Joining the euro remains a distant spectre for Britain, and that's good news for homeowners with the nerve for a high-stakes gamble. They have the chance to win - or lose - thousands with a foreign currency mortgage deal.

There are two ways borrowers can use foreign currencies to cut mortgage bills. The first, and most risky, is to borrow foreign currency to pay for a house in the UK. The most common choice is either a euro or a dollar mortgage, though yen-based mortgages are also available.

They can seem attractive because interest rates in the eurozone, America and Japan are lower than in the UK, so borrowing is cheaper. But the main advantage is the potential for borrowers to benefit from currency swings. If sterling rises in value against the currency borrowed, the value of the loan falls. Of course, if sterling falls, the loan's size increases.

Industry commentators suggest foreign-denominated mortgages as very high risk, but with high rewards. Borrowers taking out a foreign currency deal can make significant savings if the currency swings are in their favour, but it can also cost them dear. Foreign currency mortgages are only for people who can afford the risk.

The second option is a sterling mortgage with the interest rate linked to a foreign rate. Typically, these mortgages are variable-rate deals that rise or fall in line with euro, swiss franc or US dollar interest rates. Currently, these rates are lower than UK rates, but if they rise, so will the mortgage.

Other deals linked to foreign currencies and available from brokers include a euro tracker, funded by Derbyshire, that ties in borrowers for five years and has an initial rate of 4.31%.

For borrowers wanting to link to the dollar, mortgage interest rates can be even more competitive, provided they take a long-term view. Currently aten-year mortgage funded by Leeds Building Society that tracks American rates and starts at 3.49%. After six months it rises to track the threemonth rate at which US banks lend to each other.

Interest rates in the eurozone have not changed since 2003, while the Swiss base The likelihood is that euro and Swiss base rates will remain stable. However, borrowers need to think carefully about what they want. For those who want the security of knowing exactly what they will pay, a fixed rate deal would be better.

Foreign currency-linked mortgages can also help to keep down costs for people with buy-to-let properties. An individual in Eastbourne with a portfolio of 12 properties moved three on to Scarborough Building Society's dollar-linked tracker loan, which has an initial rate of 3.99%. The loan is denominated in sterling.

The main attraction was the low interest rate. 'The rates were competitive, and with a growing family I need to make sure I don't expose myself to undue risk,' he says.

Copyright © 2005 First Mortgage Trust