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Banks To Scrap Foreign Currency Mortgages

Banks To Scrap Foreign Currency Mortgages

Private banks do not any longer offer mortgages in foreign currencies. This has affected wealthy borrowers who tried to take advantage of the lower interest rates abroad. The falling value of the pound has, however, increased repayment amounts drastically. The Royal Bank of Scotland International and Barclays Wealth were among the private banks that sold foreign currency loans before the economic downturn. Wealthy borrowers then took advantage of the low interest rates prevalent in Switzerland and Japan to reduce the amount of repayments that they had to make on investment in properties abroad.

With the fall of the pound sterling (almost 25% against the dollar since 2007), most borrowers have seen the debts overtake the savings made through low interest rates. The Financial Ombudsman observed that the complaints received in this regard about increased repayments of mortgages financed with foreign currencies were less than one percent of the total mortgage complaints. Mortgages of this nature have been offered only to the wealthy borrowers. These loans were suitable only for those who made an income in foreign currency and for those who had a complete understanding of the foreign currency market. Some complaints ranged on the fact that they were sold the mortgage aggressively in spite of the fact that they had not understood the risks that were involved. A typical case involved a couple who took a loan in Swiss francs for two properties in the United Kingdom in 2005.

The Swiss franc appreciated rapidly from 2007, with the result that their debt increased by an amount of £160,000.

The mortgage statement clearly indicates that long-term mortgages such as these are subject to currency fluctuations. Some of the brokers also offer alternate strategies that will be of help and assistance to the customers during tough economic climates. Some banks that have sold foreign currency loans have claimed that they made the homeowners understand all the risks that foreign currency loans carry. They do not offer insurance against such loans. Many Britons who bought properties in countries such as Portugal, Spain and Cyprus with Swiss franc loans are now suing the banks that sold them the loans.

Solicitors representing about 1200 beleaguered homeowners who bought homes in Cyprus asserted that the banks in Cyprus lent money without checking affordability with the result that the mortgage situation is grave. This gravity is attributed to the irresponsible lending practices in the United Kingdom prior to the economic downturn.

Homeowners in foreign countries have better access to foreign currency loans. The financial supervision authority in Poland is on a mission to limit such loans to those earning incomes in euros or Swiss francs after the zloty came down drastically in value in the year 2009. In the period from the year 2006 to 2011, it was observed that 60 percent of all new mortgages in Poland were taken in foreign currencies, with a majority being in Swiss francs.

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