ECU IN THE MEDIA
The Telegraph - October 2005
It's a sterling chance to let currencies pay the home loan
It's a sterling chance to let currencies pay the home loan
Jennifer Hill Personal Finance Editor
When I started buying property in east London in 1996 to rent out, I was surrounded by people who told me it was ''too risky - don't get involved!'' My experience since then tells me that it was a good decision. Now I find the same situation happening again, this time with foreign or multi-currency mortgages.
It was at a dinner party that a private banker acquaintance told me about them. I had never heard of this type of mortgage, where your debt is no longer held in sterling but transferred into one or any number of currencies. Why? Well, bank base rates are lower in many other countries so monthly interest payments are lower, too.
But the real advantage - and risk - comes from speculation on global currency markets. A currency manager will move your debt in and out of a range of foreign currencies to exploit exchange rate fluctuations in the hope of reducing the sterling equivalent size of your debt. This is a risky form of speculation that may result in substantial losses.
While the risks are real enough, the aim is that the combined effect of lower interest payments and debt reduction should mean that your debt is reduced far more quickly.
Figures from ECU Group, the currency debt manager in charge of my debt, suggest that someone with an ECU managed £1 million multi-currency loan taken out in 1988 could have completely paid it off 15 years later.
Of course, there are risks. If the foreign currency your debt is denominated in weakens against the pound, you make money and your debt is reduced. But if the opposite happens, your debt increases. This is a real risk that should not be under-estimated by anyone who cannot afford the consequences.
For example, if the currency debt management company does not get it right and your debt increases by 15 per cent or 20 per cent, the lending bank may well pull the plug on the scheme. This would force you to re-convert the loan into sterling and leave you with a considerably bigger debt and if you can't keep up the payments your properties may be repossessed.
Even in the normal run of things, the currency markets can be very volatile so you have to be prepared to see your mortgage increase by as much as £10,000 in a day sometimes.
This can be extremely unnerving. Multi-currency mortgages are definitely not for the risk-averse and neither is there any pretending that they are cheap or available to everyone. You normally have to be earning £100,000-plus a year to be considered and looking to borrow at least £250,000. I went through Savills Private Finance, the mortgage broker, who put me in touch with Singer & Friedlander, a private bank, and ECU Group, the currency debt manager.
Each of these imposes substantial costs, not to mention the usual valuation, arrangement and solicitor's fees. All in all it cost me around £60,000 to set up my deal - but then I recouped that in a matter of months.
For and against
Positive
The possibility of reduction in debt while making interest-only payments
The reduction in debt is not out of taxed income.
Flexibility in drawing down funds.
Negative
Arrangement costs are substantial.
If the currency in which you borrow rises against sterling, the size of your debt will increase.
Your properties are at risk and may be repossessed.
telegraph.co.uk
Bryan Russell explains how a high-risk strategy can reap enormous rewards.
When I started buying property in east London in 1996 to rent out, I was surrounded by people who told me it was ''too risky - don't get involved!'' My experience since then tells me that it was a good decision. Now I find the same situation happening again, this time with foreign or multi-currency mortgages.
It was at a dinner party that a private banker acquaintance told me about them. I had never heard of this type of mortgage, where your debt is no longer held in sterling but transferred into one or any number of currencies. Why? Well, bank base rates are lower in many other countries so monthly interest payments are lower, too.
But the real advantage - and risk - comes from speculation on global currency markets. A currency manager will move your debt in and out of a range of foreign currencies to exploit exchange rate fluctuations in the hope of reducing the sterling equivalent size of your debt. This is a risky form of speculation that may result in substantial losses.
While the risks are real enough, the aim is that the combined effect of lower interest payments and debt reduction should mean that your debt is reduced far more quickly.
Figures from ECU Group, the currency debt manager in charge of my debt, suggest that someone with an ECU managed £1 million multi-currency loan taken out in 1988 could have completely paid it off 15 years later.
Of course, there are risks. If the foreign currency your debt is denominated in weakens against the pound, you make money and your debt is reduced. But if the opposite happens, your debt increases. This is a real risk that should not be under-estimated by anyone who cannot afford the consequences.
For example, if the currency debt management company does not get it right and your debt increases by 15 per cent or 20 per cent, the lending bank may well pull the plug on the scheme. This would force you to re-convert the loan into sterling and leave you with a considerably bigger debt and if you can't keep up the payments your properties may be repossessed.
Even in the normal run of things, the currency markets can be very volatile so you have to be prepared to see your mortgage increase by as much as £10,000 in a day sometimes.
This can be extremely unnerving. Multi-currency mortgages are definitely not for the risk-averse and neither is there any pretending that they are cheap or available to everyone. You normally have to be earning £100,000-plus a year to be considered and looking to borrow at least £250,000. I went through Savills Private Finance, the mortgage broker, who put me in touch with Singer & Friedlander, a private bank, and ECU Group, the currency debt manager.
Each of these imposes substantial costs, not to mention the usual valuation, arrangement and solicitor's fees. All in all it cost me around £60,000 to set up my deal - but then I recouped that in a matter of months.
For and against
Positive
The possibility of reduction in debt while making interest-only payments
The reduction in debt is not out of taxed income.
Flexibility in drawing down funds.
Negative
Arrangement costs are substantial.
If the currency in which you borrow rises against sterling, the size of your debt will increase.
Your properties are at risk and may be repossessed.
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