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Two weeks ago the market was shaken by criteria changes for overseas clients looking for a foreign currency loan. High street lenders Halifax, BM Solutions (the buy-to-let arm of Lloyds Banking Group), Skipton Building Society and the Bank of Ireland have announced that they will no longer consider applicants hoping to secure a foreign currency loan with which to buy in the UK.
Nationwide was the first high street lender to pull out back in April of this year, and the Bank of Ireland and the Post Office have become the latest to follow suit. Their restrictions will come into effect over the next few weeks.
This move will affect all our clients applying for a mortgage using foreign currency of any kind. It doesn’t matter whether you’re a wealthy foreign national buying a property for your children’s schooling, a short term expat refinancing the family home or even a London city worker for an American firm paid in US dollars – you will soon be subject to these more extensive rules.
Mortgage rates may change daily but the regulatory side of the market is usually a slow-moving beast. New rules, however, often spook lenders and things can start to change overnight. Unusually, two major regulatory upheavals have now come within two years of each other.
The first was the Mortgage Market Review (MMR) by the Financial Conduct Authority (FCA) in April last year. Amongst other things, this radically changed the way lenders must assess applicants’ personal circumstances. It signalled a move away from the historic ‘we’ll lend you four times your salary’ model to an ‘affordability’-based one where your every expenditure must be reviewed and weighed.
The second is the upcoming Mortgage Credit Directive (MCD), a brainchild of Brussels aimed at homogenising the European mortgage market in March 2016. The problem for anyone seeking foreign currency loans is that the MCD is based on a single currency, the Euro.
The result is a real headache for lenders: more admin, more risk and a huge burden of responsibility. The regulations require lenders to monitor the exchange rates and issue ‘sufficient’ warnings to clients as to their level of exposure. The word ‘sufficient’ is at the crux of the panic; any warning deemed ‘insufficient’ may lead to lenders having to offer an expensive and complex currency swap.
Lenders keen to focus on what is most profitable are increasingly looking to cut their admin and regulatory exposure. As Skipton Head of Products Kris Brewster puts it, “it simply isn’t cost effective for us to manage the currency risk”. It’s not just the high street banks either; Clydesdale Private Bank has also announced they will not accept these types of applicants anymore.
Will these changes mean you can no longer get a foreign currency loan? No.
But if you’re buying UK property through a UK lender and happen to earn in a different currency, then your mortgage options are rapidly reducing. Your future mortgage costs may also increase.
Ergo, if you’re overseas (or in the UK but are paid in a foreign currency), with no onshore assets, and want to buy here, act now! This window won’t be open for long…