Foreign Currency Contractor Mortgages

If you receive foreign income for your contract work, it's still possible to get a UK mortgage. Read on to find out how.

Book A Free Consultation
At a suitable time for you
Rated Excellent 5/5
Five stars
on
Graham Cox - Founder & Cemap Mortgage Advisor | SelfEmployedMortgageHub.com
Graham Cox
CeMAP Mortgage & CPSP Specialist Finance Advisor

Only a minority of UK mortgage lenders consider applications from contractors who are paid in foreign currency.

The good news, however, is that it's still possible to get a very competitive deal.

Read on to find how foreign income is assessed, the documents you'll need to support your mortgage application, and how much you can potentially borrow when buying a UK property.

What is a foreign currency contractor mortgage?

A foreign currency contractor mortgage is simply a UK mortgage assessed using your contractor income, some or all of which is denominated in a foreign currency.

A typical case is an IT contractor who works remotely in the UK for one or more overseas companies. Your contract may state your pay rate in Euros or US dollars for example.

That foreign income is then converted into pounds sterling, typically by the contractor's bank or a global payroll/HR services provider such as Deel.com.

Is it difficult to get a mortgage with foreign income?

A contractor foreign currency mortgage is more difficult to get than if you're paid in sterling, even if you work in the UK. Many lenders won't consider foreign income, so it will restrict your choice of mortgage providers, rates and products.,

That said, it's by no means impossible. There are even a few mainstream banks and building societies who'll provide foreign income mortgages, subject to a satisfactory credit score.

The range of currencies UK mortgage lenders accept varies enormously. Some only accept major currencies like the US dollar or the Euro. A few providers accept a more diverse basket of currencies. For example:

  • US Dollar
  • Euro
  • Canadian Dollar
  • Swiss Franc
  • Chinese Yuan Renminbi
  • Emirati Dirham (UAE)
  • Singapore Dollar
  • Taiwanese Dollar
  • Danish Krone
  • Swedish Krona
  • Japanese Yen

Discover your best deal

"Brilliant from start to finish. Graham managed to find a main high street lender who offered a brilliant rate. Would highly recommend."

Tracy Boyle - Google Business Review
Book A Call Back
At a time to suit you

Are there any risks with taking out a foreign income contractor mortgage?

Yes, foreign income contractor mortgages are not without risk. That's why it's important to be fully aware of the potential downside before you apply.

The dangers of currency fluctuations

With overseas earnings, it's understandable for lenders (and borrowers) to be concerned about the potential for volatile currency fluctuations to negatively affect income when converted back into sterling.

Here's an example. Contracting as an IT analyst, Tom earns $12000 a month, working remotely from the UK for a US-based software company. He has a fixed-term 12-month contract.

When he takes out the mortgage based on his foreign income, the exchange rate is 1.20 USD to 1 GBP, giving him a monthly income of £10000 per month. Comfortably enough to afford the mortgage payments.

How currency movements can reduce your GBP income

Fast forward a year, and the pound has strengthened considerably. Now a pound buys $1.5 US dollars.

Or to put it another way, whereas before each dollar would convert into £0.83, now each dollar only generates £0.67.

Which means, Tom's contractor income when converted into sterling would decrease by 20 per cent to £8000 a month.

Still a very healthy salary, but if the pound kept strenghtening, it could potentially make his sterling-denominated mortgage unaffordable, depending upon his other outgoings.

Of course, the opposite could happen, and Tom could benefit from sterling weakness. Nevertheless, the variance in income makes some UK mortgage lenders cautious.

How lenders mitigate the risk of adverse currency movements

In assessing an applicant's foreign income, lenders mitigate against fluctuations in exchange rates by applying one or more restrictions, such as:

  • Using the lowest exchange rate for the last two or five years
  • Using the lower of the exchange rate over the last 5 years OR the rate on the day of application, less 20%.
  • Requiring a guaranteed minimum sterling equivalent income written into the contract before applying for the UK mortgage.
  • Deducting 20% (sometimes more) of the applicant's GBP income, once converted from the foreign earnings income.
  • Reducing the maximum Loan-to-Value (LTV) available

Some mortgage companies combine one or more of the above and use the worst case.

For example, they might use the lowest exchange rate over the past two years, or the exchange rate on the date of application minus 20%, whichever is lower.

Luckily, not every lender applies a 'haircut'. Some simply apply the spot forex rate on the date of application. Most lenders use the exchange rates on the xe.com for conversion.

Warning borrowers of negative currency movements

Every UK mortgage provider is required by the FCA to monitor currency fluctuations and warn the mortgagor (the person or persons taking out the mortgage) whenever the exchange rate of the overseas currency falls against the pound by 20% or more.

Every UK mortgage provider is required by the FCA to monitor currency fluctuations

Discover your best deal

"Brilliant from start to finish. Graham managed to find a main high street lender who offered a brilliant rate. Would highly recommend."

Tracy Boyle - Google Business Review
Book A Call Back
At a time to suit you

How much can I borrow?

How much you can borrow all depends on how you're assessed for income verification.

