Expats, Mortgages and Foreign Currency

We note Skipton Building Society has become the latest lender to stop lending in foreign currencies.

The bank’s policy applies from October 1 and follows moves by Nationwide and Lloyds Banking Group and could prove devastating for expats earning their wages in foreign currencies.

All banks are putting the blame on tough new EU mortgage rules set to come into force next April, particularly rules to protect mortgage borrowers against exchange rate fluctuations.

Skipton said it is no longer cost effective to manage the currency risk.

The banks will still consider foreign currency income for existing customers moving home but only where no new lending is required.

The building society said any foreign currency income must be converted to Sterling by the customer before use.

The decision is difficult for the millions of Brits living abroad who want to own property in the UK and take advantage of a stable property sector.

It could also see restrictions to the London property market for wealthy foreign nationals who invest in the capital, although many will use cash purchases.

Am I affected?

Borrowers living or working abroad need to consider if they are affected. The key factor is whether the mortgage and the income/asset from which the mortgage is to repaid are in the same currency.

In theory an expat living in Spain could take out a Sterling mortgage and repay it with his Sterling income. This would not be a foreign currency loan.

If you are an expat living in New York and paid in dollars but looking to take out a Sterling mortgage with Nationwide then you will be rebuffed no matter how much you earn.

Similarly, and more pertinently for many, a man living in Northern Ireland, with a Sterling mortgage, but with a job over the Irish border and paid in Euros would require a foreign currency loan.

The same applies to individuals who work on the continent and are paid in Euros but return to their Sterling mortgage loan in the UK.

The rules will only apply to residential mortgages and not currently buy to let deals in the UK which will be a relief to expats looking to become UK landlords.

The EU rules were initially intended to affect buy to let mortgages as well, but in the end they were exempted during the political horse trading in Brussels. This means it is possible they may be included at some point in the future.

What to do?

Your first act should be to take advice on your position. Even if you have an existing mortgage you may not be able to loan more money through a remortgage if you are paid in one currency and mortgaged in Sterling. It is restrictive even for existing borrowers.

Borrowers may consider shifting all or part of their income into Sterling if possible to match the mortgage payments.

Alternatively, if you have significant assets then you may be a viable private banking customer which have more relaxed rules around foreign currency lending.

We are able to assist in all these circumstances.