UK mortgages for non-residents

The subject of non-residents applying for UK mortgages is an interesting one with a misconception that it is sometimes impossible. Here at Enness we pride ourselves on our ability to arrange UK mortgages for different nationalities spread right across the world. Indeed, in 2018 we arranged UK mortgages for 71 different nationalities and are now recognised as the leading broker for non-resident and foreign national mortgages in the UK.

This is a position we have built up over many years, nurturing extremely close relationships with high street banks, private banks and niche lenders. We know where to go to accommodate particular nationalities and scenarios. We will now take a look at some of the facts and the fiction surrounding the non-resident UK mortgage market.

Dispelling the myth that it is impossible

It is safe to say that UK mortgages for non-residents and foreign national mortgages are not as straightforward as those for UK based customers. There are certain nationalities which are more challenging than others but we have experience in many different areas. Over the years we have arranged UK mortgages for individuals with an array of different tax residencies, countries of residence/domicile and place of birth.

We tend to find that private banks and niche lenders are more welcoming of foreign national mortgages, although surprisingly some high street banks are prepared to take a more relaxed approach. There is obviously a need to prove an array of details such as:-

• Identity
• Income
• Assets
• Place of residency

These are all issues which can be fairly easily addressed. There is also a common myth that you need either a UK passport or visa to obtain mortgage finance in the UK – this is simply incorrect. It would normally be simpler if these documents were available but it does not restrict access to finance as such.

There may well be cases where you need to pay a small premium above and beyond the traditional rate of mortgage interest but all applications are considered on a case-by-case basis. If you have the income, assets and your paperwork is in place, there are no real barriers to entry.

Fragmented and disjointed non-residents mortgage market

As we touched on above, we tend to have more success with private banks and niche lenders who are funded very differently from high street banks and tend to be more flexible. These are bodies which will look at the wider picture but also attempt to build long-term relationships with high net worth individuals. There may be a degree of asset management to consider, funds held on deposit or some other security arrangement, but the beauty is that many of these elements are still negotiable and not set in stone.

While it is fair to say that high street banks have to work within the straitjacket of affordability calculations, with criteria set by the Prudential Financial Authority, we sometimes find they are flexible with foreign national mortgages and especially foreign currency income streams. For many customers seeking a vanilla foreign/non-resident UK mortgage there are occasions where high street banks are competitive and appealing. Where we differ from our competitors is our ability to build up extremely strong and trusting relationships with in excess of 300 global lenders. We know our markets, the information lenders require and the degree of negotiation possible. The fact that we are independent mortgage brokers means our hands are not tied to certain parties and we have no restrictions on the lenders we can deal with.

More choice than many people assume

The greater the competition in any financial market the more flexible lenders tend to be and more competitive on rates. There are some very simple facts to take into consideration which include:-

• Income
• Security
• Rental income where applicable
• Affordability

When it comes to arranging non-resident UK mortgages/foreign mortgages as long as there is sufficient income, asset backing and security this offers the firm basis for negotiations. Indeed there have been times when we have arranged mortgages for individuals, funded by partners and other parties, who have no direct income of their own. While these are non-traditional arrangements we tend to find they are fairly commonplace amongst foreign nationals looking to acquire UK properties.

Those who have researched non-resident UK mortgages will probably be aware that private banks and niche lenders can be extremely accommodating. What may surprise many is the fact that high street banks are often more flexible when there is a long-term trading relationship in place. For example, we have negotiated non-resident UK mortgages for customers where their main income is denominated in a foreign currency.

Traditionally, many high street banks would simply ignore this when carrying out affordability calculations but some are more flexible than others. We have arranged a number of deals where high street banks have been willing to effectively convert foreign currency income into sterling to carry out the calculation. We are not suggesting that high street banks are as flexible and accommodating as private banks/niche lenders but they do still offer an option for some of the less complicated financial arrangements.

What is the process?

