Applying for a UK mortgage when based overseas, especially when you are paid in a foreign currency, is a more difficult process than a regular mortgage application.
The Mortgage Credit Directive (MCD) brought in by the European Commission in 2016 turned many high street lenders off foreign currency mortgages due to the increased administrative and regulatory burden of monitoring foreign exchange rates.
This in turn made expat mortgages much less cost-effective for many of the larger lenders who rely on automated affordability checks, reducing the range of options available for borrowers.
Expat mortgage criteria is often more complex, the application process more complicated, and the products themselves more expensive than a standard UK residential mortgage.
There are essentially two types of expat mortgage – if the property is to be their primary residence, expats will require a residential expat mortgage.
However, if the borrowers are looking to make rental income while they work abroad, they will require a buy-to-let expat mortgage.
In the case of both, lenders will usually require a substantial deposit, and borrowers will be assessed on a wide range of factors to prove affordability and secure the mortgage. They include:
- Proof of residency Lenders will be looking to validate and verify the address history in the country borrowers are residing in. Therefore, it is a good idea to keep any utility bills or bank statements for current and previous addresses for at least the last 3 years.
- Deposit currency Fluctuations in exchange rates means it may be difficult for a lender to ascertain the size of an expat’s deposit if it is held in a foreign currency. For this reason some lenders require the deposit to be moved to a UK-based bank account at the point of application. Evidence of the source of the foreign currency deposit, through bank statements showing the build-up of savings for example, will likely be necessary.
- Repayment currency and applicant’s income MCD means that lenders must carefully monitor changes in exchange rates to ensure that foreign currency loans remain affordable for the borrower in the event of a sudden or dramatic change – for this reason some specialist lenders will have an ‘approved currency’ list, and will look at each application on a case-by-case basis.
Buy-to-let mortgages are assessed on the expected rental income of the UK property rather than the income of the applicant, so this should be enough to secure the loan and show repayments can be met. For this reason, the currency the applicant is paid in is less important.