Foreign buyers can choose mortgages in their currencies...The new Florida loans target Brits but can help others use market conditions in their favor.

June 7th, 2006

A new type of mortgage now offered in Florida allows borrowers to switch their loan between world currencies, capitalizing on market conditions and easing complex transactions for some international investors.

Lloyd's TSB, a banking giant in Britain and in Asian nations since the 1970s, has introduced its "multi-currency mortgage" in the Orlando market, targeting British home buyers, allowing them to switch between currencies up to four times per year.

The product brings a global reach to the Orlando market, covering properties bought in Great Britain, Australia, New Zealand, Canada, Spain, France, Hong Kong and Singapore in addition to the United States. “You can change with the markets based on the exchange rates," said Lee Weaver, director of operations of British Homes Group, a Kissimmee real estate and mortgage brokerage firm that has exclusive rights to sell the Lloyds TSB mortgage in the area. About 90 percent of the company's business is with British buyers and sellers.

Already more than 8,000 people from the United Kingdom own homes in Central Florida, clustered mostly in the northeast Polk and northwest Osceola counties, and about a million visitors a year from the U.K. stream into the Orlando market, some on shopping expeditions for real estate.

While the bank has been offering such mortgages for about 20 years in Asian countries, it only recently expanded to the United States, and nowhere else has it debuted with a marketing campaign as it has here with targeted mailings to Brits.

It now offers the product in nine states, all targeting areas where foreign investments are popular. However, officials at the Florida Mortgage Brokers Association in Tallahassee said they had never heard of it when contacted last week.

In times past, British banks would often simply refer customers elsewhere if they were loan shopping for a home in the U.S., Lloyd's TSB Asia executive Barry Lea said from his office in Shanghai. Sometimes the customer would want to pay his or her mortgage in the currency they were paid with, but the bank wasn't keen on making loans on property in another country.

But with so much international investing going on -- Middle Easterners investing in London, Brits investing in Florida, South Africans investing in Australia -- there's a greater need for a global outlook on lending, bank officials say.

"It's not unusual for us to have clients who have properties in more than one country, dealing with different currencies," Lea said.

The loans do have numerous limitations that can range from the locale of the property being purchased and eligibility requirements of the borrower.

There are risks with switching currencies since changes can occur quickly, banking officials warn, and they will work out examples for customers upon request.

But the general idea is that customers whose main residence is Great Britain and are paid in euros or pounds can get a mortgage on a U.S. home in one of those currencies, but switch to dollars if desired when they sell or interest rates here become more favorable. The loan rate can fluctuate, as with an adjustable-rate mortgage, and is 1.5 percent above the bank's three-month cost of funds rate at the time.

Under such a scenario, it might seem that everyone would race to refinance in Japanese yen considering the interest rate there is about 0.43 percent. That, however, is exactly what Lloyd's officials warn against.

"On the surface it looks very attractive," Lea said.

However, he explains, taking a mortgage out in an "unrelated currency," that is, one not related either to the country the property is in or the income supporting the payment, is dangerous territory. So much so that the company will not allow it unless the borrower is a highly experienced financial expert who agrees to sign legal documents stating they know the risks.

The problem, Lea said, is if market conditions shift and the exchange rates change, borrowers may find themselves in a situation where their loan balance exceeds the value of the property.

The multi-currency mortgages are designed for overseas home buyers, not unlike the Brits, who already have to deal with two currencies. Or international investors who may want to sell properties in two different countries and merge the equity into another property in a third country. The multi-currency mortgage eases the process, allowing borrowers to cluster equity under one umbrella.

Other banks have partnered with Lloyds TSB, which has 15 million customers worldwide, to make the service available in various nations with expansion plans expected in places such as Dubai and Portugal. And while world markets often fluctuate and create unpredictable financial conditions, Lea said the company's biggest hurdles are regulatory in nature and getting its name known in places such as the United States where traditionally it has not been.

"As the world gets smaller and people look for investment opportunities," he said, "Currency flexibility is attractive to a lot of international investors."