Currency Mortgage

Creating an asset out of a liability
In an age where investors are spending increasing amounts of time managing their investments, it is perhaps strange that the management of liabilities is an area that remains frequently overlooked.

A pound is a pound whether it has a plus or minus sign in front of it and that it should be professionally and skilfully managed whether it is an investment or a debt.

The objectives of our multi-currency debt management programme are:

• To reduce the size of your debt by borrowing in currencies which fall in value against sterling.
• To reduce the cost of servicing debt by borrowing in currencies which have a lower interest rate than sterling.

Since 1988, the specialist company we partner with, ECU, has striven to ally the potential of this dynamic market with a means of profiting from the management of debt. Their success may be measured by their performance. For UK clients, the combined benefits of debt reduction and cumulative interest savings since 1988 are now large enough not only to fully pay off any loans taken out in 1988 but also to have generated a considerable cash surplus. Clearly, any product that demonstrates a proven ability to turn a liability into an asset should be taken seriously. See data management chart below

Debt Management Performance Data
Audited from 1st November 1988 to 31st December 2007

Borrowing in foreign currencies

The basics
Interest Savings: There are significant variations in the interest rates applicable to loans denominated in different world currencies. For instance, over the past twenty years, the costs of servicing loans denominated in Swiss francs and Japanese yen have been some 40% to 75% lower than those applicable to loans in sterling. The cash flow benefits of compounding such savings over two decades will be readily apparent to any corporation or individual.

Capital Reduction of Debt: Debt reduction may also be considerable if the loan is denominated in currencies which then depreciate against sterling. All major currencies have fluctuated against one another over the years, thereby generating opportunities for debt reduction.

Single currency loans

The perils of single foreign currency loans
In recent years, many borrowers who adopted a single foreign currency loan, without the ability to switch into other currencies, have experienced a sizeable increase in their debt. In the nineteen eighties and nineties, this fate befell many UK borrowers who looked to escape double digit interest rates by taking out low cost foreign currency loans without adequately considering the exchange rate risks. Many such borrowers suffered heavy losses caused by the weakening of sterling against other currencies. This was particularly apparent during sterlings withdrawal from the Exchange Rate Mechanism in 1992, and there are even more dramatic examples.

Such events clearly demonstrate the dangers of being locked into inflexible lending arrangements. It is our opinion that single foreign currency loans are only justifiable if the borrower has a source of income or capital in the same foreign currency. Even in this context one must consider the implications of adverse fluctuations during the term of the loan if the banks security is valued in sterling (i.e. a UK property).

Why a multi currency loan
Effective risk management of a multi-currency loan facility helps to iron out the extreme peaks and troughs associated with major currency cycles, so as to make the risk/reward ratio more acceptable to borrowers.




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Your home may be repossessed if you do not keep up with repayments on your mortgage.