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Foreign currency income

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Foreign currency income

UK Mortgage with Foreign Income

David Walsh explains the process of getting a UK mortgage when using foreign income.

Can someone get a UK mortgage based on foreign currency?

Yes. As long as the property that will be security for the loan is in the UK, you can use foreign income. We come across this fairly frequently.

Can it be difficult to get a UK mortgage on an overseas income?

A few lenders will accept overseas income for a mortgage application. It’s worth clarifying early on the difference between foreign currency income and overseas income.

Foreign currency is relatively straightforward. Let’s say you’re based in the UK but you work for an American law firm and are paid in US dollars. That is relatively straightforward. All your payslips are just denominated in USD.

Overseas income is where you are physically working in a foreign country. In that case we have to evidence that income to borrow against a UK property and use a UK lender.

Both of these are doable, but there’s a slight difference in the process and the income evidence requirements.

Are there plenty of lenders that accept foreign income?

Not a huge number. Not every lender will do it. Obviously a lot of work goes into making sure they are being responsible in their lending. It would include researching fluctuation in foreign currency and exploring overseas credit reports. Not every lender will want to get into that for the volume of business that it would generate.

But the good news is that there are three high street banks that use foreign currency income and overseas income. They are Natwest, Santander and HSBC. And, if you’re looking at borrowing larger sums, typically over £1 million, that brings private banks into play.

They are obviously a lot more flexible with their underwriting and can look at things on a more individual basis. So there are some good options. Not every lender will do it, but we still have some good high street options and private banks at the higher end.
[podcast recorded in May 2024]

Does a mortgage applicant need to declare their foreign income?

It depends if it’s required for the application. You might work in the UK but have investments overseas that generate income. If we can get the affordability for the loan to fit just on your earned income in the UK, we don’t actually need evidence of that foreign currency income. So in that case we don’t need to declare it.

But if we need to use that income to make the affordability of the loan fit, yes, we would need to declare it and evidence it.

That goes for all kinds of income. We get a lot of clients who have bonus income. If the loan they’re looking to take fits on their basic salary, there’s no need to make extra work for ourselves by evidencing that bonus income with previous payslips and P60s. We try to make life easy for ourselves and our clients.

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

You can. The three high street banks have a few different nuances within their policies. If you are based overseas for work but you return to the UK to live, you can get a UK mortgage with all three.

An example might be someone that works abroad during the week and comes home at weekends. Or, you might be overseas on a secondment, but your plan is to return to the UK for good. It’s also allowed if you have dependent relatives in the UK but you work overseas.

There are also restrictions from certain lenders around the country you’re working in and the currency you’re paid in. Again, it’s down to the specifics of the case, but if you’re working somewhere not too remote and not on a sanctioned list, there’s probably an option for you.

Different criteria apply. If you’re earning mainstream currency like US dollars, euros or Swiss francs, some lenders use all of that income. Some might take a haircut to account for fluctuations and currency – such as taking 10% off that income for affordability.

If you’re earning money in a less stable foreign currency, the lender may take a bigger haircut. They could knock off 20% or 25% off that income to account for wider fluctuations in the exchange rate.

Which currencies are accepted by UK mortgage lenders?

With someone like Santander it’s fairly narrow – they will only look at US dollars, euros and Swiss francs. They’re quite strict and will apply a 25% haircut to all three currencies.

Natwest is a lot more broad. They don’t take a haircut on foreign currency for mainstream, stable currencies. Like HSBC, they have a matrix that they update regularly, listing every foreign currency that’s accepted and the percentage haircut applied. They are pretty generous in the currencies that they accept.

It changes, so I don’t want to give specifics, but some small local currencies are included. The more local you go, the larger the haircut that’s applied. It’s worth having a conversation with a broker to look at whether your currency is acceptable and what haircut is applied, but there will often be an option for you.

Are any common foreign currencies not accepted by UK lenders?

Not really. As I said Santander are quite specific but the likes of Natwest and HSBC are pretty broad.

Looking at HSBC’s current matrix, which is subject to change, they accept Belize dollars or Bermudan dollars with a 20% haircut – currencies from fairly small countries.

Usually if someone’s main residence is the UK and they’re working abroad, nine times out of 10 they will be earning in a more mainstream currency. We typically work with US dollars, euros and sometimes Australian dollars, which again are acceptable.

If you’re in a smaller country, give us a call and we can see what’s being offered at the time.

What if it’s a joint mortgage and only one person has a foreign income – is that possible?

Yes, definitely. It will actually broaden your options, especially if you’ve got a dependent relative living in the UK in the property full time.

If you have two incomes, they will be treated independently. If one of you is earning US dollars, for example, the lender will look at that with a haircut applied. If you’re earning pounds sterling in the UK they will apply standard policy and then combine the two to calculate affordability for the loan.

How does it work if someone is self-employed?

Technically it’s possible, but it is a lot more tricky. For most people, it’s probably not going to be possible.

Again, this is all subject to change and is lender specific, but quite often they will want your accounts to be audited by a major accountancy firm. For most people the cost of that wouldn’t be worth it.

If you’re working abroad as self-employed, but you pay tax in the UK and you can evidence that through tax calculations and tax returns from HMRC, it should be OK. But if you’re paying tax abroad, it’s difficult.

What if someone has bad credit? Is it possible for them to get a mortgage with foreign income?

Possibly. It all comes down to how bad it is. The lenders we’re talking about here are fairly mainstream. They’re quite standard in their credit assessment.

