Raising funds in foreign currencies on UK based property

[stevenpenny]

Hi,

I have a client looking to raise capital on UK based BTL properties up to 75% LTV in foreigh currencies. He has/will have upwards of £500,000 to use as deposit(s) and wants to build a portfolio of approximately 50 properties within the next 2 years.

He has suggested the Yen as this will provide a decent margin for him. Any thoughts on how this might be achieved and what the costs might be?

Steve Penny

 

[grantx]

Steve,

Is he looking to convert £500,000 into Yen?

Is he is looking to raise capital against the properties, ie does he already own these? Or does the £500,000 represent deposits for his intended portfolio of properties?

On 75% LTV, 50 properties, £500,000 deposit, that equates to purchase prices of £40,000 per property (unless my figures are wrong, which isn't unusual). Is he buying a caravan park? If he's looking for buy-to-let there's hundreds of speculative new-build apartments in Manchester. He should be able to pick them up at a good price.

Grant.

 

[stevenpenny]

Hi Grant,

He is looking to structure a deal in conjunction with a builder he knows well. I can't go into the finer points but essentially the deals to be struck are between 75% and 85%, i.e. that is the funding required from the lender.

This is the element that needs to be ideally in a foreign currency so as to limit exposure on repayments. I have found banks that will do this but they want to base the rental cover on BBR + 1 and then have rental cover at 150%. Whilst this might make sense as far as the banks go it blows any deal out of the water.

From what I can tell, borrowing the money on the basis of a foreign currency works well in terms of repayments, but the criteria and limitations are no better than I could get from UK lender.

Steve

 

[normbeef]

From what I can tell, borrowing the money on the basis of a foreign currency works well in terms of repayments, but the criteria and limitations are no better than I could get from UK lender.

Steve[/QUOTE]


Imagine if we could all get a mortgage in YEN !!! based on 0.5% interest then the BOJ would no longer be making policy for Japan.. they would need to include the UK in their monetary policy... (which is the kind of problems the EU is having setting policy because its a one size fits all approach)

if you find a solution let me know...(seriously) I am VERY interested in borrowing YEN against UK property ...cheaply... its really a carry trade of sorts...

 

[Stuart14]

Surely this boils down to "Can the average punter partake in the Carry trade". I'd love to know if you could but am sure you can't.

If I could borrown 500k from Japan and stick it into 7% paying high interest bank accounts here i'd make a lot per year. If you could do it, surely everyone would.

 

[normbeef]

Surely this boils down to "Can the average punter partake in the Carry trade". I'd love to know if you could but am sure you can't.

If I could borrown 500k from Japan and stick it into 7% paying high interest bank accounts here i'd make a lot per year. If you could do it, surely everyone would.

Not sure he's borrowing the 500K... thats his Margin... based on the figures he's talking about he's looking at about £2 million in lending (approx) but as Grant correctly points out he will not get 50 properties for that... not even Mobile homes...

The carry trade is very risky...(but this is worse really) as you can get caught between changing exchange rates..

The thing is with this gig also is that you are putting the money into a non-liquid asset (housing).. usually carry trade is done with currency (so very liquid) i.e. if you want to get out of this quickly for an reason you could come unstuck !!

 

[stevenpenny]

Hi Guys,

Forget about the mechanics of the deal as they are all flats and houses and not mobile homes. The deal in question involves a lot of leveraging but essentially my clients needs to borrow up to 75% LTV against UK based properties in a foreign currency, not neccesarily Yen.

I spoke to two banks yesterday who were both prepared to offer the money but not on terms that are any better than a UK lender and a UK sterling mortgage.

Essentially UK lenders will offer 75% to 85% LTV with rental cover at 100% to 125%. The two banks I spoke to would offer 70% LTV with a rental cover of BBR +1 and 150% cover which makes this a non-starter as we could get better terms on a standard sterling mortgage.

Steve

Not sure he's borrowing the 500K... thats his Margin... based on the figures he's talking about he's looking at about £2 million in lending (approx) but as Grant correctly points out he will not get 50 properties for that... not even Mobile homes...

The carry trade is very risky...(but this is worse really) as you can get caught between changing exchange rates..

The thing is with this gig also is that you are putting the money into a non-liquid asset (housing).. usually carry trade is done with currency (so very liquid) i.e. if you want to get out of this quickly for an reason you could come unstuck !!

 

[stevenpenny]

Hi Stuart,

To answer your question yes you can partake in the carry trade. All you need to do is offer suitable collateral to the lender and have an income that would allow you to repay any negative margins resulting from adverse exchange rates.

Steve

Surely this boils down to "Can the average punter partake in the Carry trade". I'd love to know if you could but am sure you can't.

If I could borrown 500k from Japan and stick it into 7% paying high interest bank accounts here i'd make a lot per year. If you could do it, surely everyone would.

 

[normbeef]

Essentially UK lenders will offer 75% to 85% LTV with rental cover at 100% to 125%. The two banks I spoke to would offer 70% LTV with a rental cover of BBR +1 and 150% cover which makes this a non-starter as we could get better terms on a standard sterling mortgage.

