Borrowers prepared to take a high-risk approach to cutting their monthly mortgage repayments could consider switching to a foreign currency loan.
Exchanging information: the opportunity is there to save huge amounts on mortgage repayments - but there is also a significant risk of wiping out savings at a stroke These specialist mortgages are aimed at high earners who are willing to ride exchange rate fluctuations to secure a foreign currency loan against their UK property. But be warned, you could get your fingers badly burned if the currency swings the wrong way, so these loans are not for the faint-hearted.
And the current turmoil in money markets has shaken the confidence of many investors who chose the foreign currency route to lower repayments.
Mike Boles, director of Savills Private Finance, which deals in foreign currency mortgages, says: "A number of people have faced a reality check as currencies have not behaved as well recently as in previous years. Some professionals and private individuals got it wrong, so people must fully understand the risks." The appeal of these mortgages lies in the low overseas interest rates to which borrowers have access. Lower rates mean lower mortgage repayments.
Several private banks and brokers offer mortgages in foreign currencies, where your repayments cover only the interest and the aim is for foreign-exchange movements to cut the value of your debt. But these loans are really available only to those borrowing above a certain level. And if you need the security of knowing what your monthly repayments will be, they aren't for you.
The minimum loan size tends to be at least £250,000 and sometimes £500,000, and providers require borrowers to have significant amounts of equity in their property - typically about 50 per cent. Investec Private Bank offers a foreign currency mortgage service, but restricts it to people borrowing at least £1million, and insists that customers have experience of trading in the market. ECU Group, the currency mortgage manager, also stipulates that borrowers have an income of more than £100,000 a year.
Experts say borrowers should consider a foreign currency mortgage only if they can afford to take a 15 per cent loss - or increase in the size of their debt - due to currency volatility.
Cormac Naughten, head of private clients at ECU Group, says: "Anyone for whom a 15 per cent increase in the size of their loan would materially affect their standard of living or the viability of their property investment shouldn't use this facility."
Trading in foreign currencies is not suitable for everyone and a client must ensure that they fully understand the risks involved before proceeding. A client should consult their financial adviser if they have any doubts about their suitability or the risks involved. Foreign exchange movements can be sudden and substantial. At no stage should a client expose themselves to the high risks of foreign currency trading if they are not able to afford the potential losses that could result from sizeable adverse currency movements. Past performance is not a reliable indicator of future performance.
Please note that for compliance purposes telephone calls may be recorded.
Specific additional risks for our currency management products are as follows:
Private client multi-currency mortgages
a) At no stage should a client be exposed to the high risks of foreign currency borrowings if they are unable to afford the potential losses that could result from adverse currency movements and the higher interest costs that would arise from having a larger loan.
b) A client’s lender will not tolerate an increase in the GBP value of a client’s loan above a predetermined level as a result of currency losses. The lender will agree a “Conversion Limit” with the client before a client takes out an ECU managed multi-currency loan. If the loan reaches or breaches its “Conversion Limit”, the lender may exercise its right, but not its obligation, to convert the loan back into GBP. However, a loan may be converted back into GBP at a worse level than the agreed Conversion Limit. This would mean that a client’s loan would increase by more than it would if it had been converted at the agreed Conversion Limit. Converting a loan back into GBP may result in a permanent increase in the GBP value of a client’s loan and the associated GBP interest costs.
c) The FSA risk warning is “Your home may be repossessed if you do not keep up repayments on a mortgage”.
Corporate loan management
a) At no stage should a client be exposed to the high risks of foreign currency borrowings if they are unable to afford the potential losses that could result from adverse currency movements and the higher interest costs that would arise from having a larger loan.
b) A client should be aware that their lender may not tolerate an increase in the base currency value of a loan if it exceeds a certain level and will have the right to convert the loan back into the base-currency.
Managed FX accounts
a) A Managed FX account is a margin account which is not suitable for everyone. A client must ensure that they fully understand the additional risks involved in margin trading.
b) A client should be aware that their lender will require additional margin to be paid on demand and will have the right to close any open positions if this additional margin is not promptly paid.
c) As with all margined products it is possible to incur significant losses and to lose more than the margin in the account at any one time.
The UK Regulatory System
The ECU Group plc ("ECU") is authorised and regulated by the Financial Services Authority.
In respect of managing physical liabilities in foreign currencies, ECU trades the foreign exchange markets on a spot basis and issues switch instructions to lending banks on a spot basis. Neither of these activities is currently regulated by the Financial Services & Markets Act 2000 as they meet the "Commercial Purposes" test. Therefore you will not benefit from the protection of the Financial Services and Markets Act 2000.
However, if ECU instructs the Lender, or any prime broker or counterparty with whom ECU effects foreign exchange transactions, to conduct a switch by way of effecting an “option” or “futures” transaction for the Client’s account, such transactions may be considered to be an “investment of a specified kind” under the Financial Services and Markets Act 2000. Consequently, both the execution process provided by the Lender, or any prime broker or counterparty with whom ECU effects foreign exchange transactions, and the currency management services provided by ECU, as envisaged under this Agreement, may be considered to be regulated activities. In such instances, the Client may be required to sign additional risk warnings and the rules for the protection of investors under the Financial Services and Markets Act 2000 will apply.
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The provision of the information in this web site does not constitute an offer of securities to any person in the United States or to any U.S. Person as such term is defined under the Securities Act of 1933, as amended. The information contained in this site about ECU Group and/or any of its affiliates is not directed to any person in the United States. Funds referred to herein are neither registered under the Securities Act 1933 of the USA, nor are they registered under the Investment Company Act of 1940. Consequently, they cannot be offered for sale or be sold in the USA, its territories, possessions or protectorates under its jurisdiction, nor to nationals, citizens or residents in any of those areas.
Other Important information
This website is maintained by ECU and is being issued inside and outside the United Kingdom by ECU for informational purposes only. It is not to be construed as an offer to buy or sell or a solicitation of an offer to buy or sell any investments or financial instruments or to participate in any particular trading strategy in any jurisdiction in which such an offer or solicitation would violate applicable laws or regulations. ECU may not respond to requests for information or further assistance if, in the opinion of ECU, such action might be illegal or contravene any rule or regulation of any jurisdiction.
The views and foreign exchange and interest rate information in this website are based upon information from sources which we believe to be reliable but they are not guaranteed as to their accuracy or completeness. Expressions of opinion herein are subject to change without notice. Any contractual obligation between ECU and its clients will only be on the basis of undertakings contained in an ECU client agreement executed by both ECU and the client, as may be amended from time to time by ECU, and which may vary from any information contained herein. Products and services may be subject to material changes at any time from the information herein. ECU aims to ensure that all information herein is accurate at time of printing, but does not accept any responsibility for its accuracy.
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Borrowers prepared to take a high-risk approach to cutting their monthly mortgage repayments could consider switching to a foreign currency loan. 
