MCD - one year on

Most of the changes have been implemented without too much difficulty, but one area where some confusion still exists is around foreign currency mortgages. Some brokers believe that the rules regarding foreign currency mortgages only apply if the mortgage is provided in a foreign currency, which is understandable, but not the case.

If a borrower intends to repay their loan using income (salary or bonus) or assets held in a foreign currency, then the loan is classified as a foreign currency mortgage. It doesn’t matter if the loan is in sterling, secured on UK property or granted to a UK resident; if any of the above conditions are met, then it’s still a foreign currency mortgage.

A very typical example is someone working in the UK for a foreign company, who is paid in sterling but receives their bonus in dollars or euros. If the bonus is used to repay the mortgage, then it will be classified as a foreign currency loan.

Anyone who is paid all or part of their salary or bonus in another currency will probably need a foreign currency mortgage. Employees of large international corporations are obvious candidates, as are those working for oil companies, big engineering firms, IT businesses, chemical corporations, international law firms, communications consultancies... the list goes on.

Don’t make the mistake of thinking that the nationality of the borrower is a key factor, because it isn’t. They could be British and working for a foreign company, or even British and working for a British firm, but if they are using any income or assets (which may have nothing to do with their job) that are in a foreign currency to repay all or part of their mortgage, then the mortgage will be regarded as a foreign currency loan under the MCD rules.

Also, don’t make the mistake of thinking that these types of mortgages are only available to wealthy individuals. They are relevant to anyone with income (or assets) received in a foreign currency and you don’t want to get nine tenths of the way through a mortgage application only to realise it’s a foreign currency loan and  your recommended lender doesn’t actually offer foreign currency loans.

The key point to bear in mind is that a lot of lenders opted not to offer foreign currency mortgages when MCD was implemented last year and you therefore need to know which lenders are able to help, if you have a client requiring this type of deal.