As we touched on above, there is some very basic paperwork which is required to get the process started such as confirmation of:-

• Identity
• Income
• Assets
• Place of residency

We fully appreciate that collating this paperwork in a manner which is acceptable by UK mortgage providers can take time. This is where our experience is invaluable, working with your advisors to complete mortgage applications and ensure the correct paperwork is included. While certain types of transaction, such as owner occupier property, buy to let or investment, are commonplace they do require a different approach. There are certain lenders more welcoming of non-resident buy to let investors while others will focus on owner occupier properties.

Clarifying income sources

It may surprise many to learn that it is possible to arrange non-resident UK mortgages without detailed evidence of income. This tends to take the form of some kind of prepaid arrangement, assets under management or other structures available through specific lenders. However, the most common type of non-resident UK mortgage revolves around certified income.

Many of our high net worth clients have various assets and income streams located around the world. In many of these cases simple clarification via payslips and bank statements may not be enough. This is where we are able to work with your accountant and other advisors to put together a detailed and certified schedule of your income and assets. Collating and presenting this information in the best possible light allows us more scope for negotiation and ultimately to secure a successful mortgage application.

Traditionally self-employed non-residents have found it difficult to secure UK mortgage finance simply because many were unable to certify their income. Again, working with international accountants and advisors we have arranged self-employed non-UK national mortgages for many of our customers. A number of our self-employed customers were surprised to learn of their relatively strong negotiating position once their income had been certified by their accountant/advisors.

Knowing who to go to, the information required and the broad terms on offer will save time, effort and money in the long term. This gives us the best scenario in which to negotiate the right deal on the best terms.

Where are the lenders

While to some people the benefits of a mortgage broker are not immediately obvious, in situations such as non-residents looking for UK mortgages, they can be priceless. It is well documented that the UK financial sector is well developed and there are numerous options for those looking at foreign mortgages.

High street banks

Since the 2008 US sub-prime mortgage crash, the subsequent worldwide economic downturn and the challenges of Brexit, some high street banks have taken a step back from areas such as non-resident mortgages. That said, over the years we have built up relationships with the majority of high street banks and there is room for negotiation behind-the-scenes. As we touched on above, in the past we have negotiated foreign income as a basis for carrying out the regulatory affordability calculation with no issues. While not all high street banks will be as amenable as this, it does show there is scope for negotiation and nothing is set in stone.

Private banks

While the Internet has opened up the mysteries of the private banking sector this is still an area of finance which is not necessarily open to everybody. The majority of private banks tend to accommodate business of an introductory nature from parties they trust and have dealt with in the past. This is where our long-term networking skills allow us to talk with private banks to secure the best deals for our customers. There are many specialist areas of the private banking sector and it is a case of approaching those best suited to customer needs. This minimises wasted time, wasted resources and allows maximum focus on creating a structure and deal terms which work for everybody.

Niche lenders

While private banks are more flexible than high street banks, niche lenders tend to be the most flexible of all lenders in the UK. This particular area takes in private equity, peer-to-peer and even family offices where accumulated wealth is used to fund investment and maximise returns. Very often these are areas of the financial world which are out of the reach of the general public and specifically open to mortgage brokers able to bring their experience and knowledge to the table. While high street banks may be able to accommodate simple vanilla non-resident mortgages the more complicated the scenario the further down the chain between private banks and niche lenders we often need to travel.

It can be tempting to compare headline interest rates on non-resident/foreign mortgages with traditional mortgages when in reality the details are very different. Where a specialist structure is required, with terms that fit around a customer’s specific financial situation, this will likely lead to a small premium on headline interest rates. This is the price for flexibility and this is where we are able to negotiate the best terms for our customers.

Are any specific nationalities excluded from non-resident mortgages?

As we touched on above, during 2018 Enness was able to arrange UK mortgages for non-residents spread across 71 different nationalities. While there are some nationalities where it may be more difficult to prove identity, assets and income this is where our ability and experience as an independent mortgage broker is most useful.

