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UK Mortgage Foreign Income

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UK Mortgage Foreign Income (Part 1)

Thank you for joining us on The Mortgage Mum podcast for another episode. Those who’ve been listening know we’ve talked recently about contractor mortgages – but today we have a brand new topic. 

Today we’re focusing on those of you who are trying to get a mortgage with foreign currency income. It might be that you live abroad and you’re trying to get a UK mortgage, or perhaps you live in the UK but you generate some foreign currency income.

Over the next two episodes we’re going to answer all your questions on this. Today we’ve got two other podcast hosts – the lovely Tessa as normal, asking us your questions, and we’re also joined today by Maira, a Mortgage Mum broker who comes from Brazil. She very much understands the needs of a client that has lived abroad for a period of time.

Can I get a UK mortgage based on foreign currency?

Sarah: Yes, you can get a UK mortgage based on foreign currency income, but it does come with challenges and additional criteria compared to a standard mortgage. 

The key factor is that it’s a foreign currency. Not all lenders are comfortable with the added risk here, and we’ll talk more about that later.

Why can it be difficult to get a UK mortgage on overseas income?

Maira: It can be difficult because there are restrictions to the number of lenders that accept those overseas currencies. Not all lenders do this, and not all currencies are acceptable. Different lenders will accept certain currencies. So we really need to check the currency that the client receives and the structure of that income.

Are there plenty of lenders to choose from who accept foreign income?

Sarah: I did a little search before this episode, and I was pleased to see that there were some high street lenders that people will recognize. So as of today’s date, 22 October 2024, we’ve got NatWest, Halifax, Santander, HSBC, Family Building Society and some others that are a little bit more niche.

There are some specialist lenders as well. So it’s not the whole market. When you consider we’re dealing with over 60 lenders normally, less than 10 accept foreign income. So it is more restricted.

What the lender is looking at is the foreign exchange rate. As we know, the markets go up and down all the time and your income in a foreign currency, relative to the British pound, can change daily. The risk for a lender is to keep on top of that.

Something came into the industry in 2016 called the Mortgage Credit Directive, which introduced rules about foreign currency mortgages. Lenders now have to offer protection to borrowers and limit the type of currencies they can accept.

So there are a lot more criteria to meet with this directive. As a result, lenders are not always happy to do it – because it’s extra work for them and extra risk.

Do I need to declare my foreign income?

Maira: Yes, you need to declare your foreign income. If you’re employed by a foreign company, you’re going to have a payslip. That’s what we use for affordability. If you’re self-employed, you should declare your earnings to HMRC. So yes, all income has to be declared.

Can you get a UK mortgage if you work abroad and have foreign income?

Sarah: A lot of people think you can’t, but you can. You can work abroad and have a foreign income. But again, it is more complicated than if you were UK-based. There are specialist and high street lenders that will look at it.

HSBC, for example, are happy to accept foreign currency and happy if you are living abroad. However, they will ‘haircut’ the currency, which basically means you’re going to have less affordability than someone from the UK, even if you allow for exchange rate fluctuation. You’re not going to be able to potentially use all your income on your mortgage.

That’s really why you need the help of an advisor to translate things. What does that income mean? It’s not as simple as sitting with a calculator and typing in what you earn in your foreign currency and multiplying it by 4.75. That’s not the case.

If you’re working abroad and have foreign income, you’ll need to provide really detailed proof. You also need to have a good credit history. They may not consider your foreign credit history. You need to have good, established UK credit, as well. That can be a challenge if you’ve been living abroad for quite a while.

So there are some elements to consider from a lender’s perspective that can make it difficult – or even not allow it to happen. That UK credit history is really important because from a lender’s point of view, they need reassurance that you can keep up your repayments.

They’ll usually apply a stress test or haircut of around 20%. It fluctuates between each lender, but also depends on each currency. Euros typically have less of a cut off of the top, because the currency is considered to be more stable or more connected to the UK economy. It’s one of the currencies they’re happier with. 

Speak to an expert

We will work at times that suit you and your family, carrying out appointments via video call, telephone or email, giving you the benefit of first class service, around your own schedule, and in the comfort of your own home. So let us handle your mortgage today and find out how well we can look after you, The Mortgage Mum way!

