The Currency Question in Product Finance

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Finance

9 July 2026 · 12 min read

Why the currency choice matters THE RATE DIFFERENTIAL · WHAT IT MEANS IN PRACTICE

In product finance, the borrower draws a facility against their investment portfolio. The facility is extended in a lending currency. The most common options are CHF, JPY, EUR, SGD, USD, and GBP. The asset and its rental income are both denominated in GBP. The interest cost accrues in the lending currency. The Swiss National Bank  and the Bank of England  publish their respective policy rate histories for reference. Facility rates move broadly in line with policy rates but vary by institution and borrower profile.

This creates a structural question. If borrowing in CHF at 1.5% and the asset yields 6%, the net income after interest is £48,000 per year on an £800,000 facility. If borrowing in GBP at 5.5%, the same asset yields £16,000 net. The differential is £32,000 per year.

The differential exists because international private banks can source funding in CHF and JPY at rates that are structurally lower than GBP. The investor benefits from the spread between those rates and the GBP asset yield. But the spread comes with an exposure: if the borrowing currency strengthens against GBP, the effective interest cost rises.

The bar chart above shows the income comparison across all five currencies at current indicative rates. The question is not simply which currency offers the highest income. It is which currency offers the right balance of income and risk for a specific investor in specific circumstances.

The framework for deciding THREE QUESTIONS BEFORE YOU CHOOSE A CURRENCY

There is no universally correct borrowing currency. The right choice depends on the investor’s specific circumstances. Three questions narrow the decision before any rate comparison is run.

The first is portfolio composition. Investors who already carry significant concentration risk in a single currency or geography  will find the currency decision more layered. If the investment portfolio pledged as collateral is denominated primarily in USD, borrowing in CHF introduces a bilateral currency exposure: CHF versus GBP on the asset side, and CHF versus USD on the portfolio side. An investor whose portfolio is in EUR may find EUR borrowing simpler to manage even at a higher rate, because the currency exposure is already present in their balance sheet.

The second is income currency. If the investor’s primary income is in AED, which is pegged to USD, they are already accustomed to managing a USD reference rate. Introducing CHF borrowing adds a currency they do not otherwise interact with. That is manageable but it is a real consideration.

The third is planned tenure. A short hold of three to five years carries more currency risk per unit of time than a ten-year hold. The longer the facility runs, the more time the rate differential has to compound and the more room there is to absorb adverse currency movements without the structure ceasing to make sense. CHF and JPY borrowing tends to favour investors with a longer horizon.

The break-even question CURRENCY RISK · HOW MUCH BUFFER DO YOU HAVE

Once the three questions above have been worked through, the rate comparison becomes the central calculation. The question most investors ask is how much the currency needs to move before the advantage disappears. The more complete question is: at what appreciation level does the lending currency make this structure less efficient than simply borrowing in GBP?

For CHF at 1.5%, the Swiss franc would need to appreciate 267% against GBP before the interest cost matched GBP borrowing. That is not a realistic scenario on any foreseeable planning horizon. For JPY at 2.2%, the break-even is 150%. For EUR at 3.2%, it is 72%. For SGD at 3.75%, it is 47%. For USD at 5.35%, it is 3%.

The USD figure deserves particular attention. A 3% appreciation in USD against GBP eliminates the entire cost advantage. That is well within normal quarterly currency movement. USD product finance is therefore functionally equivalent to GBP borrowing in terms of yield spread, with the addition of currency exposure. The European Central Bank  has moved rates materially since 2022 and EUR lending costs have risen accordingly. The buffer remains meaningful at 72%, but investors with EUR-denominated portfolios may find the natural hedge more valuable than the rate differential alone.

The chart above shows where each currency breaks even and how the income erodes as currency appreciation increases. For CHF and JPY, the structure remains viable across a wide range of adverse scenarios. For USD, the window of viability is so narrow that any meaningful currency movement closes it.

