It is difficult to say with any real confidence how many UK expats there are in the world because movement between countries today is very fluid. A number of reports in the last couple of years have suggested there are least 4.5 million (some go as far as 5.5 million) UK expats worldwide with around 1.3 million living in the European Union. Many expats still prefer to retain some kind of ties with the UK which is often a family home or a buy to let property. As a consequence, we are receiving more and more requests from UK expats seeking mortgage finance in the UK.
How big is the market?
While many high street banks have withdrawn from various areas of the mortgage market, interestingly, UK expat mortgages is not one of them. The fact that UK expats can obtain mortgage finance from high street banks, building societies, private banks and niche lenders reflects the growing size of the market. There are few reports which have committed to market liquidity numbers but we can safely say it is increasing. Interestingly, recent events regarding Brexit may well have encouraged further investment in UK property.
- Currency movements
In the immediate aftermath of the EU referendum sterling went into freefall and at the bottom was down by in excess of 20% against the euro and the dollar. The delay in enacting Brexit has led to a small recovery in sterling but the relative spending power of expats in the Eurozone and the US has increased somewhat. As a consequence, demand for UK property by UK expats has risen.
- Brexit uncertainty
Estimates suggest there are around 1.3 million UK expats living in the European Union with concerns and confusion regarding their long-term citizenship. We can safely assume that this uncertainty, in conjunction with currency movements, has encouraged more UK expats to reconnect with the UK property market.
There are many other reasons why UK expats are interested in UK property but Brexit has caused confusion and offered opportunities in equal measures.
Scenario: Mortgage for British expat earning in Dirham in the UAE
Why do expats get mortgages?
There are various reasons why expats are looking to secure mortgage finance in the UK. The main ones include:
- Property purchase
A property purchase in the UK may be ideal for holidays, family left behind or simply a long-term investment. Some UK expats have chosen to school their children back in the UK and would require a family home to qualify for local schools. Alternatively, many UK expats tend to be drawn back to the UK in their later life to enjoy retirement. Even a straightforward property purchase by a UK expat will face significantly more hurdles than a traditional mortgage application.
- Buy to let
A number of overseas investors seem to have a different view on the UK property market and are keen to increase their long-term exposure. As a consequence, many UK expats have broken into the buy to let market to take advantage of the ever-increasing UK population and demand for private rental accommodation. There is also the opportunity to “return home” in the future and convert any buy to let investment into a family home.
Interestingly, while UK base rates stand at just 0.75%, European base rates are even lower at 0%. That said the UK mortgage finance market is extremely competitive and extremely liquid. Therefore there are some very attractive terms on offer for traditional buyers and UK expats. Whether these funds would be used to expand a property portfolio, fund a lifestyle overseas or simply take advantage of low interest rates to refinance high interest debts is a discussion to have with your mortgage broker.
Does it matter where expat lives?
Unfortunately for many UK expats, especially those who were a little more adventurous in their travels, your new homeland will be taken into account with any UK mortgage application. Whether there is a “restricted list” as such is debatable but the following criteria are often used when considering individual countries:
- Is the country subject to international sanctions
- Is there a weak reputation for regulation
We also know that a number of African nations and some in Eastern Europe can face greater scrutiny by UK mortgage providers. This is in no way a discriminatory move but purely and simply down to available data, regulations and the accuracy/inaccuracy of information required. When you also throw in the various money-laundering regulations introduced by governments around the world, this can be a very tricky area for UK mortgage providers. As a consequence, many will err on the side of caution when considering expat mortgage applications.
Scenario: £6.5million London townhouse purchase for Monaco-based expat
UK expat mortgage rates and terms
As we touched on above, there are a number of reasons why a UK expat may be looking to acquire UK property using a UK mortgage. When looking at specific types of mortgage we can generally split this between the purchase of a family home or a buy to let investment. Before we take a look at the different types of mortgage available, it would be beneficial to consider the stereotypical type of employment, deposit, income and credit history required to begin negotiations.
