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Changes to mortgages for EU citizens in Poland with foreign income.

Braveheart16 19 | 142
17 Mar 2016 #1
It would seem that further restrictions imposed by banks will now make it even more difficult for EU citizens to buy a house in Poland using foreign income. Today I returned to the bank who in February informally agreed that I could take out a mortgage given my circumstances.. We went there to discuss further details and to prepare for the purchase of the house we now intend to buy. It came as quite a shock to hear the mortgage advisor apologise and tell us that the rules have now changed concerning mortgages as follows: (I am planning to arrange a small mortgage using my monthly pension which originates from the UK.)

It appears that since the 14 March this bank (and perhaps all other banks) now require me (and I presume other EU citizens in my position) to have a second income originating in Poland which must pay more than the foreign income generated by my monthly pension. So in short I need to have a job or business which pays more than my pension before this bank will consider my request for a mortgage.

Whilst my pension is not that substantial I think it would be really difficult to find a job which will pay me more than my monthly pension. I just find this quite incredible.

Naturally I was quite shocked with this news and asked how long the advisor knew about the changes. He said that he had only heard recently and seemed to suggest that it was other internal banking officials who changed the rules and not the government. He did say that had we provided the usual paperwork in February then we may have been able to obtain a mortgage based on my UK pension. Finally he said that his bank had a lot of other customers in my position (I presume other EU nationals)

My wife and I went to another bank and following checks on income, age etc said that they could give us a mortgage providing we paid for it in UK Sterling....(at the moment I have receive my pension in Zloty's) This would require us to set up a sterling bank account so that the bank would either receive all of my pension in sterling or just the monthly payment for my mortgage) What was interesting was that when we mentioned about the 'new rules' she said that it must be internal bank rules because her bank are fine with giving us a mortgage. However this could all be quite complicated and financially difficult because of the exchange rate etc with my personal bank and transferring the funds to this new bank for our mortgage.

We did however go to my own personal bank (who many months ago confirmed that someone in my position couldn't get a mortgage with them for other reasons) to see if it was possible to open a 'sterling' account (assuming we would move forward with the mortgage at the other bank) Not possible as they only have euro and zloty accounts. However on discussing our recent bad news from the original bank they did confirm that the new rules apply to all banks... The bank was however happy to give us a personal loan which unfortunately was less than we needed but nevertheless would enable me to obtain some finance. She just needed to make sure that I had permanent residency in Poland. My wife explained that we will have permanent residency when we buy our house but that a the moment we have a temporary address. I have already applied for residency and although the letter and card I received does not specifically say that I have permanent residency it does say something about residency so not sure if this will suffice.........

Thought you may like to hear about this new change which at the moment is really making life difficult for us to buy a house which has taken many months to find.

It would be helpful to hear your comments.
delphiandomine 88 | 18,116
17 Mar 2016 #2
Unfortunately, that's not permanent residency, that's temporary residency. Permanent residency can only be obtained after several years living in Poland, though it depends on the individual bank's interpretation.

About your situation - unfortunately, Poland is not a country that hands out money easily. The sticking point is probably the fact that it's a foreign pension and so the bank can't get their hands on it easily if you fail to pay - I know some other people with foreign income that are in a similar boat as the banks simply won't touch them. One guy I know is earning easily over half a million PLN a year netto, yet when he tried to get a mortgage for a buy-to-let property in Sopot, they simply wouldn't touch him unless the money was earnt in Poland.

(by the way - if you're receiving money into a Polish bank account in złoty, remember that you have a tax liability on the pension)
17 Mar 2016 #3
"by the way - if you're receiving money into a Polish bank account in złoty, remember that you have a tax liability on the pension"

I'm not sure on this one Delph, I have never had a clear answer, I know one brit who gets his uk pension in zloty, he does not pay any polish tax.
delphiandomine 88 | 18,116
17 Mar 2016 #4
I know one brit who gets his uk pension in zloty, he does not pay any polish tax.

Probably best to declare it regardless, just in case. From what I know, the UK-Poland double taxation agreement mentions that pensions are only taxed in the state where you're resident - so if you've got a UK pension in Poland, then it's taxed in Poland.
17 Mar 2016 #5
Maybe barveheart could clear this up for us delph.

