Should you buy a yen mortgage?

Stretched by the five interest rate rises that have hit your mortgage payments over the last year? Not to worry. Why not take advantage of lower rates abroad by switching to a foreign-currency mortgage? You could, for example, switch your debt out of pounds and into yen with the pleasing result that your monthly interest payments on a debt of £300,000 would fall from £1,500 a month to £250, says Myra Butterworth in The Daily Telegraph: rates in Japan are under 1%.

You'll also save money this month if you go for a mortgage in Swiss francs or euros. Tempting, isn't it? It shouldn't be. The currency market is famously unpredictable and by borrowing money in a foreign currency you're effectively betting that it will either stay stable against the pound or fall against the pound. But right now, with the pound at an 26-year high against the dollar, that's just not very likely. And let's not forget what happened the last time people rushed into yen mortgages: thanks to the weakening pound, the yen borrowers saw their mortgages (not their payments, their actual debt) double between 1992 and 1995. Not much of a deal after all.

It may be better to look at offset mortgages these let you offset your savings against your debt, hence lowering your interest bill. I'm no great fan of these in general (their interest rates are often high and it is usually better just to use your savings to cut your mortgage anyway), but they can make sense. Emma Simon, writing in The Sunday Telegraph, points out that they offer more flexibility you can still access your savings at any time. And according to Intelligent Finance, if you have £20,000 in savings linked to your mortgage and also a linked current account, you could save £95,000 in interest over the lifetime of a £200,000 mortgage. There are also tax benefits to using an offset you pay tax on any income from an ordinary savings account, but when your savings are linked to your loan, interest earned offsets interest charged, and you don't. To get the same net return as this, assuming mortgage interest of 7.25%, a higher-rate payer would need to get 12.08% on their savings. Whether an offset will work depends on the rate and the level of your savings. Do the sums before you switch.

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You might also consider a "family offset" mortgage, says Robert Budden in the FT. Consider a 35-year-old with a £100,000 mortgage and a kindly uncle with a heap of cash in savings. Use an offset and the uncle "effectively gleans tax-free interest on his savings, provided he gives this interest to his nephew". If he puts £100,000 into an account linked to his nephew's mortgage, the nephew will pay no interest. For those who want to help relatives out, but still control their cash, this is a nice, tax-efficient solution.