Borrowing GBP's in NZ

[TheLiberalLeft]

Technically correct, saneperson, but the stats tell us that it's at historic/record highs against the GBP which implies it can only really go one way from here (if it doesn't remain stagnant around these levels for some time still), and that'd be the wrong way in terms of mortgage repayments. At the same time, however, it would also mean my income raises to counter the increase in repayments (assuming still earning in GBP).

It's a tough one. eri's hedging solution might be the safer approach. Then, whichever way it goes, I'd wish I'd have done it 100% that way instead of merely 50%.

[mrsaneperson]

You don't just have the interest rate risk you also have the exchange rate risk and it doesn't take much of a change in exchange rate to lose all the gains you've made on the interest rate. The NZ is quite high at the moment compared with where it has been so if the exchange rate falls against the pound you owe a whole lot more in $NZ although if you are earning in pounds and the amount you are earning is constant maybe it doesn't matter. A mortgage is for a long time though so if you stop earning in pounds you'll be paying in dollars.

It could go either way. It remains unquantifiable.

[hawkeye]

You don't just have the interest rate risk you also have the exchange rate risk and it doesn't take much of a change in exchange rate to lose all the gains you've made on the interest rate. The NZ is quite high at the moment compared with where it has been so if the exchange rate falls against the pound you owe a whole lot more in $NZ although if you are earning in pounds and the amount you are earning is constant maybe it doesn't matter. A mortgage is for a long time though so if you stop earning in pounds you'll be paying in dollars.

[mrsaneperson]

You said your earnings are in GBP , so it makes sense to borrow 100% at the much lower British interest rate.Compare an average NZ interest rate of 5% with your British 2.4%. So your mortgage interest payments will be less than half ,saving you thousands of dollars. .From what i've heard NZ interest rates are much higher than most other countries around the world.

[eri]

if you are intending to stay in nz

and if you were thinking of borrowing 50-100k for an nz property purchase

it might be worthwhile borrowing half that here at 5% and half there at 2.5%

as long as you hedge enough

you should be safe

[TheLiberalLeft]

If you were based in NZ but earning in GBP and had the opportunity to borrow NZD's but at a UK interest rate (let's say 2.4%), would you?

Current exchange rate is 1.96. If it stays low, I'd get a fantastic interest rate on my borrowings.

If that exchg rate chgs though, back to historical averages, I now owe a lot more NZD's. Still earning in GBP's, so does it depend where one considers one's money "domiciled"?