Income assessment for day-rate contractors

It's common for workers with fixed-term or rolling contracts denominated in foreign income to receive earnings into a limited company and pay their own tax.

However, in the right circumstances, contractors can be treated as employed for mortgage purposes. In such cases, the lender will base affordability and income assessment using your contract's daily rate of pay.

This can be hugely advantageous, as it often means you can borrow more than if you're assessed as a self-employed company director.

In the latter scenario, your share of your UK limited company net profit and salary or dividends and salary is calculated to produce a maximum borrowing figure.

Many providers will average the last two financial years or the latest year's figures if it's higher or lower than the previous year.

How lender's determine if they'll use your day-rate

Whether you are classed as employed or self-employed is lender dependent. Each uses different criteria. For example:

  • A minimum income level of £50,000 - £75000 p.a. Employed
  • More than one contract running simultaneously. Often self-employed but some providers can treat as employed.
  • Employ other contractors - Self-employed
  • More than six weeks gap between contracts in the last year. Self-employed
  • Pays their own tax - Self-employed.

Some of these criteria have exceptions and/or override one another. For example, one major lender will treat IT contractors on any income as employed even if they pay their own tax.

The only exception is if the IT contractor employs other contractors through a limited company.

Day rate income calculations using foreign income

Banks and building societies that accept overseas earnings will use your day rate and multiply it by either 230 or 240 days a year (46 or 48 weeks respectively), depending on the lender's criteria) to work out your income.

Of course, the income is prorated if the contract(s) stipulate fewer hours a week,

Next, the currency exchange is applied at the spot rate on the day of mortgage application, along with any 'haircuts' to produce the sterling-denominated annual income.

Committed expenditure reduces maximum borrowing

Finally, the provider applies their loan-to-income (LTI) multiple and makes any deductions for ongoing committed expenditure such as spousal support, credit card balances, car finance etc.

An example borrowing calculation

Let's assume our example contractor is paid $600 a day for 35 hours a week work, over 5 days. His USD earnings works out at $138,000 p.a (600 x 5 x 46).

On the application date, the USD to GBP exchange rate is 1.2 dollars to the pound, giving a sterling income of £115,000.

Now some lenders won't apply any 'haircut', allowing the contractor to potentially borrow up to £517,500 on a 4.5 x earnings multiple. Some lenders may even allow a higher borrowing multiple due to the high income.

Applying a forex 'haircut' for mortgage borrowing

But let's say the lender automatically deducts 20% to protect against variance in the Forex rate. Now the borrower's income is assessed as £92000, giving a maximum borrowing figure of only £414,000 based on 4.5 times income.

Other lenders will only work from your limited company accounts net profit and salary or, for sole traders, gross income before tax as shown in your SA302 / tax calculations.

Regardless of your trading status, some banks and building societies are happy to provide foreign currency mortgages to contractors based on assessing just your latest year's income, rather than an average of the last two.

What documents do I need to show lenders?

The precise documents you'll need to get a foreign currency mortgage will depend on whether the lender considers you self-employed or employed for income assessment.

Our self-employed mortgage document checklist here has more details.

Getting a mortgage quote

As you can see, the eligibility criteria for foreign currency contractor mortgages becomes increasingly complex when you're paid in a currency other than sterling.

As an independent, whole-of-market broker specialising in self-employed mortgages, SEMH will assess your circumstances and credit history before sourcing the most suitable mortgage with foreign income for you.

We'll save you hours of time and frustration, and potentially a lot of money as well. To get started, schedule an initial enquiry call with an advisor now.

The call should take no more than 15 minutes, you can book a slot at a time and date to suit you, and there's no-obligation.

Faqs

Get answers to your most common questions below...
Can I get a self-employed mortgage if my contract is amended to pay me in sterling?
Right arrow icon

Yes. If your employer is willing to change your contract to pay you in pounds, it will certainly open up more lenders to you.

That said, some banks and building societies still require 12 months' proof of sterling payments before they'll consider an application.

Other lenders will decline even if the contract and payment are denominated in pounds, as the funds originate in a foreign currency that the lender does not accept. But overall, being paid in sterling should definitely make it easier to get a mortgage.

Request a call back  from an adviser. It's quick and easy.

I have more than one contract, can I get a mortgage?
Right arrow icon

Yes, even if one of the contracts is paid in pounds sterling and the other in a foreign currency.

If there's sufficient income from the GBP contract, it may be possible to ignore the overseas contract entirely. If not, we'll advise you on the best rates and deals available using both contracts.

Request a call back  from an adviser. It's quick and easy.

Graham Cox - MLIBF CeMAP Mortgage Adviser & Director of Hub FS Ltd

About the author

Graham Cox is the founder of Self Employed Mortgage Hub, the trading name of Hub FS Limited.

Based just north of Bristol, SEMH is an independent, whole of market broker and a true specialist in self employed mortgages, helping business owners across the UK get great mortgage and protection deals.

Graham's market commentary and analyis is regularly quoted in the national press and media, including The Guardian, Telegraph, FT Adviser, and BBC Radio Bristol.