A traditional lender would prefer a client to have a regular income and be in full-time employment. However, there are situations where clients have savings/assets or they may be self-employed. While there will be different guidelines for different lenders, this does not preclude them from applying for UK expat mortgage finance.
We know of expat mortgage lenders that would accommodate deposits as low as 20% but the majority work on a loan to value ratio of 60%. Therefore a traditional UK expat mortgage may require a significantly higher deposit than normal.
Where there is one applicant they must have a regular income and where there are two applicants at least one must have regular income. In order to apply for a UK expat mortgage at least one of the applicants must be a resident of the UK. The level of mortgage finance available as a multiple of either individual or joint income will vary from case to case and lender to lender. However, on average it tends to be between four and five times annual income.
If a UK expat has a credit history in the UK this is likely to help with many parties offering UK expat mortgage finance. A strong credit history will also likely open up the opportunity of negotiating the more attractive rates currently on offer in the market. In countries where there is no credit history/reliable data this does in theory increase the risk for mortgage lenders.
Where a client has significant assets available as security, or perhaps there have savings which they wish to retain, this could greatly impact the type of UK expat mortgage available, especially from private banks and niche lenders. While high street lenders are effectively restricted in any variance by the affordability rules, this is not the case for private banks and niche lenders.
Buy to let UK expat mortgage
Over the last few years we have seen a significant increase in the number of buy to let UK expat mortgage applications. As we touched on above, a mixture of concern and confusion regarding Brexit and enhanced spending power of those holding euros and dollars in particular has increased the attractions of the UK rental market. As a consequence, many UK expats are now looking back towards the UK to start or enhance their property portfolios.
While rates will differ between lenders, here are two examples of UK expat buy to let mortgages available today:
Tracker interest rate: Bank of England base rate +2.49%
Variable interest rate: 3.24%
Rate period: Term of loan
Maximum loan size: £2 million
If we increase the LTV to 75% then the terms change as follows:
Tracker interest rate: Bank of England base rate +2.99%
Variable interest rate: 3.74%
Rate period: Term of loan
Maximum loan size: £1 million
As with UK based applicants, traditional high street banks are obliged to ignore rental income on a buy to let investment and consider the mortgage application based upon the client’s income and ability to pay. Again, the situation is very different with private banks and niche lenders who have no such restrictions.
Scenario: Buy to let remortgage for Brit living in Australia
Family home mortgage
Whether looking to acquire a family home in the UK for immediate use, or further down the line, there are residential UK expat mortgages available. You may find that lenders will place a number of restrictions, one of which may be that the property is either inhabited by a family member/close friend or rented out. This ensures that:
- The security risks associated with the property are reduced
- There is a point of contact at all times
Like all UK mortgages, the terms and conditions will vary widely from high street banks through to private banks and niche lenders. To give you an idea, there are currently residential UK expat mortgages available on the following terms:
LTV: Up to 75%
Tracker interest rate: Bank of England base rate +2.49%
Rate period: Term of loan
Minimum loan size: £300,000
There will also be opportunities to fix the interest rate for between two and five years or potentially for the full term with some high street banks, private banks and niche lenders. In the above example, for mortgage applications in excess of £300,000 there is the opportunity to fix the rate for five years at 3.99%. While these rates and terms will vary, they give you an idea of what is on offer on the high street. Private banks and niche lenders tend to consider applications on a case-by-case basis and are open to negotiations.
High value expat mortgages
As the UK expat mortgage market increases we have seen a significant rise in the number of higher value expat mortgage applications. Unfortunately, in the vast majority of cases, although not all, traditional high street vanilla mortgages do not necessarily address the often complicated financial structure of some high net worth individuals. As a consequence, the majority of high value expat mortgages tend to be provided by private banks and niche lenders.
Scenario: UK mortgage for a US resident and British expat
As is so often the case with these situations, private banks will consider UK expat mortgage applications on a case-by-case basis. There are no set interest rates and no terms set in stone, instead the deals will be structured around the client’s requirements and their financial constraints. Due to the fact that private banks are not tied to traditional mortgage affordability calculations, as high street banks are, they are certainly more flexible with regards to LTV ratios, interest rates, fixed and variable terms and loan duration.