Braveheart do you know what the score is with your UK pension , is it private or government, are you liable to polish tax?
OP Braveheart16 19 | 142
17 Mar 2016 #6
Thank you both for your helpful feedback so far on this and yes my pension is subject to the double taxation agreement. The bank eventually understood what a double taxation agreement was and didn't push to have it taxed in Poland. In my case the EU double taxation treaty (signed by Poland) means that although I reside in Poland my pension is taxed in the UK. However I am really more concerned with sorting out my house and mortgage so hopefully something positive will happen soon.
mcm1 2 | 81
17 Mar 2016 #7
Have you tried using a mortgage broker. We did a few years ago and were accepted by GetIn Bank for a mortgage (the only bank that would allow us). It was a very lengthy and expensive exercise but allthough we didnt actually need a mortgage due to our financial position it will be beneficial to our tax position in the future.

We have one bank account with ING bank where we have both Zloty and Sterling accounts, other banks we have only Zloty accounts.
This part you dont wish to hear but I feel you should be aware of, a UK Gov't pension (police,army etc.) is allways taxed first in the UK-no exceptions, now some countrys will not tax you again on this pension, Poland has not adopted this policy yet. You are therefore liable to Polish tax on this pension but as the UK has allready taken tax you will be allowed that amount to deducted from what is owed in Poland. this is the double taxation agreement.

All other pensions i.e. state and private can be taxed at source or payed net-you do not get to choose which, HMRC will decide with the country you have decided to retire to-eventually!

The letter of law states that your 'centre of economic interest' in your case is Poland therefore you will be liable to tax in Poland on any monies earned on your whole worldwide income-pensions are regarded as income.

We have spent a good deal of money to get factual advice from one of the top tax companies with offices worldwide, I also work for the UK Gov't.

I say this merely because it might have a financial effect on what you do next.

I forgot to add you can get a decision in writing from the Polish tax office of your own individual case, this is legally binding. Our tax advisors had this paperwork on our case because it is rather more complicated.
18 Mar 2016 #8
The change is due to the European Mortgage Credit Directive (EMCD) which come into force on the 21st of March 2016.

One (of several) issues is that a new mortgage facility agreement (on a ESIS document) has to specify the exact payments and principle for the life of the loan, it also has to show a stress test based on the most extreme interest rate scenario going back a decade or so. A

ll lending companies are fight hard just to satisfy the basic changes in requirements. Foreign mortgage income requires the historical exchange rate it be added to the ESIS stress test projection for the life of the loan. Its an added complexity that is impossible to comply given the short timescales to prepare for the EMCD.

You might get companies developing the software for foreign currency loans over the next year, but I heard that 50% LTV maybe the maximum offered, depending on the historical exchange rate and historical interest rate of the two currencies involved. Of course the interest rates offered will probably very un-competitive, especially with Poland volatile exchange rates.

Banks, btw, will make every effort to identify foreign income borrowers and prevent then from lending as the regulator will put them out of business if they don't.

Also the exemption for wealthy individuals (over 1 million clear assets) has been removed and Consumer Buy To Let has been clarified, defined and subject to regulation.
cms 9 | 1,254
18 Mar 2016 #9
it is a perfect example of dysfunctional EU intervention in the market. The EU is supposed to make cross border transactions easier and it can hardly be unusual to have mixed families from two EU countries, or even to have holiday homes or a pied-a-terre in one country where you spend some time. very poorly thought through piece of legislation that makes life more difficult for banks and for consumers.
polishinvestor 1 | 361
18 Mar 2016 #10
Foreign income is more of a risk on many fronts, but you have to remember banks arent here to help people, they are out firstly to preserve capital and secondly to make a profit in the most efficient way possible.

We had a couple of foreign income buyers turned down (non eu in both cases) both pretty wealthy based on polish standards. Establishing a true picture of a foreigners debt abroad is quite difficult and not worth the hassle for something as small as a loan for a flat.
OP Braveheart16 19 | 142
18 Mar 2016 #11
mcm1 - Thanks for your feedback on pensions. It seems from the previous enquiries I made Article 18 of the UK/Poland double taxation convention signed in London on 20 July 2006 became effective in Poland from 1 January 2007. Subsection 2(a) and (b) of this Article deals with the whether a person is taxed in the UK or Poland and in particular '...such pension shall be taxable only in the other contracting State if the individual is a resident of and a national of that State' Although I am a resident in Poland I am not a national and therefore my pension is taxed in the UK. This is how I interpreted this and UK Customs so hope it helps. I suppose it all depends on the personal situation of the individual.

Interesting information on mortgages from others so thank you.
18 Mar 2016 #12
"such pension shall be taxable only in the other contracting State if the individual is a resident of and a national of that "

Very interesting, this means that a Polish citizen who has been working and living abroad for a long period of time (gaining a foreign EU state pension) would never retire to Poland because another lump of tax will be taken from them.

