Mortgage Credit Directive March 2016

UK and foreign nationals working abroad and paid in local currency will see their mortgage options reduce under European regulations being introduced next year.

A string of lenders have already withdrawn from offering UK mortgages to foreign nationals and expatriates.

Their departure from the sector has been triggered by the EU Mortgage Credit Directive 21st March 2016. Amongst several instructions, there is a requirement for lenders to monitor exchange rate fluctuations and warn borrowers if the rate breaches specific limits for primarily borrowers resident in the UK and paid in a foreign currency.

For mortgages denominated in a foreign currency, should the exchange rate move against the borrower, lenders will be obliged to offer the option of switching the loan into sterling, effectively shifting the currency risk from borrower to lender.

These new rules mean lenders have to install expensive monitoring systems and send out regular warning letters. As a result many have decided to leave this area of mortgage lending.

Under the law of unintended consequences, the expatiate working and resident abroad has become collateral damage. Indirectly, the new regulation has affected them. Many lenders have taken the decision that where there is any element of foreign income they will not accept an application. This will include existing expatriate borrowers wishing to move home using their current provider.

Expatriates who are paid in sterling are not affected by the new rules.

We at IMP will still have access to lenders who will accept residential applications from expatriates resident in certain locations. We will also be speaking to potential lenders concerning their future plans.

At the moment pure buy to let mortgages are not impacted, although new rules will also apply to inherited property subsequently let and investment property let to family members.

Expatriates have not found it easy to source funding for UK property in recent years and it is not going to get any easier.

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