Which currencies are accepted by UK lenders?

Maira: One high street lender has an extended list of currencies they accept. Some lenders just accept a few of them. The majority will accept euros and US dollars.

The best thing is always double check with a mortgage advisor, because we have access to that list. Just to name a few other currencies that are accepted, they include the Australian dollar, Swiss franc and a few others from European countries.

Sarah: Canadian dollars, Japanese yen and Singapore dollars are generally not a problem for us in terms of a mortgage. Some others that could be okay are Hong Kong dollar, Danish krone, Swedish krone and New Zealand dollar, but not always.

Are there any common foreign currencies that aren’t accepted by UK lenders?

Sarah: Yes, it would be currencies considered too volatile or unstable. They might be from developing or emerging markets. It’s just where the exchange rates fluctuate more significantly. I have some examples.

I used to work as a foreign exchange consultant at a travel agent’s, so you’d think I’d know how to pronounce them all, but I don’t!

The volatile currencies include Indian rupees, South African rand, Turkish lira, Nigerian naira, Argentine peso, Brazilian real, Pakistani rupee, Venezuelan bolivars, Egyptian pounds and Mexican pesos – they are all less widely accepted. The list is longer for foreign currencies that are not acceptable than for those that are.

What if it’s a joint mortgage and only one of us has foreign income?

Maira: We still need to find a lender that will accept the foreign currency. For the person in the UK earning pounds, it’s much easier because all the lenders will accept that. But when we’re using any foreign currency for affordability, it needs to be accepted by the lender.

What if I’m self-employed? Does this change anything?

Sarah: Not really. It can be a bit more complex than for salaried employees, but it’s possible. They see you as a higher risk because you are self-employed. When you combine that with foreign income, the process is probably going to need more documents and preparation.

They will need proof of income as always, and to see consistency over two to three years’ accounts or tax returns. They’re probably going to want to hear from a qualified accountant with recognised qualifications to make sure they’re happy, and to verify the details with bank statements and tax returns.

You may also need a higher deposit if you are self-employed. With foreign income being higher risk to them, that is generally the case with foreign income mortgages.

With both of those elements to your case, you should be looking at 25% or more deposit, and it really requires an advisor to find lenders that are going to be happy with the two elements together.

Maira: Just to add, sometimes the self-employed will declare their income to HMRC in pounds because they already have done a conversion.

They do their work, they receive their income in arrears, it hits their account in pounds and then they declare what’s on the bank accounts. Lenders will see those bank statements. So although you are self-employed and declaring in pounds, if you’re receiving a foreign currency, we still need to run it by the lenders and check if they accept that.

What if I have bad credit? How does this affect the process?

Maira: We really need to investigate what’s causing the bad credit, and double check with the lender if you will fit their criteria. The currency itself is a lot of risk from the lender’s perspective, and if there is additional bad credit here it can complicate things a little bit more.

What else do you want to highlight before we come back for part two?

Sarah: Just to reiterate that this is a real niche area of the market and definitely needs careful advice. Make sure you’ve got enough time for you and your advisor to really gather everything you need and look at it together. It will help you feel more confident.

Next time you have to go through the process, there might be elements that you can do before your next remortgage or purchase to help things run more smoothly. So definitely seek to understand the process, working with your advisor.

Maira: I agree with everything Sarah said. When you receive foreign currency and you’re planning to buy a property in the UK, speak to someone who understands the process and can explain what’s going to be required from you.

Be clear about all the documents required and how the lenders will assess your case, so you’re prepared for house hunting for your property here.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE. 

Speak to an expert

We will work at times that suit you and your family, carrying out appointments via video call, telephone or email, giving you the benefit of first class service, around your own schedule, and in the comfort of your own home. So let us handle your mortgage today and find out how well we can look after you, The Mortgage Mum way!

UK Mortgage Foreign Income (Part 2)

A very warm welcome to this episode of The Mortgage Mum podcast.  

This is part two of our foreign income series. In the last episode, we covered lots of your questions on foreign income mortgages, and we’re going to cover the rest of them today. 