Poland will be an empty place soon. The Poles in Britain will never return to Poland that's for sure.

The above has huge Implications for EU Expats in Poland, and It will impact a few here on PF who are seeking Polish citizenship, A big chunk of their home state pensions will be taken by the Polish tax authorities.
18 Mar 2016 #13
it is a perfect example of dysfunctional EU intervention in the market

This is not really instigated by the EU, it's an international requirement to improve banking stability that is far more important than few expats wanting to **** about in proprty speculation. The banks have been blamed and billed for foreign currency loans, so why not ban them?

Europe has the Euro so it will only affect the minority hold outs nations who shouldn't be speculating on foreign currencies unless they can afford it

Only pensions paid by the state are exempt from paying local taxes. So a UK nhs employee would pay uk rates in Poland,for example

A big chunk of their home state pensions will be taken by the Polish tax authorities.

Although if the pension is over £45k, Polands 18% flat tax may look attractive
18 Mar 2016 #14
pweeg So to be clear you are saying that a Polish citizen receiving a UK state pension in Poland would not be re taxed in Poland ?
18 Mar 2016 #15
Not sure about the STATE pension. Its a government employee pension, paid by the government, that is taxed in the country of that government.

If its a private pension then you are taxed in the country of your residence.
mcm1 2 | 81
18 Mar 2016 #16
pweeg3, do try and stop writing rubbish, you are confused yourself and not helping to give out correct information.

So a UK nhs employee would pay uk rates in Poland,for example

18 Mar 2016 #17
Now I'm confused
18 Mar 2016 #18
Mcm1, please explain it better
OP Braveheart16 19 | 142
20 Mar 2016 #19
I really don't understand the reluctance of banks to provide finance for EU nationals particularly by reason of not being able to provide a pesel number (as happened with myself) as most banks will simply take the property to cover any losses. Banks really don't make it easy when trying to do business and I am sure would be more than happy to generate more income for their bank and indeed the Polish economy. Unfortunately the result is that they miss out on increasing their own profits and at the same time create animosity with customers who I am sure will simply steer clear of the bank in the future.

Agreed that some say that banks are in business to make a profit etc, but really need to be more flexible and customer service orientated if they are going to keep customers. I think there may be an important training need identified for customer service skills development. Maybe their hands are tied up with legislation which restricts their ability to be more flexible and able to find solutions. (lending money would seem to be one of the more important services that people need but I do know that times have changed with regard to lending so I suppose this is to be expected.)

In the meantime EU nationals will simply use the banks as a means for looking after their funds and make little use of any services banks provide. Maybe banks feel that it really isn't that important to develop business relationships with EU nationals and are happy to continue with what they are able to do rather than being more proactive and imaginative with the services they provide.

One bank I spoke with did actually say they could provide a mortgage but with lots of hoops to jump through, wanting me to arrange for a credit check on myself when I was living and working in the UK, opening a sterling account etc, and did not even know about the recent legislation which crucially affects EU nationals using foreign income for a mortgage. This would have been very expensive with exchange rate conversions and set up time too long to tie in with the purchase of a property we currently want to buy.

I suspect there are quite a few EU nationals who have had to back track on their plans to purchase property using or partly using a mortgage and have had to find different ways to finance this.
delphiandomine 88 | 18,116
20 Mar 2016 #20
The vast majority of EU nationals wishing to buy property in Poland will either be resident here with a clear source of income from Poland, or they will be financing the purchase themselves - or they will be investing in commercial property, in which case, different rules apply.
OP Braveheart16 19 | 142
20 Mar 2016 #21
Delphiandomine - This is a fair point and helpful to know....I am of course a resident here and will be a permanent resident when I buy a property and do have a clear and regular source of income from the UK paid into my bank account every month. But I agree not a source of income from Poland which is unlikely as I am retiring here. However I would be happy to work in Poland although pretty sure that any such salary would not match my pension and therefore enable me to qualify for a mortgage under the new legislation.

Thank you for your continued feedback it has really helped me to understand more on how things work here.
peterweg 37 | 2,309
20 Mar 2016 #22
You don't seem to understand that the world has changed since 2008. Banks are not there to provide a service and products for their customers. Banks do what the regulator tells them to do and they cream a profit off the top.

A bank license is a license to print money (literally), with is comes responsibility to operate within strict risk criteria specified by the Banking regulator.