When researching non-resident/foreign mortgages you will see many mortgage brokers are tied to specific groups of finance providers. As a consequence, you will find that these specific lenders might fail to accommodate some nationalities therefore giving the impression that the market as a whole has taken this stance. Our experience is very different. As we are able to talk to more than 300 different lenders across high street banks, private banks and niche lenders, we have yet to find any nationality for which we have not been able to secure a proposal for mortgage funding.

It is worth noting that the list of nationalities that some mortgage providers will not deal with can change on a regular basis. It comes down to a variety of different reasons such as national laws, instances of fraud, politics, etc. Where in simple terms it is difficult if not possible to prove identity, assets and income for an individual with complete certainty.

Sanctions and politically exposed persons (PEPs)

There will be occasions where restrictions are in place with regards to UK mortgage applications for non-residents – the most common of which are referred to as sanctions and politically exposed persons (PEPs). What are these and how do they impact those looking to secure mortgage funding?

Sanctions

From time to time the UK government will impose financial sanctions on governments, individuals and entities that may or may not be resident in the UK. While these measures can vary from comprehensive to specific targeted assets/individuals/entities they are very important when it comes to financial transactions. In some cases a financial sanctions order would prevent any financial transactions with specific parties or any general financial service activities (advice, etc).

It is worth noting that while it is a criminal offence not to comply with a financial sanction, there are bodies that hold a licence/authorisation from the Office of Financial Sanctions Implementation. In certain circumstances there may be some leeway but financial sanctions tend to be extremely tight and across the board.

Politically exposed persons (PEPs)

The subject of PEPs is controversial as it effectively flags an individual/family as influential within a particular political body/government and a potential risk. The best way to describe the PEP regulations is a means of avoiding abuse of power and the laundering of illegal proceeds. Over the years we have seen leaders and influential parties in corrupt governments around the world divert public/government funds for their own benefit.

There is a general misconception that PEPs have been identified as potentially involved in criminal activity when this is not the case. This definition simply means that further enhanced scrutiny and due diligence will be required when either the individual, family or close acquaintances are looking to secure finances/invest/seek financial advice. It is the duty of financial firms to identify PEPs and ensure the enhanced due diligence guidance is followed, recorded and any money-laundering/financial breaches reported.

International lenders and private banks

It is widely acknowledged that the UK has one of the most developed financial services industries in the world coupled with an extremely wide range of domestic and international lenders. While the bulk of UK mortgage funding is carried out by domestic banks, private banks and niche lenders, there will be occasions where international lenders/international private banks are able to offer attractive deals.

If you consider the circumstances of an EU resident (resident outside of the UK) looking to acquire UK property, it may be sensible to look at a euro mortgage with ECB base rates currently 0% against UK base rates of 0.75%. This means that in theory the headline interest rate on a euro mortgage should be lower than the UK equivalent. This is something which international lenders and private banks will accommodate but there are additional risks. When utilising the services of an international lender/private bank you should also take into account:-

Taxation issues

The way in which mortgage payments, interest and affordability test are carried out will vary from country to country. For example, British buyers living in mainland Europe looking to acquire property in the UK may find there are differences in costs and taxation issues surrounding international and UK mortgages.

Stress tests

The same scenario, in light of the 2008 US sub-prime crash and the ongoing Brexit negotiations, British buyers looking to take out international loans in European countries (not the UK) will likely still be susceptible to stress tests/affordability tests. This is simply a means of ensuring that the individuals are able to afford repayments going forward.

Exchange rate movements

If you are talking about a property acquisition involving a payment in sterling via a euro mortgage, then you are exposed to exchange rate movements. We normally deal with properties worth millions of pounds where even a relatively small movement in exchange rates can have a significant impact on the cost to the buyer. Ironically, if we look at the swing in the euro/sterling exchange rate in the aftermath of the 2016 Brexit referendum this perfectly illustrates the dangers.

While this is a route that many overseas investors will consider there are numerous issues to take into consideration. We have experience in all areas of finance and are able to work with your accountants and advisors to define the most appropriate path for your situation. We have dealt with mortgages involving multiple currencies, cross-border investment and the use of worldwide assets as security. Therefore, whether you wish to go down the international lender/private bank route or utilise the well-developed UK lending market these are options we can discuss with you in more detail.

