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yawningdog

Yen Mortgage

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What's the deal with borrowing money for property via the Japanese Yen with low/no interest rate. I read in the Times about a major stock broker who took out a zero rate mortgage this way.

Is it possible, reccommended? What are the risks? How can it be done?

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What's the deal with borrowing money for property via the Japanese Yen with low/no interest rate. I read in the Times about a major stock broker who took out a zero rate mortgage this way.

Is it possible, reccommended? What are the risks? How can it be done?

The risk is in currency exchange rates. If fine borrowing 10,000,000 yen at 200yen to the pound say. Not so good repaying 10,000,000 yen at 100 yen to the pound (that £50,000 loan is now £100,000). Its an extreme example but its there to prove the point.

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Thanks, I suspected that the risk was in the currency flucuations. But I wonder what the reasoning was for the stock broker I read about. Maybe he could have added in some safeguards.

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If you were getting paid in YEN i guess it would make some sence, as the debt would be tied to your salary, and if currency fluctuates you dont get hammered as the debt stays the same.

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You could hedge your position in the currency markets to offset your currency risks. You WILL lose on either your loan or the hedge and win on the other so you won't make money from the currency market. But apart from the brokerage costs you won't be losing money either which is the purpose. In effect, you're taking out insurance against the currency moving with the costs of doing that being the "insurance premium".

I certainly wouldn't do it without currency hedging since otherwise you basically have a forex trade that you can't unwind easily and with no stop loss which is a VERY dangerous thing to be doing especially when there's no real need.

Quite a few Australian farmers got into real trouble with foreign currency loans taken out during the 1980's. All went well until the late 80's / early 90's when exchange rates and interest rates were moving and in many cases the loans became impossible to pay.

A substantial Australian mining company went broke a few years ago because it got the currency markets wrong. And that was a multi billion $ company which paid people who were supposed to know what they were doing.

It could be done safely but you MUST HEDGE your currency exposure otherwise you're gambling a fortune on the currency markets.

Edited by Smurf1976

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It could be done safely but you MUST HEDGE your currency exposure otherwise you're gambling a fortune on the currency markets.

Then why bother at all? If he hedges away the risk then so he will hedge away the difference in interest rates.

MoD

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Quite a few Australian farmers got into real trouble with foreign currency loans taken out during the 1980's. All went well until the late 80's / early 90's when exchange rates and interest rates were moving and in many cases the loans became impossible to pay.

Yeah, I know, and as a result when I enquired in 2001 about $US mortgages no-one would consider them unless I had $US income.

I was prepared to take the risk at that point, because I thought Australian property prices were still rising and I couldn't see how the $A could possibly drop much further (it was 49 US cents at the time). I was prepared to sign whatever indemnity form the bank could draw up, but their view was that they didn't know me well enough to be sure I wouldn't drag them into court if my decision went pear-shaped.

Correct macro calls both. I would have made a motza, but I just couldn't handle the cash flow at Australian rates for the particular investment I had in mind. :(

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I know it's sureal but I wondered about Jap property stock, it's been a long bear market and the economy is just picking up, this might also be magnified by the yen gaining against sterling, esp if we trail the dollar on interest rates and our economy enters recession.

However it's way out of my league.

Anyone who might know what he or she is talking about got an opinion?

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Guest struthitsruth

I know it's sureal but I wondered about Jap property stock, it's been a long bear market and the economy is just picking up, this might also be magnified by the yen gaining against sterling, esp if we trail the dollar on interest rates and our economy enters recession.

However it's way out of my league.

Anyone who might know what he or she is talking about got an opinion?

Someone who sounded fairly knowledgeable posted a thread which has been pinned into the FAQ section under euro-mortgage - they talked about the yen too.

http://www.housepricecrash.co.uk/FAQ-what-...ro-mortgage.php

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Then why bother at all? If he hedges away the risk then so he will hedge away the difference in interest rates.

MoD

Depends how you go about hedging it and what the actual difference in rates is.

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What's the deal with borrowing money for property via the Japanese Yen with low/no interest rate. I read in the Times about a major stock broker who took out a zero rate mortgage this way.

Is it possible, reccommended? What are the risks? How can it be done?

Can I get interest only on that? :lol:

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Depends how you go about hedging it and what the actual difference in rates is.

What risk do you suggest he takes on, and why is it any more acceptable than exchange-rate risk?

He must take on some risk additional to those that come with UK mortgages. He cannot get a cheap mortgage just for asking as otherwise everyone else could get gorged on the same free lunch too.

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What risk do you suggest he takes on, and why is it any more acceptable than exchange-rate risk?

He must take on some risk additional to those that come with UK mortgages. He cannot get a cheap mortgage just for asking as otherwise everyone else could get gorged on the same free lunch too.

The purpose of a hedge is to remove risk. The downside is you have to pay for this benefit. Effectively you pay someone else to take the risk for you. For a price, you can be certain of your outcome. It may however mean that the yen mortgage is just as expensive as a GBP one. In an efficient market, you would expect it to be.

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The purpose of a hedge is to remove risk. The downside is you have to pay for this benefit. Effectively you pay someone else to take the risk for you. For a price, you can be certain of your outcome. It may however mean that the yen mortgage is just as expensive as a GBP one. In an efficient market, you would expect it to be.

Hedging the currency risk with forward rates (futures) or any other financial instrument will cost more than the interest rate differential (because of bid-ask spread and commission). A mortgage in yen to buy residential property in the UK is not available anyway....

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  • 302 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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