You are simply too risky to deal with because of the currency risk. Your pension won't cover the range of variance of the mortgage over its duration. The Polish government (and the EU) have made it the banks responsibility to cover the exchange rate variation. Banks are not going to take that risk, hence you won't be getting a loan at anything less than exorbitant rates.

You best option is to pay in cash, buy in the UK/Sterling area or rent (the best option).

Why are you attempting to buy with a mortgage when all you need to do is live in Poland? Mortage is an investment that should not be subject to exchange rate risk.
dolnoslask 5 | 2,917
20 Mar 2016 #23
you can get a nice place to do up for 200,000 zl where I am, I just put in an offer of 32,000zl against a farmhouse that is up for sale at 90,000, but this place needs a load of work approx 110,000zl
OP Braveheart16 19 | 142
20 Mar 2016 #24
Peterweg - I am aware that the banking system has changed since 2008 and I do actually pay the bank to manage my money and hopefully provide advice and guidance as all good banks do. I choose to use a bank for a number of reasons, reputation, recommendations, internet banking and of course what they could offer in terms of products/services. (not sure why you think that banks are 'not there to provide a service and products for their customers') There are heaps of adverts on TV etc advertising 'credit'...they really have gone over the top on selling their products.

Although you feel that my pension is too much of a risk due to the currency exchange it was accepted by the bank for my mortgage. All information on income, credit background, residence, etc was fine....I was refused a mortgage because due to legislation which apparently came into effect in March 2016 all EU nationals must have a second income in Poland which must equal or exceed the amount of foreign income. In February the bank said everything was fine (of course not formally approved) and agreed...just go and find a house...In March things changed and a rather embarrassed bank mortgage advisor said that he had just heard that I needed a second income in Poland in order to meet the requirements for a mortgage. Hence no mortgage. Happy to work no problem but very unlikely that I can meet the requirements of the legislation which requires me to earn as much or more than my pension.
peterweg 37 | 2,309
20 Mar 2016 #25
unlikely that I can meet the requirements of the legislation which requires me to earn as much or more than my pension.

Surely you mean, *If the foreign income is used as part of the mortgage*.

If they are going to disallow foreign income then they should also ignore it and any foreign debt.

You should be able to get up to £35k unsecured loan (Barclays will charge me below 8% on an 5 year £35k loan). Thats how I bought in Poland, plus some other money I scraped together.

In March things changed

Indeed, March 21st is the Big Bang. Now you have to prove afforadbility based on historical interest rates re-occuring, multiplied by worst case senario exchange rates.

There are heaps of adverts on TV etc advertising 'credit'...they really have gone over the top on selling their products.

Meaningless ******** in reality...
delphiandomine 88 | 18,116
20 Mar 2016 #26
Now you have to prove afforadbility based on historical interest rates re-occuring, multiplied by worst case senario exchange rates.

Which actually makes a lot of sense, and puts a stop to the practices seen before.

Having said that, would anyone have predicted 1CHF = 4PLN in early 2008?
20 Mar 2016 #27
That sort of change will massacre the possibility of foreign currency loans. The historical interest rates sees affordability interest rates of 7% being used in the UK, which is 3x current rates. Add in exchange rate fluctuations of +100% and you maybe looking at 3 x 2= 6 x the current payments as being the affordability criteria. In practice that may means a LTV of 20%, which is pointless.

An unsecured loan in the UK, combined with a small mortgage maybe the only way to go.

Poland's historical extreme volatility in exchange and interest rates make any sort of none Zloty loan a none starter for Poles. There will be no Polish buying spree of holiday homes in the sun,

Euro entry looks very appealing from that aspect.
polishinvestor 1 | 361
20 Mar 2016 #28
As peterweg says, your best option is to pay cash. Its a buyers market, it has been and will be for some time. Liquidity is in most cases nothing like in the UK. Often properties are listed for sale overpriced and continue to be listed as such for a number of years. There are properties which have seen the asking price fall by 30% or more in the last 2 or 3 years. You can get some really daft prices. Often time is not money in Poland and it takes people a while to drop their prices.
peterweg 37 | 2,309
25 Mar 2016 #29

"The reason these controls are being put in place is to protect consumers so keeping their home is not at risk of currency fluctuations. However, lenders are understandably not willing to share the risk. The lender can't underwrite a foreign currency loan any differently so it is easier to say they won't lend."
delphiandomine 88 | 18,116
25 Mar 2016 #30
As peterweg says, your best option is to pay cash.

Quick question : if you're paying cash, can you expect a sizable discount?

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