Simplifying cross-border mortgages

Petru and I have worked together for the past eight years, first helping expats send money across borders at Wise. Then, building a digital mortgage lender called Generation Home to help first time buyers get on the property ladder. 

 

In December 2021, we decided to combine the learnings we had gathered and founded Homevest.

 

It all started in the summer of 2021, when me and my wife Nicole felt it was time to move closer to family and friends. After seven years living abroad, it was time to settle down.

 

Around the same time, Petru and Alina were planning to buy a holiday home in Romania. 

 

With good credit scores, some savings, and decent salaries, both me and Petru thought buying property abroad would be easy.

 

I reached out to all the large banks in Sweden but got a no at each one. Even niche lenders that specialise in harder cases were not interested.

 

In Romania, Petru found that most banks were unhelpful. The banks that could help made the process so painful that he eventually had to put the project on hold.

 

As a result, neither of us were able to get a mortgage. Instead, we created Homevest.

 

Since we started this, we have learnt a lot about why cross-border home buying is difficult. In this post, I want to cover one important topic: EU regulation of mortgages.

 

The European Commission's review of the Mortgage Credit Directive (MCD) is an important opportunity right now to make cross-border mortgages better.

 

As part of the review process, the European Commission requested that the European Banking Authority (EBA) advise them on foreign currency loans. Unfortunately, they are not aware of the challenges created for non-residents by the MCD.

 

In their review, the EBA states that the "EBA is not aware of any specific cases or circumstances in which consumers have difficulties finding a mortgage loan due to the limited offer of foreign currency loans".

 

From our own research into six mortgage markets in the EU (Romania, Spain, Netherlands, Belgium, Germany and Poland), we have found the opposite to be true. The restrictions on foreign currency loans has in fact had a severe negative impact on the ability of non-residents to get a mortgage.

 

It’s a bit technical, but through the MCD, anyone that enters into a mortgage contract in a different currency from their salary currency is allowed to convert that mortgage into their salary currency. 

 

This right was introduced because of bad lending practices leading up to the financial crisis of 2008, where banks in Eastern Europe would offer mortgages in the local market denominated in Swiss Francs, Euros, or even Japanese Yen. 

 

In the financial crisis, a lot of borrowers were wiped out because these currencies became more expensive, making their mortgages unaffordable. By offering the right to convert a mortgage to the salary currency, the MCD removes this risk. Unfortunately, it has the unintended effect of greatly reducing the availability of mortgages for non-residents.

 

These effects have been most severe in Poland, where Polish people earning a living in the UK or Scandinavia are unable to get a mortgage in Poland. We have also seen evidence that getting a mortgage from outside the Eurozone is very difficult in Sweden, Germany, the Netherlands and Belgium.

 

We suggest that as part of the MCD review process, Article 23 (Foreign currency loans) is amended to restrict the right to convert the mortgage, if the mortgage currency matches the currency of the country. The MCD could also include requirements for stress testing based on currency volatility and appropriate advice on the risk of foreign currency mortgages.

In my situation, it would have meant that banks would be more willing to provide mortgages based on my UK salary. In the case of Polish workers in the UK, this change would allow Polish banks to offer mortgages to them in Zloty. This change would make it easier for mobile Europeans everywhere to realise their dreams of home ownership.