Almost five million Britons live or work outside the UK and many of them don’t want to give up property ownership in their homeland.
But it has got a lot harder to get a mortgage in the UK if you don’t live here – even if you’re a British expatriate.
It’s doable, but the number of lenders that offer expat mortgages and buy-to-let loans is limited.
Britons who move to foreign shores such as Barcelona for work, often want to keep a UK property a sa base and will let it while they are gone
Many also put bespoke terms together depending on your income structure and the currency you’re paid in.
We’ve asked expat specialist mortgage broker Matthew Fleming-Duffy, of Cherry Finance, to give an overview of the options available if you want to purchase or remortgage in the UK and are living abroad.
Who needs expat mortgages and what are the typical reasons?
Britons living abroad, either temporarily or permanently, will need to obtain a mortgage from a lender that has chosen to lend to expats.
Typically, expats are looking to invest in buy-to-let property whilst living overseas, perhaps as a way to provide an income in retirement or even to live in upon their return.
Whilst fluctuating exchange rates can, at times, provide a good opportunity for investors, it is also true to say that many expats earn better salaries abroad than they would do here, and the correspondingly lower cost of living means they have more disposable income and want to invest in UK property.
Aside from investors, we also see enquiries from individuals looking to buy properties for their families to live in – frequently where children are involved and the preference is for them to be schooled in the UK.
Why are expat mortgages now harder to come by?
Fleming-Duffy: Typically, expats are looking to invest in buy-to-let property
One word: regulation. You don’t need to be a financial guru to be aware of the regulatory changes that have affected global markets over the past few years.
Mortgages have been affected by rules introduced in 2014, which made things tricky for all potential borrowers whose income and expenditure had to be evidenced after this time.
But for expats things are tougher still. Following European rules brought in last year, individuals paid in a foreign currency must now come under closer scrutiny when their applications are assessed by mortgage underwriters.
There is a real hurdle facing expats in Australia.
Exchange rate fluctuations have to be taken into account – not just the current value of the currency – and many lenders go to great lengths to assess a potential borrower’s global financial position.
This is to ensure that they feel comfortable that the new mortgage will not put them under undue financial stress now, or in the future.
Additionally, lenders operating in this sector will need to conduct enhanced due diligence on each application which, in turn, means more detailed administration.
We saw a few lenders withdraw from expat lending last year as a direct result of the European rules.
There is also a real hurdle facing expats in Australia. There is an inter-governmental treaty between Britain and Australia that technically precludes lending to each other’s residents.
It would be good to see this change and, following the joint press conference held by Theresa May and Australia’s Prime Minister Malcolm Turnbull, this may indeed become a focus of renewed co-operation between our countries as Australia is a key destination for many British expats.
How should I apply for for an expat mortgage?
For buy-to-let mortgages, we have identified over forty lenders willing to provide mortgages to expats.
For mortgages on properties to be occupied by the applicants (or their families) there are just ten lenders.
There are many potential options if you are looking to borrow over £100,000, already have a UK mortgage, work for a corporate employer with a salary of £40,000 sterling equivalent, paid in US dollars or euros, reside in a Financial Action Task Force country and have a good deposit.
But if this isn’t you, don’t worry. There are also mortgages available to those that don’t fit these criteria and this is where the expertise of a good broker comes in.
I want my family to live in the property while I’m abroad – what are the options?
High street lenders HSBC and Santander can provide residential mortgages to expats, in certain circumstances.
Neither lender charges a higher fee for expats, although HSBC has fairly restricted criteria and also limits its product distribution so you may find it tricky to get access.
Nat West International, a wholly owned subsidiary of RBS Group, is fairly flexible in its approach to the marketplace, and require a 20 per cent deposit as a minimum.
Expat residential mortgages are assessed in the same way as those for UK residents, with the added costs of living overseas and exchange rate fluctuations taken into account.
Lenders such as Santander can provide expats with mortgages with as little as a 5 per cent deposit. However most lenders operating in the sector require a larger deposit – sometimes as high as 35 per cent of the property valuation or purchase price – before considering an application.
If you have moved overseas then getting a mortgage for a UK property is tougher
I want to purchase a buy-to-let property in the UK – what are the options?
Buy-to-let lending is where the market is most buoyant for expats. New entrants such as Vida Home Loans and Landbay are offering mortgages based on very flexible criteria with competitively priced mortgage deals.
As a rule, you will need a minimum 25 per cent deposit for buy-to-let, with the rental income effectively defining how much you can borrow.
Most lenders require the property to wash its face, which means it typically needs the rental income to exceed the mortgage payments by a ratio of 145 per cent if the mortgage rate was 5.5 per cent.
However, the Marsden Building Society can take applications if there is a rental shortfall and the applicant is paid in a currency which is on their approved currency list.
This currently includes the US Dollar, Euro, Norwegian Krone, Swiss Franc, Qatari Riyal, Denmark Krone, Canadian Dollar, Sweden Krona, Chinese Yuan/Renminbi, United Arab Emirates Dinar, Saudi Arabian Riyal, Hong Kong Dollar, Kuwaiti Dinar and Singaporean Dollar.
The mutual will take a limited amount of earned income into its affordability assessment. The rental income must cover the mortgage payments by a ratio of 125 per cent at a 5.5 per cent mortgage rate as an absolute minimum, with the shortfall made up from earned income.
The application process for all expat mortgages will feel very bureaucratic to the uninitiated and we generally advise that applications will take around six to eight weeks before a mortgage offer will be issued.