UK mortgage with Gulf currency income: how lenders treat AED, SAR, QAR, BHD, KWD and OMR

General information only. This guide explains how UK lenders usually treat income paid in Gulf currencies. It is not advice and not an offer of lending. Every lender has its own criteria, and they change often, so speak to a mortgage adviser before making any decision.

The short answer

A UK mortgage is lent and repaid in pounds. If you are paid in a Gulf currency, the lender has to turn your salary into pounds before it can decide how much to lend, and it has to allow for the chance that the exchange rate moves against you over the years. That is the whole issue in one sentence, and it is why two lenders can look at the same payslip and offer very different amounts.

Most UK high street banks do not accept foreign currency income at all, or only for existing customers. Specialist expat lenders, the international arms of UK banks, some building societies and private banks do. Between them they accept all six Gulf currencies, though not every lender accepts every currency, and some have a minimum income or a list of countries they will lend in.

For a wider picture of how lenders look at Gulf residents, including deposits, documents and nationality, read our guide Can I get a UK mortgage while living in the Gulf?

Gulf currencies and the US dollar

Five of the six Gulf currencies are pegged to the US dollar at a fixed rate, and the Kuwaiti dinar is linked to a basket of currencies that includes the dollar. Pegs that have held for many years make Gulf income more predictable than many other foreign currencies, and some lenders treat it more favourably as a result. But the peg is to the dollar, not the pound, so your income in pounds still rises and falls with the pound against the dollar.

If you are paid in US dollars rather than a local currency, which is common in some sectors, lenders treat that income in much the same way.

How lenders convert your income

Lenders start from your gross income. Gulf salaries are usually paid without income tax, so your gross and net pay may be the same, but lenders still work from the gross figure on your contract and payslips. They then convert it into pounds using one of a few methods:

• A fixed reduction. The most common approach. The lender converts at the current exchange rate and then reduces the result, often by 10% to 25%, to leave room for the exchange rate to move against you.
• A cautious exchange rate. Some lenders convert at the lowest rate seen over a period of several years instead of today's rate, which has a similar effect.
• No reduction. A few lenders, for some currencies and some applicants, use the current rate in full. This is less common and usually comes with other conditions, such as a lower loan to value.

The size of the reduction can depend on the currency, the country you live in, your nationality and whether the mortgage is for your own home or a buy-to-let. Some lenders also set a minimum income, which is tested after conversion, so a salary that clears the minimum in dirhams or riyals may not clear it once it has been converted and reduced.

Allowances, bonuses and gratuity

For many people in the Gulf, the currency matters less than the shape of the pay package. Basic salary is often only part of the total, and lenders treat each part differently:

• Housing allowance. Often the largest allowance. Some lenders count it in full, some count part of it and some ignore it. If your employer provides accommodation instead of paying an allowance, lenders usually do not add a value for it.
• Transport, education and other allowances. Treated in a similar way, often with a stricter view than housing. School fees allowances are sometimes ignored because they cover a cost you would otherwise have to meet.
• Bonuses and commission. Usually averaged over one to two years, and some lenders count only half or another proportion.
• End of service gratuity. This is a lump sum paid when you leave a job, not regular income, so lenders do not normally count it towards affordability. It can help if you plan to use it as a deposit later.
• Overtime and shift pay. Possible with some lenders if it is regular and shown on your payslips over a period.

Lenders also want to see that your income is stable. Fixed term and renewable contracts are normal in the Gulf and are widely accepted, but lenders generally look for a completed probation period and a track record in your job or field. Self-employed applicants and business owners can be considered by some lenders, normally with two or more years of accounts.

A worked example

Here is how the same applicant can look to two different lenders. Take someone in Dubai earning a basic salary of AED 30,000 a month plus a housing allowance of AED 10,000 a month, buying a home to live in. For the example we assume an exchange rate of AED 4.90 to the pound. The exchange rate on the day will be different.

Same person, same payslip, and a difference of around £149,000 in the maximum loan. The 4.5 times figure is a guide only: lenders also look at your commitments, your credit history and their own affordability models, and the actual amount offered can be lower. The example shows why knowing each lender's rules matters more than the headline salary.

Currency risk on your own home

Where income is paid in a foreign currency, changes in exchange rates may affect the amount you need to repay in sterling. If the pound strengthens against the dollar, your monthly payment in pounds stays the same, but it costs you more dirhams, riyals or dinars to pay it.

For a mortgage on a home you or your family will live in, UK rules treat a loan you will repay from income in another currency as a foreign currency loan. The lender must either give you the right to convert the loan into another currency on set conditions, or put other arrangements in place to limit your exchange rate risk, and it must explain which it uses in your mortgage contract. If exchange rate movements change what you owe or your monthly payments by more than 20%, the lender must warn you and remind you of the options available. These protections are one reason some lenders are more cautious with foreign currency income for residential mortgages than for buy-to-let.

It is sensible to keep a buffer. If your payments would be a stretch at today's exchange rate, they could become hard to manage if the rate moves.

Buy-to-let with Gulf income

For a buy-to-let mortgage, the loan is based mainly on the rent, and the rent is paid in pounds. Lenders test that the rent covers the interest at a stress rate, usually by 145% for individuals and 125% for limited companies. That makes the currency of your salary less important, which is one reason buy-to-let has more lenders available to Gulf residents than mortgages for your own home.

Your income still matters. Many buy-to-let lenders set a minimum personal income, tested in pounds after conversion, and some use your income to top up a rent figure that falls a little short of their test. If you let the property, the rental income is usually taxable in the UK even though you live abroad, and landlords overseas normally register under the Non-Resident Landlord Scheme. Tax depends on your circumstances, so speak to a tax adviser.

If you prefer not to pay interest, Sharia-compliant Home Purchase Plans assess Gulf currency income in a similar way. Read our guide to Sharia-compliant UK home finance for Gulf expats.

Your deposit and buying costs

Most lenders for Gulf residents lend up to 75% of the property value, so plan for a deposit of at least 25%. Your deposit will usually be saved in a Gulf currency and has to reach the UK in pounds, so:

• Keep a clear record of where it came from. Lenders and solicitors must check the source of your deposit. Bank statements showing your savings building up from salary make this straightforward.
• Allow for transfer costs. Exchange rates and fees vary between banks and currency transfer services, and the difference on a large sum can be significant.
• Think about timing. The amount in pounds depends on the rate on the day you transfer. Some buyers move their deposit in stages or fix a rate in advance to avoid a nasty surprise close to completion.

On top of the deposit, budget for stamp duty and fees. In England and Northern Ireland, buyers who are not UK resident pay a 2% surcharge on top of the standard rates, and anyone who already owns a property anywhere in the world (and is not replacing their main home) pays a further 5%. Your solicitor calculates and confirms the final figure.

Before you apply

• Get an employer letter that sets out your basic salary and each allowance separately, with your start date and contract type.
• Gather three to six months of payslips and bank statements showing your salary paid in. Documents not in English may need a certified translation.
• Work out your basic salary on its own. If the numbers only work with every allowance and bonus included, the choice of lender narrows quickly.
• Leave room for the exchange rate. Borrowing at the very top of what you could afford today leaves little margin if the pound strengthens.
• Avoid applying to several lenders yourself. Each application leaves a mark on your credit file. A Decision in Principle from a lender that accepts your currency and package tells you where you stand first.
• Use a specialist. An adviser who works with Gulf income every day knows which lenders accept your currency, how each converts it and which allowances they count.