Some of the UK’s leading private banks have withdraw foreign currency loans for high net worth clients after many mortgage borrowers were hit with rising repayments. A fall in the value of sterling has had a significant impact on many large mortgage customers who held foreign currency loans and some banks have now taken the step of withdrawing these products.
Prior to the credit crunch, many private banks including Royal Bank of Scotland International, Lloyds International and Barclays Wealth sold foreign currency loans. We look at the problems facing some mortgage clients with foreign currency loans next.
Banks deny mis-selling large foreign currency loans
The Financial Times reports that ‘wealthy homeowners typically took advantage of lower interest rates in countries such as Switzerland and Japan to reduce repayments on second homes abroad or investment properties.’
However, as the value of sterling has fallen, many borrowers have seen their mortgage debt soar, outweighing any savings being made on the interest rate. The pound has fallen more than 25 per cent against the dollar since 2007 while it has also slipped against other currencies including the euro.
“Foreign currency loans have typically only ever been offered to high value clients,” said Islay Robinson, CEO of London mortgage broker Enness Private Clients. “These are not the sort of products that an average borrower can secure from their High Street bank and are designed for more sophisticated clients.
“Generally, we’d only consider recommending such a product to a client with earnings in an overseas currency or a high net worth mortgage borrower with a good understanding of the forex market,” he added.
While foreign currency mortgages have generally only been available to high net worth clients in the UK, homeowners in other countries have greater access to these products. For example, from 2006-2011, about 60 per cent of all new mortgages in Poland were denominated in foreign currency, largely Swiss francs.
The Financial Ombudsman has received a number of complaints from consumers hit by the falling value of the pound on overseas properties financed with foreign currency mortgages. However banks believe the products were sold correctly, with Lloyds International, which still offers foreign currency loans, telling the FT: “We do not provide advice to customers on these types of currency options and do not offer insurance against these types of risks.”
High value mortgage clients bring legal action against banks
The FT also reports that thousands of Britons that bought property in countries such as Cyprus, Spain and Portugal using Swiss franc-denominated loans are bringing legal action against the banks that sold the products.
Gareth Fatchett, a solicitor at Regulatory Legal, which is acting for 1,200 homeowners in several countries, said: “The Cypriot property market for UK buyers is a real mess. The banks in Cyprus lent without checking affordability. Couple this with the use of Swiss francs; we have a very toxic mortgage situation. “
He added: “The lending is very irresponsible and much worse than some of the practices seen in the UK before the recession.”
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