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A few weeks ago, we warned that changing EU regulations were set to affect anyone looking for a foreign currency loan. Under the Mortgage Credit Directive (MCD), effective from March 2016, lenders will be required to monitor exchange rates and issue ‘sufficient’ warning to customers of fluctuations. Predictably, a flurry of lenders have withdrawn their offerings from the market, among them large banks like Halifax, Nationwide and Lloyds. Indeed, there were fears that these loans would be near impossible to come by. This week, NatWest has assuaged those fears somewhat by announcing that they will continue to offer them.
With the introduction of the new regulations, it seemed that foreign currency loans would be more trouble than they were worth for the lenders. The word ‘sufficient’ is at the root of the panic. If a lender was judged, somewhat subjectively, to have offered insufficient warning, they faced having to offer an expensive and complicated currency swap to borrowers. More admin, more risk, and a headache-inducing burden of responsibility; little wonder lenders are choosing to prioritise their more cost-effective products.
The new regulations will affect some 200,000 Britons, most of whom either work for a large international body, or are Northern Ireland residents who nip across the border into the Republic for work. Those who live overseas, as well as earning in foreign currency, are in fact less likely to be negatively affected. As things stand, only a small pool of lenders will consider their mortgage applications, and these are specialists well used to dealing with foreign currency. They are unlikely to be fazed by the new rules.
In general, borrowers looking for foreign currency loans are perfectly credit-worthy, and that is why the news over at NatWest will be so welcome. The bank has announced that they will still offer foreign currency loans, joining TSB and Santander; all three will continue to operate in this sector. NatWest have said they will only monitor the primary foreign currency for each loan, and will implement the proposition in January.
Sarah Taylor, service development manager at NatWest, says: ‘The MCD is a significant piece of legislation for the industry but one that we are well-placed to deal with. We believe it is sensible to adopt the requirements in mid-January well ahead of the deadline. By switching directly to the new Mortgage Illustration, it will mean making only one change to our systems which has to be good news for intermediaries.’
If you’re earning in a foreign currency, now is the time to get in touch with a broker; there is still a small window open if you want to act before the changes come into force. Although the deadline for companies is March most, like NatWest, will start playing by the new rules early in the new year to give themselves a head start. But the announcement from NatWest will put a few minds at rest. Despite the more complex regulatory framework, finance will still be available on the high street.
Doors are not being slammed shut for borrowers, as was initially feared; but it is more important than ever to speak to a broker. If you will be affected by these changes, please do get in touch with Enness today. One of our specialist brokers will be more than happy to talk through your options with you.