We’re joined again by the lovely Tessa and Maira to answer the questions you’ve been sending in. If you missed the last episode, Maira is a broker at The Mortgage Mum and comes from Brazil. 

She deals with clients all the time from all kinds of different places and understands more than most people the challenges of having a foreign income and getting a UK mortgage.

What kind of deposit should I have?

Maira: There are a couple of things we need to check here, including the Loan to Values required by lenders that accept foreign currencies.

One of the things that affects the deposit is the conversion of currency and, as Sarah mentioned in the previous episode, there is a haircut. The lender will deduct a further percentage after the conversion, and because that reduces your income it might affect affordability. 

You may need to put in a bigger deposit than normal, but there isn’t a set rule that will be at least 10%, 20% or 25%. It varies on each case.

Does it make a difference if I’m a First Time Buyer? 

Sarah: I can understand why people might think it would make a difference, but in truth it doesn’t. A First Time Buyer is a normal mortgage applicant. You sometimes get some added benefits or schemes that are First Time Buyer friendly. 

Unless you’re a First Time Buyer becoming a first-time landlord, generally you’re going to be treated the same as other mortgage applicants. When it comes to foreign income, it’s exactly the same. We’re going to look at your income, affordability and all your paperwork in the background.  

The only thing to point out is that some First Time Buyers don’t realise that they need to build up credit. This is the case whether you have foreign income or not. It’s always a good idea to understand your credit report well in advance of needing a mortgage. 

Having a credit card, paying it off regularly and not going up to the credit limit is really good for your credit report, to build some data to get you a higher score. That’s something we can talk about in more detail in another episode, but it’s worth mentioning.

If you’re getting foreign income as well, you may have even less on your UK credit report – so that’s just something to be aware of.

What if I want to purchase the property as a Buy to Let?

Sarah: As we’ve said in previous episodes, Buy to Let mortgages are less to do with your income and more about the rental value of the property. Lenders are really looking at how much deposit you have, how much you will rent that property out for and if that’s verified with a valuation. 

Then, there’s a ratio of how much the mortgage payment needs to cover the rent, with some extra. That can vary between lenders. 

So, it’s not really about your income, although they will still want bank statements to verify that you are a secure client with good credit. They will see you are paid in foreign income,  and may request extra documents around that or ask more questions. 

But in terms of getting a Buy to Let mortgage, the process is different and it shouldn’t affect that. The lender just needs to be comfortable with both elements.

Should I try the lender that I have my bank accounts with first?

Maira: I think you should first seek advice from someone that really understands the process of using foreign currency. Speak to a mortgage advisor, but of course, it doesn’t stop you checking with your bank. 

It might be that they can offer you a mortgage. But mortgage advisors have access to more lenders – we can compare and get you the best deal for your case.

How long does the application process take? 

Sarah: It will tend to take longer, because the lender has to look at more documentation and you are at the mercy of the underwriting team’s timescales. The more documents they need to assess, the longer it’s going to take. 

As the client, you are in control of a lot of that. It can take a lot of time to make sure we’ve got everything we need from you. So if you’re super organised, that really helps your application go through more quickly. 

Although it can be boring to go through all your paperwork and put it into categories, it’s really useful because it makes the whole process easier. The underwriters may have more questions to help understand your income, where it comes from, how stable it is, and the intricacies around that – again, being organised will help here. 

On the average mortgage, it can just take a day to get a mortgage offer, or it can take 12 weeks or longer. It really depends on the journey, the quality of the submission from your advisor and the quality of the paperwork and information from you.

The better organised you are, the quicker that we can be. Maira, what would you say the average time is? The average completion time is three months, I’d say the average offer time is what, four to six weeks?

Maira: Once the application itself is submitted to the lender it could be two to three weeks. It all depends on the packaging. As advisors, we need to check all the documents and get it all in order. 

With foreign currencies, sometimes documents are in another language and need to be translated. That takes a little bit more time. But I would say generally two to three weeks.

Speak to an expert

We will work at times that suit you and your family, carrying out appointments via video call, telephone or email, giving you the benefit of first class service, around your own schedule, and in the comfort of your own home. So let us handle your mortgage today and find out how well we can look after you, The Mortgage Mum way!

How does the remortgaging process work with foreign income? 