Steve

Sorry Steve.. I think we were remarking on the comment about buying 50 properties with 2.0 Million quid .. thats where the mobile home thing came from...

Please can you explain the details of the rental cover and the BBR +1 + 150% ? which rate are you talking about ? surely this is the rate against the currency your borrowing ?

this would be favorable in this situation if the borrowed currency interest rates were low enough ? (say YEN at 0.5% + 1%) as the rental value would easily be enough to cover borrowing at a much lower interest ...? even with cover at 150%

of course unless your borrowing Euro's where the differential is not wide enough to make it worthwhile ?

Maybe I am on the wrong track here... :cheesy:

 

[grantx]

Re carry trades, you're exposed to volatility of exchange rates, and hoping the long rate doesn't increase and the short rate doesn't decrease. Combine these with fragility of property market, uncertainty of long-term tenants and tightening credit, and you have a potent mix. LTCM weren't exposed to this degree.

Grant.

 

[Drummer Boy]

From what I can tell, borrowing the money on the basis of a foreign currency works well in terms of repayments, but the criteria and limitations are no better than I could get from UK lender.

Steve

Imagine if we could all get a mortgage in YEN !!! based on 0.5% interest then the BOJ would no longer be making policy for Japan.. they would need to include the UK in their monetary policy... (which is the kind of problems the EU is having setting policy because its a one size fits all approach)

if you find a solution let me know...(seriously) I am VERY interested in borrowing YEN against UK property ...cheaply... its really a carry trade of sorts...[/QUOTE]

Interesting, and I agree on you're take re: Japan, but I think quite difficult, if not impossible to do. How about a compromise?

How about looking at private client banking with someone like Deutsch Bank who I know will consider your entire collateral and who can arrange a multi-currency - debt reduction mortgage deal managed though ECU. Hisorically they like big BTL schemes (although this may have changed over recent months). I know they also provide deals on larger mortgages provided the deal is 'big enough', and their coverage is adequate.

This might sound a bit daft, but the last time I looked, Private Client banking is about the only banking sector in growth mode. And unlike the high street, these guys are looking for reasons to DO deals rather than reasons not to do them.

NB. These products are unregulated and you will need to satisfy the bank that you have a sufficient tolerance to the risks involved. etc etc

Might be worth a look. At least.

ECU :: The Currency Managers

There is also at least one other outfit I know of and had dialogue about simulated Muti-currency morgages. From memory you needed to place £20k ish with them which their pros would then trade to produce capital for debt reduction and the return looked reasonable with very cautious draw down limits. However when I spoke to these guys all the salesman kept whittering on about was "gapping".

 

[Drummer Boy]

Sorry Steve.. I think we were remarking on the comment about buying 50 properties with 2.0 Million quid .. thats where the mobile home thing came from...

Please can you explain the details of the rental cover and the BBR +1 + 150% ? which rate are you talking about ? surely this is the rate against the currency your borrowing ?

this would be favorable in this situation if the borrowed currency interest rates were low enough ? (say YEN at 0.5% + 1%) as the rental value would easily be enough to cover borrowing at a much lower interest ...? even with cover at 150%

of course unless your borrowing Euro's where the differential is not wide enough to make it worthwhile ?

Maybe I am on the wrong track here... :cheesy:

Sorry Steve,

I think I pressed the wrong buttons... Again. I'll blame age.

So here's my post about Forex mortgages again.

Interesting, and I agree on youre take re: Japan, but I think quite difficult, if not impossible to do.

How about looking at private client banking with someone like Deutsch Bank who I know will consider entire collateral and who can arrange a multi-currency - debt reduction mortgage deal managed though ECU.

Hisorically they like big BTL schemes (although this may have changed over recent months). I know they also provide deals on larger residential mortgages provided the deal is 'big enough', and their coverage is adequate.

This might sound a bit daft, but the last time I looked, Private Client banking is about the only banking sector in growth mode. And unlike the high street, these guys seem to look for reasons to DO deals rather than reasons not to do them.

NB. These products are unregulated and you will need to satisfy the bank that you have a sufficient tolerance to the risks involved. etc etc..

Might be worth a look. At least.

ECU :: The Currency Managers

There is also at least one other outfit I know of and had dialogue about simulated Muti-currency morgages. From memory you needed to place a min of £20k ish with them which their 'pros' then trade to produce capital for debt reduction. The return looked good with very cautious draw down limits. However when I spoke to these guys all the salesman kept whitering on about was "gapping". From which I got the impression that they were simply trying to impress a 'punter' who they assumed had had no experience of dealing with Forex. Which ain't the case with me.

Bottom line is.. if, having checked out ECU's panel of banks you or other guys on this thread meet the colateral requirements, I would be happy to put you in touch with an introducing broker.

You may already know about this stuff - in which case I aplogies for wasting your time, but if not.. who knows.

Rgds

DB