Thousands face struggle to get a mortgage thanks to new EU rules
A new EU rule will stop thousands of borrowers from getting a mortgage.
New rules being brought in by the European Union next year will reduce the availability of loans to multi-currency earners.
Some 200,000 people who are paid in a foreign currency and work for international bodies, as well as oil company employees and Members of European Parliament (MEPs), will have a hard time getting a mortgage after March 2016.
Residents who commute from Northern Ireland into Ireland and are paid in euros will also be affected.
It's all down to an EU Mortgage Credit Directive, which includes new rules for lenders that offer foreign currency mortgages. These are loans in a different currency to the currency the borrower is paid in, or from that of the country in which the borrower lives.
If the exchange rate between the currencies fluctuates by 20% or more, the new rules will force lenders to offer borrowers the option of switching currencies on their mortgage to that of their home country.
To save themselves having to offer this option, experts have warned that some lenders might stop offering foreign currency loans altogether. In fact, a few banks and building societies already have: Halifax, Nationwide, Woolwich, Skipton Building Society and Birmingham Midshires will no longer offer loans to foreign currency borrowers.
Santander and Market Harborugh Building Society have both pledged to keep going with the mortgages, but Santander said it will restrict loans to workers who are paid in a ‘major currency’ like dollars or euros.
Who is affected?
The worst off will be those who work for international bodies and get paid part of their salary or bonuses in at least one other currency.
If the borrowers can no longer afford to repay their mortgage without dipping into a currency other than what the loan was issued in, they’re in trouble. For example, American banks pay their employees’ bonuses in dollars which can trump the workers’ annual earnings, meaning that they rely on these bonuses to repay their mortgage.
Many foreign investors used to take out mortgages denominated in Swiss Francs as the currency was thought to be more stable in the nineties and early noughties. However, the value of the Swiss franc soared after the financial crash and made mortgage repayments totally unmanageable. The snag was that the borrower couldn’t switch their mortgage repayments to euros to minimise the damage.
This issue was highlighted by a recent foreign property scandal in Cyprus where a foreign currency mortgage issued in Swiss Francs spiralled out of control. Read Tony’s story in Hope for British buyers duped during Cypriot property purchases.
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