High value mortgages

The concept behind any mortgage arrangement, whether resident in the UK or not, is simple. There are various issues to take into consideration such as:-

• Income
• Security
• Liquid assets
• Non-liquid assets

You will often find that when seeking to secure high value mortgages the high street banks will accommodate vanilla applications which are relatively straightforward. For those that involve assets spread around the world and multiple currency income streams it may be more appropriate to deal with private banks/niche lenders.

Private banks and niche lenders are funded in a very different manner to high street banks and therefore have greater variation with regards to affordability calculations and which assets and income streams can be considered. You will often find that relatively high value mortgage approvals will also be linked to the transfer of investment assets under management to the mortgage provider. This offers the perfect opportunity for these organisations to cultivate a long-term relationship with high net worth individuals and to introduce additional services they may require.

As ever, with alternatives to high street banks, nothing is ever set in stone and the transfer of assets/cash deposits will be considered on a case-by-case basis. This is the very nature of the private banking/niche lending sector, the ability to structure individual deals for individual scenarios. Very rarely will you come across an off-the-shelf package which will suit an array of different customers.

Is AUM needed?

As we touched on above, some private banks/niche lending arrangements will require the transfer of assets under management (AUM) as a form of security. This is not set in stone and will depend upon alternative assets and income available to mortgage applicants as potential security. Even if AUM was seen as a precursor to approving a mortgage application we have experience in negotiating alternatives or minimising asset transfers. The non-resident/foreign mortgage market coupled with high value mortgage applications does offer a perfect scenario for financial bodies and high net worth individuals to cultivate long-term relationships. However, we also deal with lenders who will consider alternative arrangements and additional security.

What is the paperwork requirement?

Those applying for a non-resident UK mortgage will need to supply an array of paperwork which includes:-

Proof of identity

Traditionally two forms of photographic ID such as:-

• Passport
• Valid driving licence – UK licence if possible
• Identity/residency card if available in the country which you are living

Proof of address

The more evidence you can provide showing your proof of address the easier the process. These can include:-

• Recent utility bills
• Recent bank statements
• Confirmation from your employer if they cover accommodation/bills on your behalf

Proof of income

This may be relatively straightforward with some non-residents mortgage applications while others can be complicated. Some of the proof of income documents accepted include:-

• Payslips/bank statements
• Headed online bank statements
• Employment contracts
• Evidence of regular bonus/additional payments
• Self-employed income certified by your accountant

Financial history

In order to complete the documentation required you will need to provide:-

• Details of international income/expenditure
• Assets, income streams and outstanding mortgage arrangements
• Credit card statements showing current balances
• Credit ratings where applicable
• Outstanding personal loans and payment terms

All of this information gives a wider picture of your financial situation and your ability to cover mortgage payments and provide security. We have in the past secured mortgages where there was limited income but significant assets available. Even though we have covered areas such as affordability, security, assets under management, fees and many more, nothing is ever set in stone. As an independent mortgage broker we have no restrictions on the parties we can talk to and the type of non-residents mortgage deals we can negotiate.

References:-

https://enness.co.uk/case-study/development-exit-bridge-for-monaco-resident-on-london-new-build/
https://enness.co.uk/case-study/acquiring-a-mortgage-for-an-indian-national-with-no-uk-credit-file/
https://enness.co.uk/case-study/acquiring-a-mortgage-on-a-2-1million-london-property-for-a-uae-national/
https://enness.co.uk/blog/how-is-bridging-finance-used-in-the-uk/
https://www.nationwide-intermediary.co.uk/lending-criteria/general
https://www.fca.org.uk/publication/archive/fsa-sanctions-final-report.pdf
https://www.fca.org.uk/publication/guidance-consultation/gc17-02.pdf
https://www.fca.org.uk/firms/financial-crime/financial-sanctions

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