Mortgage borrowing has just become that much harder for expats as new European mortgage rules mean many hopeful buyers could find they are locked out of the market next year.
Workers with foreign income looking to borrow to fund buying a home overseas will have to negotiate the tough terms of the European Mortgage Credit Directive next year.
The strict conditions laid down by regulators mean many banks and building societies will simply stop offering loans to anyone offering overseas income as proof of earnings.
Britain’s biggest building society, The Nationwide, which is also one of the largest mortgage lenders, has already stopped considering foreign earnings to support borrowing for home loans.
Brokers expect every mainstream lender to follow the Nationwide’s lead.
The mortgage directive insists mortgage lenders must check into the affordability of loans for each customer, but many lenders fear volatile foreign currency exchange rate fluctuations mean basing decisions on future currency positions is too risky.
For instance, already this year, the Swiss franc unexpectedly decoupled from the euro, pushing up the cost of repayments for thousands of borrowers as the exchange rate soared.
Tens of thousands of borrowers across the Eurozone who had gambled on rate parity continuing for the life of their loans were plunged into financial crisis.
“It’s quite simple, lenders must make a risk assessment and stay within the rules set by the regulators,” said a spokesman for the mortgage lender trade body, the Council of Mortgage Lenders.
“If a lender gauges the risk too high, then the product could be withdrawn.”
The Nationwide stance is if a borrow has any income paid in a foreign currency, even if they have enough earnings in Pounds in the UK to cover the repayments, the loan will still be treated as a foreign currency loan.
The main issue is for investors receiving dividends from foreign companies that have acquired UK businesses. If those dividends are paid in euros or US dollars, they could exclude them from borrowing.
Age is also an issue at both ends of the scale.
Young borrowers do not earn enough to pass the stricter affordability test, while those in their late 50s are considered too old to repay a mortgage by their retirement age.
The new directive comes into force from May 2016, but lenders are expected to start working within the guidelines over the coming months.