The Swedish bank, within its UK network, attracts high-earning borrowers from a professional background. Many receive income in different sources including foreign currency.
Its decision to discontinue foreign currency mortgage lending raised questions among brokers.
Ian Gray, senior partner at Kinnison, said: “We were surprised to hear that Handelsbanken opted out of currency mortgages. Whilst it’s understandable that it will not actually lend in other currencies, against UK property, the fact that it also won’t recognise non-Sterling income or interest-only repayment vehicles came as a real surprise.”
Under MCD, a mortgage becomes a foreign currency loan if the customer receives the income or holds the assets from which the loan is to be repaid in a different currency.
Gray said, particularly in London, there was a significant segment of the population who had some kind of currency exposure. As well as earnings in US Dollars or Euros they have investments in other currencies which will be used to repay an interest-only mortgage.
He added: “We think it should absolutely review the decision because it will rule out many clients who would otherwise be perfectly suited as Handelsbanken’s target customer.”
A spokesperson from Handelsbanken said: “”We will not be in a position to offer new foreign currency mortgages at the point that the MCD is introduced on 21 March. However, we are actively reviewing how we might reintroduce this product option in future.”
Many banks and building societies decided to exit the foreign currency mortgage market when the Mortgage Credit Directive ushered in additional checks for lenders to carry out.
The directive states consumers can convert the mortgage into an alternative currency if there is a 20% fluctuation between the two currencies involved in the transaction. Alternatively there must be arrangements in place to limit the exchange rate risk to which the consumer is exposed by taking out a foreign currency loan.
Gray said: “If high-street lenders such as Santander can handle the monitoring requirements around currency lending, then one would think that Handelsbanken should be able to so the same.”
Simon Gammon, head of Knight Frank Finance, said he was ‘delighted’ the bank was reviewing its decision, describing them as a ‘fast growing’ bank and an important player in the UK.
“A number of major lenders such as Lloyds Banking Group withdrew from this market leaving those borrowers looking for mortgages of less than £1m with a lot less choice,” he said. “The million-plus market is still well served by the private banks which have continued to offer foreign currency mortgages but outside that market there is less choice, the more lenders the better.”
Gray said Handelsbanken’s decision had put some of his clients in a difficult position.
“Many of our clients have an element of foreign currency exposure and will be all but shut out from the high street lenders, save for one of two,” he said. “This puts them at the mercy of private banks most of whom require a pretty significant wealth management relationship in order to entertain the idea of mortgage lending.”
He said Handelsbanken historically was happy to lend without the requirement of assets under management and had a flexible underwriting attitude for the right client.
“Without a change of decision, this will push more clients to those banks which demand this wider relationship – which isn’t always what the client wants or needs,” added Gray