Multi currency mortgage declared illegal by Spanish supreme court

The Supreme Court in Madrid has ruled that a multi currency mortgage provided by Barclays Bank (now Caixa Bank) is illegal.

Multi currency mortgages were offered to many consumers throughout the property boom in Spain.

The product was most commonly taken out in Japanese Yen or Swiss Francs and enabled the borrower to take advantage of the lower rates of interest relating to those currencies.

The Supreme Court has ruled that the multi currency mortgage was a complex financial product that presented too much of a risk to the average consumer.

The court stated that the multi currency mortgage should have been marketed carefully stating the risks of taking out such a loan.

The mortgage left the borrower not only linked to the interest rate of the currency but also of exchange rates between the Euro and the chosen currency.

Fluctuations in the rate of exchange led to an increase in the monthly payments.

The exchange rate movements can be volatile and carry a much greater likelihood of significant change than interest rate rises.

Many consumers have found themselves with a dramatically increased level of debt due to exchange rates.

The Supreme Court has declared that this type of mortgage is not suitable for a typical house buyer.

The borrowers were not likely to have the knowledge or capacity to mitigate risks involved with this kind of loan.

In this particular case, it was deemed that Barclays Bank did not adequately explain the nature of the risks relating to the foreign currency and the equivalent value in Euros.