Lending to foreign nationals
Last reviewed 16/03/2011: any recent updates in this colour.
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Establishing whether individuals have the right to live and work in the UK
When considering any loan application, a lender needs to satisfy itself that the applicant has sufficient means to make the regular repayments. Where the applicant is a foreign national, the lender needs to satisfy itself that the applicant is entitled to live and work in the UK. Clearly, the applicant’s employment should be both legitimate and reasonably secure, given that a long-term commitment to repay the mortgage loan is being taken on.
It is an offence under section 8 of the Asylum and Immigration Act 1996 for employers to employ individuals who do not have the right to work in the UK.
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The right to enter, live and work in the UK
The European Economic Area (EEA) comprises all the Member States of the European Union (EU) plus Liechtenstein, Norway and Iceland. Nationals of EEA countries can enter and work in the UK without any restrictions. This is also the case for their immediate family members.
The following countries are part of the EEA:
Austria, Belgium, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Liechtenstein, Luxembourg, Netherlands, Norway, Portugal, Spain, Sweden, United Kingdom.
On 1 May 2004, the following countries joined the EU and became part of the EEA:
Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, Slovenia.
The Government has decided that nationals from 8 of the above Member States, with the exception of Cyprus and Malta, are required to register with the Home Office if they intend to work in the UK. This will allow the Government to monitor the participation of workers from these eight countries in the labour market.
For most foreign nationals, the passport or national identity card will be the most important document for lenders to inspect, as this should establish the individual’s entitlement to live and work in the UK. As stated above, nationals of EEA countries have the right to live and work in the UK without restriction and there is no reason why a lender, if satisfied as to the individual’s ability to repay the loan, should not be willing to lend. For non-EEA nationals, specific authority to enter and work in the UK is required and, in the majority of cases, it is unlikely that an individual would have sufficiently open-ended permission to stay in the UK to reassure a lender about the permanency of his circumstances. Some individuals are, however, granted indefinite leave to remain in the UK; some lenders take the view that it is wise to restrict lending to those applicants who can demonstrate that they have been granted indefinite leave.
The Home Office has produced guidance for UK employers on changes to the law to prevent illegal working. The guidance helpfully sets out specimens of documentary evidence of an individual’s right to live and work in the UK.
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Family members of EEA nationals, defined as:
- the person’s spouse;
- the children or grandchildren of the person or person’s spouse;
- dependent relatives in the ascending line (ie the parents or grandparents of the person or person’s spouse)
may join those with the right to live and work in the UK. For students, "family members" are restricted to spouse and dependant children only. Other relatives, such as brothers, sisters, cousins etc do not have an automatic right to live in the UK with the person who has a right of residence.
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Non-EEA family members of EEA nationsNon-EEA family members must obtain an EEA family permit before travelling to the UK to live with the person who has a right of residence. If they try to enter the UK for this purpose without an EEA permit they may be refused admission.
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VisitorsThe maximum time allowed as a visitor to the UK is six months. Clearly, lenders would be ill-advised to allow visitors to enter into mortgage contracts.
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Diplomatic ImmunityThe number of mortgages granted each year to borrowers with diplomatic status is probably very small; from time to time, however, problems may arise. The chief problem is that if a borrower has full immunity he can invoke this against the making of an order for possession or, if such an order is made, the taking of possession by court officials.
There are two separate areas of diplomatic immunity:
- Diplomatic agents – those who would normally be regarded as diplomats, for example ambassadors and senior embassy staff; and
- Senior officials of international organisations.
The law relating to diplomatic agents is contained in the Diplomatic Privileges Act 1974 and that relating to senior officials of international organisations is contained in the International Organisations Act 1968 and related Statutory Instruments.
The Foreign and Commonwealth Office publishes the London Diplomatic List, which gives the names and designations of all representatives and diplomatic staff representing foreign states and commonwealth countries in London. Representative and diplomatic staff enjoy privileges and immunities under the Diplomatic Privileges Act 1964.
In all cases, it is important to establish the extent of the immunity granted to an individual. As a general rule, this varies depending on the individual’s rank: lower grade officials’ immunity tends to be restricted to acts done in connection with their official duties, whereas more senior officials tend to have extensive immunity from the criminal and civil jurisdiction of the UK. The FCO keeps records of all persons notified to them as diplomats or consuls and can normally confirm the status or rank of the person concerned and the date of their appointment. The FCO cannot offer views on the extent of and individual’s immunity from jurisdiction of the UK, nor can it give any recommendation on the suitability of mortgage applicants nor can it assist directly in or advise on the enforcement of any security. On these matters, lenders must take their own legal advice.
