cheap money from abroad

simon_slade

Is anyone out there able to explain to me why we can't (or shouldn't) borrow money or get a mortgage from elsewhere in the Eurozone or even further afield. Interest rates in France are around 3.6 and Japan has recently gone up from 0 to 0.25 and now stands at a massive 0.5!

Why, in a Global economy are we still borrowing from UK banks and building societies

Generali

simon_slade wrote:

Why, in a Global economy are we still borrowing from UK banks and building societies

Because of exchange rate risk.

Ian_W

simon_slade wrote:

Why, in a Global economy are we still borrowing from UK banks and building societies

Dunno - apart from currency movements & interest rate movements doubling the risk to you.
Why don't you get onto a plane, fly to Tokyo and walk into the local bank and ask how much they will lend to a non-resident with no Japanese earnings or assets as a mortgage on a UK property? Please post the answer when you get back?

For a foreign lender to enter the UK market and offer residential mortgages they'd have to comply with FSA regulations which are intended to offer consumer protection. Having done that and set up here what's the incentive to offer Euro or Yen rates?

A few years back Skipton offered mortgages tied to the US libor interest rate which looked very cheap when compared to UK rates. US rates then went up consistently and those that took them got burned by being tied in.

mystic_trev

simon_slade wrote:

Why, in a Global economy are we still borrowing from UK banks and building societies

Many of those Banks and Building societies ARE borrowing money from abroad mostly from Japan who have the lowest IR's. It's called the "carry trade" which is one of the reasons it's possible to lend money at below the BoE Base rate.

I should have added that it carries a risk of Higer IR's from abroad and also ROE differences - Banks offset these by using various complex financial Instruments.

http://www.investopedia.com/terms/c/currencycarrytrade.asp

Generali

You do see mortgages Euro, Swiss Franc and Yen mortgages advertised now and again. Pretty risky for the Average Joe.

Trev - take your point about the carry trade (mostly because it's clearly correct!) but am not sure it's exactly what the OP meant.

simon_slade

Thank you everyone.

mystic_trev

Generali wrote:

Trev - take your point about the carry trade (mostly because it's clearly correct!) but am not sure it's exactly what the OP meant.

Point taken! Actually I'd be quite happy to take out a mortgage in Euro's as I thnk sterlings overvalued - but that's just my opinion, so I'm probably wrong!

movieman

Actually I'd be quite happy to take out a mortgage in Euro's as I thnk sterlings overvalued

Um, yeah.

Let's say you take out a 100k mortgage at 1.5 Euros to the pound. That's 150,000 Euros.

Now let's say that the pound is overvalued and drops to 1.0 Euros to the pound. Your Euro mortgage is now costing you the equivalent of 150,000 pounds. To borrow 100,000.

Why would anyone in their right mind borrow Euros if they think the pound is overvalued?!?!?!?

mr.broderick

thats mystic_trev for you....total whopper..gets everything wrong..