What scenarios look like IF THINGS GO WELL · IF THEY DO NOT

The break-even calculation is a static picture. A useful complement is to model what a directional currency move does to annual income. The table below shows three scenarios for each currency: GBP weakens 10% (the borrowing currency depreciates, your cost falls and advantage grows), no movement (the baseline), and GBP strengthens 10% (the borrowing currency appreciates, your cost rises and advantage shrinks).

For CHF borrowers, a 10% adverse move reduces net income from £48,000 to £43,200. The structure remains significantly ahead of GBP borrowing. For USD borrowers, the same 10% adverse move reduces net income from £17,200 to £15,480, falling below the GBP baseline of £16,000. For historical exchange rate context across these currency pairs, the Bank for International Settlements  publishes long-run series.

The scenario table also illustrates the upside. If GBP weakens 10%, CHF borrowers earn £52,800 per year, £36,800 more than GBP borrowing would have produced. The asymmetry matters: CHF and JPY offer meaningful upside when conditions favour them and substantial protection when they do not.

What the stress test looks like MODELLING THE EXIT POINT IN ADVANCE

The stress test is straightforward. Take the chosen borrowing currency, the current rate, and the GBP asset yield. Calculate the net income at zero currency movement. Then model the net income at 10%, 20%, and 30% currency appreciation. Find the point at which the net income falls below what GBP borrowing would have produced. That is the exit threshold. The waterfall chart in the previous section shows this visually for each currency: the point at which a row turns red is the break-even. For CHF that point does not appear within any realistic planning range. For USD it appears almost immediately.

If the exit threshold falls within a range that is historically plausible, within two standard deviations of the five-year exchange rate movement for that currency pair, it warrants attention. If it falls at 267% appreciation, as it does for CHF, it can be noted and monitored but it does not change the fundamental decision.

The exit plan is the other half of the stress test. An investor who has committed to CHF borrowing should know in advance at what point they would consider switching to GBP or EUR, and whether the facility terms allow that switch without prohibitive costs. Facilities that allow currency switching give the investor meaningful protection against sustained adverse currency movement. Those that do not require a more conservative initial currency selection.

What this means in practice FOR INVESTORS ALREADY USING PRODUCT FINANCE

For investors who have read the preceding article in this series  and are considering product finance for a UK property acquisition, the currency question should be answered before approaching a bank, not after. The bank will have a preferred currency and a preferred rate. The investor should arrive with a view on which currency suits their portfolio composition, income currency, and time horizon.

The rates in this article are indicative as of mid-2026 and will change. The framework for evaluating them does not change. The differential, the break-even point, the portfolio composition, the income currency, and the planned tenure are the variables. The decision follows from those inputs, not from the headline rate alone.

Related reading FROM THE 29K INSIGHTS LIBRARY

This article is the second in the product finance series. The first covers the structure, mechanics, and 10-year balance sheet comparison: Borrow Against What You Have. Buy What You Want. Keep Both. . For the long-term GBP currency context, see Why Mature Markets Still Matter in a Concentrated Portfolio .

Important notice

Capital is at risk. The value of property and the income it produces can fall as well as rise, and an investor may get back less than they put in. Past performance and the market data referenced here are not a reliable indicator of future results, and nothing in this article is a forecast.

This article is for informational purposes only. It is not investment advice, tax advice, legal advice, or financial advice of any kind. Nothing in this article constitutes a recommendation, solicitation, or offer to buy, sell, or hold any asset or investment product.

Yield figures, capital growth estimates, market comparisons, and scoring frameworks presented in this article are indicative only. They do not represent guaranteed, assured, or projected returns. One size does not fit all: what is appropriate for one investor may not be appropriate for another, depending on domicile, tax residence, family structure, asset profile, risk appetite, and investment objectives.

International property investment involves complex legal, tax, and regulatory considerations that differ significantly by jurisdiction. Before making any investment decision, seek independent advice from qualified legal, tax, financial, and investment professional advisers in your own jurisdiction and in the jurisdiction of the target asset. Nothing in this article should be relied upon as a substitute for that advice. Capital is at risk.