There are more specialist lenders that look at adverse credit, but you’re unlikely to find a lender that will cover both that and foreign currency.

It all comes down to the individual and what’s on the credit file. We quite often find that credit scores can be misleading. While Experian or Equifax gives you a certain score, the lender won’t necessarily take that. They have their own internal scoring systems, and they may weight certain things more heavily than others.

If you think you might have issues with credit, get a copy of your credit report and send it to your broker. We can have a look through. Some things on a credit report are black and white and we will know what doesn’t fit a lender’s policy.

Other things will just come down to scoring, which varies from lender to lender. It’s a case of running a Decision in Principle and seeing if it comes back.

Lender credit scoring can be tweaked, too, so if they’re looking for more business they can relax their credit scoring system. If they’re busy they can tighten it up. It’s a bit of a moving target.

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What deposit should someone have for a mortgage with foreign income?

Deposit requirements are going to be the same as with UK income. Deposit requirements typically increase the more you’re borrowing.

If you’re borrowing more, they want a larger deposit as more of a buffer. Again, it all comes down to the individual lender and their policies can change.

Does it make a difference if I am a First Time Buyer?

No, it shouldn’t make any difference. Sometimes there are slight changes in policy for First Time Buyers, but that’s not going to change just because you’re earning in a foreign currency.

Can I purchase a property as a Buy to Let with foreign income?

It’s not something we do an awful lot of – we’re actually steering away from Buy to Let. But it is technically possible, with the same lenders.

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

You can. But if it’s not one of the lenders that accept foreign currency income, you won’t get very far.

Even if you are banking with HSBC, for example, who are pretty good with overseas and foreign currency income, there’s no harm in speaking to a broker that has access to a wider range of lenders. It just helps you assess your options.

The maximum loan and the rates offered will vary, so you might as well get an overview of all the options.

What is the application process for a mortgage with overseas or foreign income?

If we’re looking at foreign currency income, that’s relatively straightforward. It’s just about checking the exchange rate on that currency and working out what that is in sterling if there are fluctuations.

For example, if you’re working for an American law firm and your salary is in US dollars, the amount you’re paid in sterling each month will vary slightly due to the exchange rate. Lenders might ask if there’s a cap or a collar – for most people that would be the case. Some lenders will look at the bottom end of that collar, and accept that income as guaranteed each month. Others may take an average of what you’ve received in the last three months.

If you’re paid in foreign currency and work in the UK, everything else is standard. That’s the only difference. If you’re working and living overseas, and you’re buying a property for your dependent relatives, there are more checks and you may need a credit reference from that country.

It might also be that you need documents translated. For example, if your contract is written in foreign language you would need to get it formally translated for the lender. There’s a little bit more work involved but generally speaking it’s not too onerous.

The overall procedure can take slightly longer while you wait for these checks to be done, but it’s not too demanding.

Does it help if I take time to prepare?

Ideally, clients would come to us fairly early on in the process. Whether they’re buying or remortgaging, we can find out exactly what’s going on with their income.

If they are overseas or earning foreign currency income, we can advise them on what will be required. They can then start work on getting things translated and getting a local credit report in good time.

Then, when they find their dream place, or they’re coming to the deadline on their current mortgage deal, everything’s lined up and ready. We’re not having to rush around.

Buying houses, especially, is a pretty stressful process. So limiting any extra pressure and stress is something we always aim for.

How long does it take to arrange a mortgage with foreign income?

It’s difficult to say. A lot depends on where you’re based. Much of the process is out of our hands – we need to rely on third parties like the reference agencies and legal teams. If you are in that situation, come and have a chat with us and we’ll give you a steer.

Could other factors impact eligibility for foreign currency mortgages?

Besides what we’ve spoken about, not really. The rest of it all fits into lenders’ standard policy.

Can you share any examples of clients you’ve helped with foreign currency mortgages?

The most common cases are professionals working in the city. We’re London based, and we work with a lot of people earning foreign currency income in the UK. That’s our bread and butter, and in most of those cases they’re earning US dollars or euros. That’s pretty straightforward.

We also help overseas workers – such as people working on yachts who are out of the country for more than half the year. They’re actually tax resident in the UK, so we can still use that income. We’ve worked with a couple of engineers on super yachts, for example, which were interesting.

We also did a mortgage for an Australian pilot. He had lived in the UK for a long period and had indefinite leave to remain here. He worked for a cargo airline and was based all over the world, but wanted to buy a house in the UK for his daughter to live in and eventually retire to.

We’ve had some pretty weird and wonderful situations that you think surely won’t be possible. But in the end, if you fit the bill we can make it work.

You might not be able to use all your income – it might take a bit of a haircut. But if you’re not looking to absolutely maximise borrowing, that’s not an issue. There are a lot of quite quirky situations that we can find solutions for.

What are the benefits of using a mortgage broker or advisor?

The good thing is that there are a range of options, so we can look across lenders and see who’ll offer the most favourable terms. Lenders change their policy on countries and currency quite frequently, so working with someone who’s being updated by lenders on that can really help.

It might be that you speak to a broker early on in the process and you don’t find a property for six months to a year. As things change within that time, we will keep you updated – so you avoid having to do that yourself.

With any mortgage, it’s always worth having a broker look after things for you. In these cases, where there are more moving parts and more involved, why wouldn’t you outsource it and make your life easier?

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

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