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A string of lenders have already withdrawn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
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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