The Mortgage Credit Directive (MCD) is European legislation designed to foster a single market for mortgages and to protect consumers, and has come into effect in Italy. There are specific provisions relating to ‘foreign currency loans’ which impact most of our clients from outside the Eurozone who wish to take an Italian mortgage.
Many of our international clients choose to take a mortgage in Italy when they purchase a property. For some it is a means of supplementing available cash, for others simply an investment preference that they create a Euro-denominated debt (the mortgage) to partially match a Euro-denominated asset (the property they are buying).
Under the MCD there is a requirement for lenders to do two things for borrowers who have non-Euro income or assets on which the mortgage loan is based. One is to issue various notices, which is a simple administrative matter. The other is to offer a currency switch on the mortgage in the event that the currency in which the borrower has income declines against the Euro by more than 20%.
The intention is obvious. You will be protected if your income being used to cover Italian mortgage payments declines relative to the value of the Euro, and a switch to denominate the mortgage in your home currency must be offered by the mortgage lender in order to protect your currency exposure.
The challenge is equally obvious. Lenders need to establish some form of currency hedging to protect them against the consequences of having to re-denominate your mortgage. Some smaller lenders have withdrawn from providing loans supported by a non-Euro income or asset base. Others quite naturally restrict the currencies against which they are prepared to make Euro loans. Here US dollars and Sterling are the most likely ‘home currencies’ against which the banks will lend. One bank finds itself unable to differentiate between the non-Euro European currencies and therefore has to also lend against the Hungarian Forint and Swedish Krona, for example. For Middle Eastern buyers despite the Dirham being pegged against the US dollar this does not usually provide the lender with an acceptable home currency.
We have encountered this challenge for a number of our clients and we have been able to find work-arounds in most cases. Sometimes it has involved finding a bank that will accept the client’s home currency. In other cases more creative approaches have been adopted.
This is one of the many ways in which Ultissimo provides tailored professional support to every one of our clients. We are not here to sell you anything. We simply provide the help, support and guidance which enables you to buy a desirable home on Lake Como.