an overseas bank that also has UK branches is seen as less risky than one which does not have a UK presence if you are a foreign investor looking to take a GBP loan.
Some UK lenders offer foreign currency mortgages to ex-pats looking to buy property in the Eurozone and others will offer dollar mortgages for people who want to invest further afield.
Foreign currency mortgage application process
To apply for a foreign currency mortgage, you will need to pass all the usual lending checks to ensure you can afford the repayments and can repay the debt even if interest rates rise. This is known as stress testing to help avoid the situation where you can’t meet your monthly commitment.
The first step in obtaining a foreign mortgage is to speak to a specialist mortgage broker with experience in sourcing these types of mortgages. It can be harder to find the right product or lender for your specific circumstances so using a broker is likely to make the process easier and quicker.
For a foreign currency mortgage, you’ll need evidence of all foreign incomes, how you are paid and information about your terms and conditions of employment or your accounts if you are self-employed. Allow time for these documents to be translated into English if you are applying for a mortgage to buy property in the UK. Transferring large sums of money can take time and may incur exchange fees so be prepared to factor these complexities into your borrowing timeline and budget.
What is a managed currency mortgage?
A managed currency mortgage is a product where the provider aims to 'beat the currency markets'; in other words, the lending will be moved between different currencies depending on the exchange. This approach may have serious financial implications and could lead to a permanent increase in your borrowing so borrowers are usually those who fully understand the currency markets. For some clients, a managed currency product may offer tax efficiencies.
What if I have different foreign income sources?
Different foreign income sources may be acceptable, but you will need to provide clear evidence for each source. Income could include earned foreign income or could come from overseas assets such as property or other investments such as pensions or shares.
How do exchange rates affect foreign currency mortgages?
The exchange rate moves up and down, so when the rate is moving against you, the value of your mortgage payment will increase. However, there are potential benefits if the exchange rate moves in your favour, reducing the amount of interest you have to pay.
Can you get a foreign interest-only mortgage?
Yes, it may be possible to secure an interest-only mortgage in foreign currencies by approaching a mortgage broker who is knowledgeable about these types of products.
Can you get a foreign currency mortgage for a property in Northern Ireland?
Yes, as Northern Ireland is part of the United Kingdom, there are lenders who will offer a foreign mortgage for a property there.
Get the right foreign currency mortgage deal for you with Simmonds Mortgage Services
A foreign currency mortgage could offer potential benefits if the currency you are looking to borrow offers lower interest rates than your home currency. Call us on 01184 693037 to discuss your circumstances to see if this type of loan could be suitable.