In some cases we have seen 90% LTV ratios while there are some unique cases where we have managed to negotiate a 100% LTV ratio. The headline interest rate can be fixed or variable and will reflect income available, assets and the level of security offered. Indeed, many private banks will offer an attractive headline interest rate on a UK expat mortgage in return for the transfer of funds/investments to their asset management division. When looking at AUM (assets under management) arrangements it is beneficial to the lender because it acts as an insurance policy. On the flipside, the borrower will still generate returns on assets under management which can go towards capital and interest/ interest only mortgage payments.
High street banks, and to a lesser degree private banks, will require an array of paperwork before considering any application for UK expat mortgages. However, the red tape associated with niche lenders is often reduced. It often comes down to a simple case of mortgage finance and security available although they will still require the traditional identification paperwork, etc. Niche lenders tend to look at individual applications in isolation, calculating margin, security and risk factors. Private banks on the other hand, will often offer reduced rates to encourage long term relationships during which they can market additional financial services.
In reality, between high street banks, private banks and niche lenders, we have yet to come across an application we have not been able to address. Obviously, terms/conditions and interest rates will vary to reflect the individual applications but we have contacts right across the money markets. Our independent mortgage broker status allows us to talk with any lenders, compare and contrast rates then negotiate the best terms for our customers.
Do you need to be employed?
In a perfect world high street banks, private banks and niche lenders would prefer applicants were in full-time employment with regular income. Indeed many would goes far as to suggest that employment via a multinational company would often lead to more preferential treatment. However, this is not always the case.
We have arranged mortgages for customers with no regular income, maybe taking a break from employment, but able to offer significant security. They may have funds on deposit, which could be utilised by an AU (assets under management) arrangement, and/or additional property which could be used as security. In the past we have managed to arrange 100% LTV mortgages for clients with no income and no employment but these types of application tend to be few and far between.
So, the simple answer is that yes, mortgage lenders would prefer you to be in employment and receiving regular income. However, utilising our private bank and niche lender contacts we have been able to arrange many mortgages for those with no regular income.
Can I apply for a mortgage when self-employed?
Just as self-employment has increased dramatically in the UK, so this trend has been reflected across Europe and the wider world. We therefore receive a number of applications from high net worth UK expats who are self-employed. In this scenario there are a number of factors to consider:
- Income can sometimes be unpredictable therefore some mortgage providers will take an average over a 2 to three-year period
- Proof of income must be presented in the shape of a bank statements/payroll data
- Proof of identification/residency is also required
In some cases it may be possible to present proof of long-term contracts which would give an additional degree of security to the mortgage lender.
Company owners have a similar challenge to the self-employed. Indeed, if a director owns more than 25% of a company’s shares then they may well be deemed as self-employed by a mortgage lender. The greater the degree of security offered by company owners the more chance of obtaining UK expat mortgage finance. Some issues to take into consideration include:-
- The requirement to ensure that report and accounts adhere to UK accounting standards
- Proof of income via payroll/bank account statements
- Some private banks/niche lenders will take regular bonuses/dividends into account
- Some lenders will also place great emphasis on the company’s shareholder assets
We have dealt with enough UK expat mortgage lenders to know who to go to, what they want and how they want it presented. We are experts in matching lenders with client situations which dovetail perfectly and allow us to negotiate the best rates.
Over the years we have built up a strong network of lenders such as high street banks, private banks and niche lends. The majority of private banks and niche lenders will only consider applications through parties with which they have a relationship. This is where our experience, reputation and outreach in the lending market can be priceless. We know how to present your situation in the best light, the best structures and the best rates, terms and conditions within our reach. This allows us to inject a degree of competition between our lending partners to the benefit of our clients.
We would welcome the opportunity to discuss your UK expat mortgage requirements in more detail. Please feel free to give us a no-obligation call and we can talk you through the process, what may or may not be best for you and current rates in the marketplace.