Maira: It will be exactly the same. We need the same documents. It’s like reapplying for a mortgage. Obviously, there is less paperwork and it’s a little bit more straightforward, but we still need the same documents as the first application.

What other factors impact eligibility on foreign currency mortgages? 

Sarah: It’s worth adding more context around what lenders are looking for and why. From the client’s point of view, you want to borrow money, you’re earning money and you want to get a mortgage. 

From the lender’s point of view, since 2016 they’ve had to adhere to the Mortgage Credit Directive rules around foreign currency mortgages. That can restrict loans to certain currencies that are considered more stable, and sets criteria that they have to meet. 

As a result, lenders have to be more stringent in what they understand about your income. They want to see what the currency is, because the rate of exchange varies hugely between currencies. They want to make sure that it’s stable. 

That’s why they take a little bit off your income to allow for your exchange rate going up and down. It might impact how much you’re actually earning in UK sterling. 

The factors impacting eligibility are the same as other mortgages. Your credit history is a big factor, as is the currency and exchange rates, and your paperwork – your proof of income. 

Stability is the core word to think about. Lenders are always looking for stability, safety and security. They’re lending a lot of money. They want to make sure your house is worth its price, that you can pay comfortably and you’re not going to get into any financial difficulty.

That’s also our job as your advisor, to think for you and make sure you can afford the mortgage. Lenders want to see how long you’ve been earning a foreign income for and how stable it is. How long do you see that continuing? 

Everything we do for a normal mortgage is done, but in a little bit more detail. You may pay more deposit to help them feel comfortable. Every lender’s different, and that’s why you need to speak to someone who will navigate that for you.

Have you helped many clients with foreign income? 

Maira: I have got two cases to share with you. The most recent one was a European who lives in the UK and is a limited company director. His clients are in Europe and the US and his income comes to the limited company in euros and dollars.

We found a lender for him and they bought their house here in the UK. So in that case, he lives in the UK but his clients are overseas. 

In the other case, the client is self-employed and his income is in Swiss francs, which hits his bank accounts as pounds. As he’s self-employed, we needed to show the lender a bit more stability. But receiving foreign currency wasn’t an issue, so we got them a mortgage offer.

Both these clients live in the UK but receive a foreign income that they declare here in the UK. However, there are options for people who live overseas and want to buy a property and get a mortgage in the UK.

We have a Mortgage Mum specialist that can help those looking to invest in the UK who live overseas and receive foreign currencies. Shelley is here to help you with that.

What are the benefits of using a mortgage broker like the Mortgage Mum? Should I see a broker before making an offer?

Sarah: You absolutely should speak to a broker before making an offer because you need to feel empowered with information. You need to feel confident that you can deliver on that offer because remember, agents are looking for quality offers on their properties.

And as soon as they accept your offer, they will request proof that you can afford it and you’re getting a mortgage. They may ask to talk to your mortgage advisor. 

You’re only going to put yourself under stress if you fall in love with something and then have to get all that together quickly – whilst trying to negotiate and come across strongly to the agent. 

You can bring your mortgage advisor on the journey with you. As soon as you find that property, especially if you’re not in the UK, you’ve got somebody who can make that connection to your agent in UK hours.

You’ve got someone in your corner in those moments where you feel vulnerable or you’re worried that something’s not working. You can message them or ring them and have a conversation. 

That’s not easy when you’re dealing with banks directly. You’ve got to sit on hold and you’re speaking to different people every time. More than ever, you need that personal service – and that’s what you’re going to get with the Mortgage Mum.

Maira, do you have anything else to add to that?

Maira: Definitely speak to a mortgage advisor, even when just starting your plans to buy a property, just to fully understand the process. Here at the Mortgage Mum, we literally hold your hands from the very beginning of your journey. We’ll explain and take you through that. It’s really important to understand what you’re doing and why, and how it’s going.

A mortgage advisor has tools to source the best mortgage for you. We’ve got the knowledge to help you with any questions you have. When you go straight to a lender, you don’t have the same support that you get with a mortgage advisor. So definitely speak to a mortgage advisor – it’s really important. 

YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

MOST BUY TO LET MORTGAGES ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.