If you move to the UK and buy a house, you will have to deal with something called a “foreign currency mortgage.” In other words, you borrow money in a currency other than GBP. But is this a good thing? Should you stay away from borrowing in GBP, or is it better to borrow money in your own currency?
In this blog, we’ll talk about both choices. This guide will help you figure out what’s best for your financial future if you are an expat, a non-resident investor, or an end buyer.
What Is a Foreign Currency Mortgage?
A foreign currency mortgage is a loan to buy a house in a currency other than the one that is most common in the country where the house is located.
If you are buying a house in the UK but borrowing money in Indian rupees, euros, or US dollars for example instead of british pounds, that is a foreign currency mortgage. It’s easy to find out the real value with a UK buy-to-let mortgage calculator.
Why Do People Borrow Money in Their Own Currency?
A lot of overseas property investors and people who live abroad get paid in their home currency. So, they feel safer paying back a loan in the same currency. Here are some reasons why:
- Income that stays the same: If you get paid in dollars, euros, or rupees for example every month, it feels safer to pay off your mortgage in the same currency.
- Don’t lose money on the exchange rate: Every day, exchange rates change. If your pay and mortgage are in different currencies, you might have to pay more if the exchange rate is not in your favour.
- More power: It’s easier to plan your budget when your income and loan are both in the same currency.
Why Do Some People Borrow in GBP Instead?
There are also good reasons to borrow money in pounds to buy a house in the UK.
- No problems with the exchange rate when you buy: As UK property prices are in GBP, borrowing in pounds means you don’t have to worry about converting.
- More options for lenders: Most lenders in the UK only offer loans in pounds. If you borrow money in GBP, you are likely to secure lower interest rates and more choices.
If you work in the UK and get paid in pounds, a GBP mortgage is usually the best choice.
Things to Think about before You Make Your Choice
Risk of Exchange Rates:
- If you borrow money in your home currency and the pound goes up in value, your loan payments will be more expensive.
- If your home currency rises in value, you could end up ahead and pay less.
- But it is very hard to guess how currencies will move. Even professionals make mistakes.
Currency of Income
- If you get paid in pounds, you should usually borrow in pounds.
- Talk to an expert if you make money in a foreign currency. You need to really think about the pros and cons.
Rates of Interest
Buy-to-let mortgage rates in the UK are different than other countries. At times, borrowing in your native currency could give you a lower rate. But be careful not to lose the money because the currency changes.
Loan Eligibility
In the UK, some lenders won’t lend money in foreign currency. Some people might only do it for business investors or people with a lot of money. This could make your choices fewer.
Being able to pay back money in different ways
Make sure the mortgage lets you change currencies later on. Some lenders do. But some charge a lot or don’t let you make changes very often.
For example, an Indian buyer Putting money into the UK
If you live in India, make money in INR, and want to buy a rental flat in London.
If you take the loan in GBP, you might get better mortgage deals in the UK.
- But if the pound gets stronger, it costs more in rupees to pay back your loan.
- If you take the loan in INR, you’re safe because your income and loan are in sync. However, you might pay more interest and have fewer lenders to choose from.
How to Choose the Right Thing?
There isn’t one answer that fits all. But here are some things you can do:
- If you can, try to match the currency of your loan with the currency of your income.
- Think about how long you plan to keep the property.
- Think about how stable your income and currency are.
- Talk to a mortgage expert who knows how to lend money in foreign currency.
As the UK’s leading Mortgage Broker, we have helped many expats and foreign investors get the right mortgage. As one of the best mortgage lenders in the UK, we can help you decide if a GBP loan or a foreign currency mortgage is better for you.
Last Thoughts
Don’t take foreign currency mortgages lightly. Some people find them helpful, but others find them dangerous.
Don’t make this choice by yourself if you’re not sure. We make sure to learn about your income, goals, and worries at our company. We’ll make it very clear what the pros and cons are so you can make a smart choice.
Make sure you make smart decisions about your home, your money, and your future with the right help.
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