Could Multi-Currency Mortgages Provide All The Answers?

By: Jemma Tipping

A specialist banking group has reported that some of its wealthier clients are seeking different kinds of mortgage loans. Investec has seen many of its high net worth clients looking into its multi-currency mortgage.

This is a risky product but it allows for a certain amount of flexibility, the loan is secured against a UK property but can be denominated in a range of varying currencies, such a Sterling, US Dollars, Euros, Swiss Francs and Japanese Yen. Borrowers can benefit from the lower interest rates, thus reducing the outstanding sum on the mortgage by switching the funds between difference currencies as the values of each rise and fall.

The turbulent market 2008 has seen so far may be the perfect time for investors to choose their mortgages very carefully, options such as this allow borrowers to keep their money safer than it may be tied into the UK property market. This is good news for advisers, brokers and mortgage lead companies who are likely to see money continuing to go into mortgages if a wider range of mortgage options are available.

HSBC recently launched a multi-currency mortgage called 766, it gives customers access to three month fixed term deposits offering rates of interest in Sterling, US Dollars and Euros.

HSBC's deal pays 7% on deposits in Sterling and 6% each on US Dollars and Euros, the offer is currently available until the end of March, and to take it up customers need to open a Premier Bank account with the company and have £60,000.

Having a Premier Bank account with HSBC will get you a dedicated relationship manager who will deal with any questions or problems, it will also give you exclusive access to 250 Premier centres around the world and access to your accounts at any time of the day or night.

The 766 account will also provide fee-free international money transfers over the internet and financial guidance on tax, property, investments and pensions.

Alexander Associated Group (AAG) has said that investors would be wise to look into multi-currency mortgages to avoid the damaging effects of the falling UK property market. The financial management company believes that multi-currency loans can reduce mortgage debts by 5% per year, although single currency mortgages can prove beneficial in some cases.

Similarly to all investments, these deals should be looked at from a long-term perspective. AAG's CEO, David Alexander said: "You would hope over a period of 25 years that you would clear your whole mortgage if you're managing it via a multi-currency mortgage.

"It's just like any other type of fund: it's a currency fund, and you need a currency manager to move it from one currency to another, to where he perceives the likelihood of sterling strengthening against the other currency.

"What you have to do is understand that it's a long-term, not short-term investment - just as a mortgage is a long-term debt. And over the long term you should always do very well," Mr Alexander finished by saying.

Consumers must however be aware that there are serious risks involved in investing the large sums required into multi-currency mortgages as the level of return seen is reliant on the interest rates in different countries, which no one can predict, especially in today's uncertain market.

Mortgage specialist, James Cotton, who works for London & Country, said: "There is a danger in getting a foreign currency mortgage for interest rate purpose reasons only. If you look at US interest rates, they are currently above UK Base Rates and stand at 5.29 per cent, whereas in 2001 they where cheap as chips at 1 per cent. However, the main risk comes from having a different currency mortgage to that of your income as there is an exchange rate risk. Luckily for people holding mortgages in US dollars, the currency has recently depreciated against the sterling."

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