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Register Your Interest Here April 19, 2012

Posted by Audit Monkey in The Joy & Pain of Internal Audit, The State of the British Nation.
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I haven’t been blogging for a while. I could declare that “I’ve been busy” but the truth is far more prosaic, I couldn’t be bothered. Anyhow, during the spring clean of my apartment, I’ve decided to divest myself of my collection of FT Weekend ‘Money’ Section newspapers and ACCA magazines which have been slowly gathering dust since early 2011.

During the disposal process one article in the FT Money (27 August 2011) caught my attention regarding foreign currency mortgages. In short, loads of British home-owners have signed up to foreign currency mortgages during the 2000’s to take advantage of low European interest rates, in particular mortgages dominated in Swiss Francs.

Of course, this was a win-win situation for borrowers before the Banking Crisis of 2008 as Swiss interest rates were lower than the UK. Post 2008, the value of the Swiss France has appreciated against other currencies as investors have piled into the Swiss Franc. For borrowers however, this has become a lose-lose situation as their repayments have increased and so has the value of their debt.

Of course, those reading this will see what’s coming next. Consumers, (to use the FSA jargon but borrowers to me and you) are moaning that they shouldn’t have been sold foreign currency mortgages in the first instant due to the risks involved, i.e. swings in the exchange rate and the effect on capital.

In the article, one consumer, one Sarah Bott and her husband who relocated to Hong Kong in 2004, took out a Swiss Franc mortgage for their properties in the UK (sic) and have been saddled with a higher debt as exchange rates have soared. She moans, “we were never told by the adviser the true risk of this mortgage”. The lender, in this case RBS, have stated that the mortgage agreement clearly details the currency risks involved. Mrs.Bott is quoted as saying “RBS shouldn’t be selling foreign currency loans to people like us”.

My take. A load of old hubris on the part of Mrs.Bott. Are you trying to tell me you aren’t a ‘sophisticated investor’ and somehow bereft of an education to realise that the mortgage product was slightly more complex than you originally thought? Come, come Mrs.Bott, you enjoyed the up side of your financial product but have flinched at the down side and have blamed the lender and financial adviser for your predicament. Am I sympathetic, no, as to use the bog-standard accountancy phrase, you have to bear the ‘risks and rewards’, you can’t have it all one way.


1. ITauditSecurity - April 20, 2012

I sure hope you’re “bothered” more often. I’ve missed your musings. You can’t be bothered and I can never find the time to do it. It’s so bad that I’m writing my posts on the subway to and from to work and then posting them later…

2. BJones - July 3, 2012

You write as if you are employed by RBS. Instead you should spearhead this new mis-selling scandal. In light of Bob Diamond’s resignation today, the scandals of fiddling the Libor Rate, the mis-selling of small business loan insurance & PPI by RBS & other banks, I am sure that the mis-selling of Swiss Franc mortgages will be the next big bank scandal. Ordinary people traditionally trusted their bankers, like they trusted their doctors. Lawyers get ready to make a lot of money.

3. Audit Monkey - July 3, 2012

I don’t work for RBS, although I have passed through their doors. It isn’t a bank I would like to work for. Miss selling of foreign currency mortgages won’t be the next big thing as I don’t think there was a large uptake and second, banks made a bit of hash managing them (you need to enter exchange rates into the various systems or spreadsheet on a daily basis – one bank I know managed to forget to do this).

As for the original post on foreign currency mortgages, I am somewhat sceptical that customers are completely ignorant of the downside risks, especially if you happen to reside in Hong Kong; ex-pats are seldom dim.

4. mandy nathali - November 2, 2012

I was advised to take a RBS swiss franc mortgage in HK for my UK property by a financial advisor in HK. I am not dim I am just a normal person who is in a good job but I dont know about mortgages. I trusted his advise and was only offered either japan yen or swiss franc and no other mortgage despite requesting repayment. I was sold a investment plan too. yes I lost 30KUKP, nearly lost my family home and since 2007 stuck in paying interest only, negative equity as i cannot even afford to go back to repayment (as I was before meeting this advisor). RBS knew what they were doing as was the advisor, make money take money. If I had been given the right advise and offered a repayment mortgage based on the UKP not a foreign currency, I would not be in this situation. Giving the right advise – who loses out?

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