I tried to lower my mortgage with Japanese yen when interest rates skyrocketed, says ALEX BRUMMER

When I returned to Blighty in 1989 after a ten-year assignment as a Washington correspondent, I had two personal priorities. Find suitable schools for my young family and look for a larger house that can easily accommodate three children, having left the UK with only one child aged 18 months.

Climbing the ladder in Margaret Thatcher’s home ownership democracy meant taking out a huge mortgage at a very high interest rate, which I could hardly afford.

As a supposedly economically advanced person, I looked for an escape route to scythe my monthly payments, as no doubt some struggling homeowners will try to do today.

Thus began my terrifying story of a low-interest mortgage in a foreign currency exotically denominated in Japanese yen.

The housing market was on fire that summer of 1989.

The attempt by Tory Chancellors Nigel Lawson and Norman Lamont to eclipse the Deutsche Mark and perhaps join the Exchange Rate Mechanism (ERM), the predecessor of the Eurozone, sent the Bank of England’s key interest rates soaring to a high of 14.88 percent. current 6 percent in perspective.

Fighting inflation, as it did in the 1970s, makes the current battle between Governor Andrew Bailey and Prime Minister Rishi Sunak to lower the consumer price index from 7.9 percent seem like no problem at all. The Bank of England’s base rate of 5 percent is a third of what it was then.

I have to admit, when I see today’s glaring headlines warning that 6.88 percent of two-year fixed-rate mortgages will crash the housing market, it doesn’t elicit much sympathy.

Especially since – a maximum of – 800,000 homeowners with a two-year fixed-rate deal are directly affected. That is less than 10 percent of mortgage holders.

My wife Tricia and I, after a sometimes frustrating search through the suburbs of South West London, ended up in a derelict detached house in East Sheen with a beautiful view of Richmond Park.

We needed a large mortgage of £115,000, which given my modest Guardian newspaper salary – which had barely moved while I was abroad – was a big ask.

The mortgage market then looked very different. It was dominated by the mortgage banks, which had very strict ratios between income and loan size (2.5 times was considered a stretch). Big banks were largely fringe players.

Finally, I got a 25-year loan at a discounted rate of 14.75 percent from Confederation Mortgage Services (an offshoot of Canada’s Confederation Life).

The burden of repayments, along with my daughter Jessica’s fees at Godolphin & Latymer in nearby Hammersmith, quickly drained our family finances.

Many exhausting meetings were held with my NatWest bank manager in Putney, who feared that a surging overdraft would drive me over a financial abyss. A desperate search for a cheaper alternative began.

The newspapers’ personal finance pages raved about the wonder of foreign currency mortgages offering loans at a fraction of the cost of UK counterparts.

The cheapest was the Japanese yen mortgage offered by the investment bank Schroders, an intermediary, the Euro Group. For a modest arrangement fee of around £1,000 it was possible to lower the interest rate to 2 percent. A monthly charge of £1,413 would be reduced to just over £200. Happy days. What could go wrong?

A lot, as it turned out. At first it was a huge relief. As the financial editor of a national publication, it seemed the right thing to do (as I told anyone who asked) to take advantage of a huge arbitrage—the difference between London and Tokyo rates—to test my prowess as a reader of markets. to show.

Then, on August 2, 1990, Iraqi ruler Saddam Hussein invaded Kuwait with a force of 100,000, claiming that the wealthy oil state was part of his sovereign territory.

On January 30, 1991, with Kuwait’s 600 oil fields on fire, Operation Desert Storm began to recapture Kuwait. Sterling plummeted from ¥240 to ¥184 as investors sought a safer haven for the UK, which held vital interests in the region.

The impact of the over 22 per cent crash was that £23,000 or so was added to the original loan. More concerning was something I hadn’t noticed. If there was a sudden, large movement in the pound-yen exchange rate, Schroders reserved the right to convert my mortgage back into pounds, which it did.

Suddenly I had a bloated mortgage and was paying base interest plus almost four percentage points.

The saving grace was that the official rate had temporarily dropped to 6 percent, so my new rate of just under 10 percent was significantly below that of the original Confederate mortgage rate. The client was of course much bigger. Still, the shock was palpable.

My anger was directed at the mortgage lenders, who I thought made the change suddenly and without any warning. A personal visit to the executive who manages the overseas mortgage scheme at her posh Schroders office in the city met with no sympathy and I was denied a path back to the yen.

The City lawyers I consulted said I may have a case. But they added that the legal costs of redress would make it inadvisable.

I objected and accepted my punishment. My experience as a currency trader had been a disaster.

The biggest worry was admitting to my wife that my plan had gone horribly wrong. I didn’t tell what had happened until years later, when my salary prospects were better and household finances were back in order.

My experiment to outsmart the UK mortgage market turned out to be a horrific mistake.

It may also be why I’m cruelly unsympathetic to homeowners who now whine about higher rates.

In the 14 years since the great financial crisis, borrowers have enjoyed an almost free ride. This is only now coming to an end as the country faces a halt to super-low interest rates and money printing.