Interest Rates UK and EU?

Question

Here in UK the Bank of England interest rate is 5.25% [approx] while in the EU it is only 4%. Does anyone know if it is possible for UK borrowers to go outside the UK and borrow for say a mortgage in the EU and thus benefit from the 1.25% interest difference? Sensible replies greatly appreciated. Thanks.

Answer 1

interesting have a star

I want to keep an eye on this q

I have an opinion but I wont say as iy doesnt sound sensible enough

However I do Know of foreigners to take out loans from the UK

Answer 2

Perhaps you should have asked this in the business and finance section as opposed to politics, unless of course you're trying to make a point.

As it is, at this moment in time it is not possible to take out a 'euromortgage' unless you are planning on buying a second home abroad and borrowing the money locally. The legislation to implement cross-border finance is being discussed, but is still some way off.

http://www.housepricecrash.co.uk/FAQ-wha...

Mortgages in the UK with European interest rates?

My trade is Foreign Currency risk management. I used to get asked on a surprising number of occasions by financial directors of our clients if it was possible to borrow money in Japanese Yen to fund their latest ventures. Why? Because JPY interest rates are the lowest in the western world, base rate being 0.25%

Of course it is possible to borrow in a currency that is not native to your business.

Additionally of course you suddenly assume a massive foreign exchange exposure between GBP and JPY.

Example:

You need to borrow GBP 100,000.00 for new machinery for a factory.

You borrow JPY 20,100,000 paying 0.3% excluding credit margin, and convert it to sterling at today's rate of 201.00 to the pound giving you your GBP 100,000.00.

Then in a years time you need to repay JPY 20,100,000 plus interest meaning a total of JPY 20,160,300.

So from GBP you need to find JPY 20,160,300. If you are "lucky" then the GBP/JPY rate of exchange will not have moved over 12 months. If this is the case then you have indeed paid a very low interest cost in comparison with what is available in the UK and you repay GBP 100,300.00 meaning you achieved borrowing costs of 0.3%, well done.

If you are "very fortunate indeed" the GBP/JPY will have risen to say 215.00 and then this will cost you GBP 93,768.84 to repay the loan, less notional than you borrowed!

If you are "less fortunate" the GBP/JPY rate will have fallen to 180.00 and then this will cost you GBP 112,001.67 to repay the loan, a wapping 'interest' payment of 12%.

The borrower is doing nothing but pure speculation, by creating an exposure in a currency/asset that he would not normally use in day to day business.

Is it possible to protect yourself against currency movement?

Yes of course. If you purchase JPY today but forward dated for delivery in one years time the rate received will be approximately 192.00, meaning you would need to find GBP 105,000 to repay the loan, i.e. the same economic cost of borrowing GBP 100,000 for 1 year. The forward rates offered by banks simply mean the bank buy the JPY today and hold on deposit and calculate the economic cost of forgoing the normal return on GBP in the UK.

There is no way round this. It would be the same for the Euro against GBP. It smacks of complete desparation that this alternative is being considered as it would fool the financially illiterate masses even further in todays obsessed debt culture.

The only cure for hard drugs is cold turkey. I have worked in currency management for a number of years and I am continually surprised by the money illusion suffered by many in high positions.

I used to have a customer who ran the accounts of a large famous name brand who used to do just this type of speculation every year. He had gotten away with it due to low currency fluctuation. One day he will be found out. The problem is that his company rules made no restriction because nothing had gone wrong to date. Amazing. Its Enron with currencies.

If this Euro mortgage catches on, don't touch it with a bargepole unless you are paid in Euros.

Answer 3

Such a good question. I think you would have to start emailing banks abroad and asking. However, I think it's very unlikely that they will allow a loan when your address is outside the country, because they wouldn't have jurisdiction in England, should you refuse to pay it back. But there is always ways around this. Your best option is to actually contact each bank individually and see what they have to say. I must say, hats off to you for thinking about this. Good luck!

EDIT - A way around this, for example, would be to actually rent a property abroad, and then ask for money saying you would like to invest abroad. Once again, good luck!

Answer 4

Consult IFA (independent financial adviser). Advice is free at the Bradford and Bingley Bank. Other IFA's are available. If people with loads of dosh can bank in the Caymen Islands etc to avoid tax and have accounts in Swiss Banks, why not the little man? it may be that the fees and 'insurance' would be prohibitive. Try this link too.

http://www.nacab.org.uk/

Answer 5

Interesting q again

....

im gonna say yes to ur q, but i heard that there are restrictions in the law or something about it..... not too sure, try asking ur bank and/or foreign ones

ps STAR

Answer 6

Do you mean can you get a mortgage from a bank outside of the UK for a UK property?  Then I don't think you can, due to the additional legal process involved with purchasing a property.  I think that's the case here in Ireland where people might want to buy somewhere in Northern Ireland, for instance.

If you could you would also be subject to currency fluctuations, and given the recent decline in STG than the benefit of the 1.25% saving could be lost in the decrease value of your repayments.....short term at least.

If you can't get a mortgage try apply for a credit card, my credit card repayments are only 9%, its much higher in the UK, . (Ironically enough is a UK bank that offers that rate over here)

Answer 7

Good question. I'm going to keep an eye on this as well.