Foreign currency mortgages can be used for one of two purposes. While most property buyers are likely to be aware of the first use - buying property abroad - fewer people probably know that it is actually possible to get a mortgage for your home in the UK denominated in a foreign currency.

Instead of lending you a mortgage in pounds Sterling, a bank advances you the money in an alternative mainstream currency, such as US dollars, Japanese Yen, or Euros. The value of this debt is then converted to pounds Sterling on the foreign exchange (usually through the same financial institution that lent you the money) and you then use the British currency to buy your new property.

Your mortgage debt remains in the foreign currency and interest is also charged in that currency, usually in the prevailing rate of interest for that country or zone, as opposed to the one denominated by the Bank of England. Although the debt is also paid off in the foreign currency, this is done by making appropriate monthly payment in Pounds Sterling and selling this money on the foreign exchange.