A few years ago, at the height of the property boom and the economic crisis, the rate that commonly regulates mortgages for homebuyers in Europe was at an all-time high. The rise in the Euribor caused two situations: consumers looking for cheaper mortgages and financial institutions taking advantage of the occasion to offer schemes that were apparently more advantageous than those indexed to the Euribor.
This is when the multi-currency mortgage, which thousands of people took out without being aware of the high risk, became very popular. Hence the question, can a multi-currency mortgage be annulled? The answer is often yes.
The multi-currency mortgage is governed by the Libor, an interest rate that moves according to the economic outlook of each country. In this way, it is possible to take advantage of the enormous differences in the price of currency from one country to another. Thus, while the Euribor was, for example, at 3.25%, the loan could be referenced, as the vast majority of multi-currency mortgages did at the time, to the Japanese Libor, which was then at 0.30%. Given these differences, who would not have preferred this reference rate?
The problem lies mainly in the fact that taking out a multi-currency mortgage is only advisable if the person taking it out has a very high level of financial knowledge, because at the end of the day it involves playing with currency exchange rates.
We cannot forget that the ordinary citizen, the one who is going to buy a house with his savings, is not usually an expert analyst of international financial markets. His/her objective, when taking out a multi-currency mortgage, is none other than to buy a house paying a lower interest rate for it and not to manage or speculate with the currency exchange rate, something for which he knows he is not prepared in the vast majority of cases. It is for this reason that you should be informed about the risks that you assume when taking out a multi-currency mortgage.
Meanwhile, the bank does have analysts capable of foreseeing whether the Euribor, the Japanese interest rate or any other rate may undergo significant fluctuations in the near future and also knows very well what are the rules of the game that it is offering to its client.
So, for the time being, in a commercial relationship where there are conflicting interests – the borrower who wants to pay less and the lender who wants to earn more – the game is started with at least one point difference on the scoreboard.
In this way, what really makes a multi-currency mortgage voidable is what the banks did not tell the consumer: the very high risks assumed by those who take it out. Among them: that the debt can grow to infinity, the monthly instalment can rise without limits and that you cannot change the reference of the Libor of the currency whenever you want but only once a month and what that means.
To this must be added that it does not make much sense to offer a mortgage loan for an explicit amount of euros, converting that amount to yen or any other currency, so that the mortgagor has to pay back the loan again in euros. This, in addition to incurring new charges for currency exchange fees, necessarily involves fluctuations that are usually unfavourable to the borrower.
As has already happened with other products such as mortgage loans that included floor clauses, which were referenced to the IRPH or with many swap contracts, it seems that banks once again exploited the trust placed in them by their customers who are not experienced in the financial world, to sell them a product that they knew in advance would probably end up being detrimental to them. This malpractice is causing the massive nullification of contracts and clauses in the courts, and the return of millions of euros unduly charged to consumers.