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The ongoing Brexit saga has been creating much uncertainty for those working overseas. One possible ray of sunshine for expats who own property in the UK, is that the Government might use its newfound sovereignty (if and when article 50 is triggered) to reverse European mortgage rules that made it harder for borrowers with foreign currency earnings to qualify for a home loan.
The Government might see this as a good way of demonstrating that it has genuinely taken back some control from Brussels, however this could take some time and in the interim, there are still solutions out there that you can access with the help of an experienced mortgage adviser.
The European Union’s Mortgage Credit Directive, which was implemented in the UK in March 2016, significantly tightened the rules on foreign currency mortgages, which are defined as either loans denominated in a currency that is different to that of the borrower’s income; or loans denominated in a currency that is different to that of the borrower’s country of residence.
The new rules required lenders to take extra steps to protect borrowers against exchange rate risk. Lenders must now warn borrowers about the risk of currency market fluctuations affecting their home loan and also, in some instances, provide the borrower with the option of transferring their loan into a new currency.
These MCD rules made it considerably more onerous for lenders to offer foreign currency mortgages and therefore resulted in their taking a much more cautious approach. This has been detrimental to expats, who have found it harder to qualify for a home loan or have only been able to borrow lesser amounts due to stricter affordability tests.
Private Finance managing director Simon Checkley says: “The Chancellor’s Autumn Statement and next year’s Budget are likely to be fairly Brexit-focused with the Government looking to show some of the potential benefits of leaving the EU.
“I would not be surprised if there is a nod to some of the European legislation that the Government would like to do away with in the fullness of time.
“However, any reversion of MCD rules on foreign currency loans is not likely to be imminent. Luckily, in the meantime, we do still have access to a number of lenders who are willing to offer mortgages to clients with foreign earnings, albeit on less generous terms than were available previously.”
Clydesdale Building Society, for example, no longer accepts borrowers who are paid in a foreign currency and those lenders who have remained in this market have had the opportunity to cherry pick only the most creditworthy borrowers or increase their rates.
Santander will still lend in five major currencies, but the income multiples it will allow you to borrow have fallen to 1 or 2 x income rather than the 4 or 5 x income it allowed previously.
Checkley adds: “Some of the smaller building societies are proving to be more sympathetic to expats now. The best advice for anyone who finds themselves in this situation is to speak to your mortgage broker to find the most appropriate lender for your circumstances.”