Chinese national buying family home in UK, moving on Tier 1 Visa

THE SCENARIO

The UK has always been a very popular destination for Chinese property investors with many eventually moving to the country. We have also seen a significant increase in Chinese students moving to the UK to take advantage of the high standard of university education. When you also consider the weakness of sterling over the last three years, down more than 20%, this is a trend which is likely to continue.

We were recently approached by a client based in China looking to secure mortgage funding to acquire a family home in central London. It was obvious from the outset that we would encounter a number of issues due to controls and regulations in China and the UK.

Client scenario

There are always challenges when overseas clients are looking to secure mortgage funding to acquire UK property. The fact they do not have a financial footprint in the UK means that the traditional checks are often relevant. In this particular scenario we were approached by a successful Chinese businessman who was looking to acquire a family home in central London. While there were plans to move his family to the UK, this would not happen until the property was secured and his Tier 1 Visa was in place. This visa allows those with exceptional talents, businesses and funds to invest, to move to the UK.

Before we look at the case study in more detail we have summarised the client’s basic requirements below:-

Nature of funding: Acquiring new main residence in UK, plans to move family from China
Property value: £2.95 million
Loan amount: £2.5 million
Deposit: Limited cash flow due to currency controls in China
LTV: Maximum available
Assets under management: Not an option

It is safe to say that arranging mortgage finance for Chinese nationals looking to move to the UK is not straightforward. As soon as we were made aware of the details it was obvious that we would need to go down the private banking route to accommodate the required flexibility and bespoke nature of any funding arrangement.

Issues to address

Even though private banks are the most flexible and accommodating mortgage financiers in the UK, they also have limits with regards to foreign mortgages. After speaking with the client in more detail it became apparent there were a number of challenges which included:-

Income: Funding would come from client’s China based companies
Know your client (KYC): No UK footprint led to challenging KYC process
Mortgage funding: Circa £2.5 million
Mortgage type: Mixture of interest and capital repayment
LTV rate: 85% required against traditional 70% maximum when lending more than £1 million
Mortgage repayments: Flexible – option to pay down additional capital
Currency controls: Chinese regulations limiting capital transfers

While the Chinese authorities have reduced some of the historic restrictions on overseas investment and the transfer of funds outside of China, there is certainly no free-flow. So, while the client was a successful businessman there was limited cash flow available outside of China. However, due to the way in which his businesses were arranged, there were no issues in managing his operations from the new family home in central London – although this would still involve regular trips to China.

As we touched on above, one of the main issues was a lack of UK footprint and potential private bank compliance issues with the important KYC process. This issue was further complicated by the mortgage funding required which was over £1 million and on a relatively high LTV. Under normal circumstances we would have arranged a transfer of assets to a fund management arrangement with the mortgage lender but this was not an option. We utilised all of our contacts in the lending market with a particular focus on private banking to secure an extremely attractive bespoke arrangement.

The solution

It was obvious from day one that we would require the services of a private bank offering a degree of flexibility for foreign mortgages. Despite the growing influx of investment from China there are still regulatory gaps which need to be addressed. While most lenders would have been reluctant to offer the kind of finance required in this case study, we have some wonderful working relationships in the lending market. As a consequence, we were able to secure the following solution:-

Property value: £2.95 million
Mortgage funding: £2.5 million
Mortgage type: Interest only/capital and interest
Mortgage term: 25 years
Mortgage affordability: Based on company profitability/income
LTV: 85%
Deposit required: 15% (limited cash flow due to currency controls in China)
Repayment method: 75% interest only/10% capital and interest
Overpayments: A capital reduction of 10% per annum can be made without incurring an early repayment charge. This will apply throughout the early repayment charge period (see below).

We managed to negotiate an array of different fixed mortgage options as follows:-

2 Year Fixed

Interest rate: 2.24%
Monthly payment: £5,411
Early repayment charge: 2% in year 1 & 1% in year 2. None thereafter

5 Year Fixed

Interest rate: 2.49%
Monthly payment: £5,907
Early repayment charge: 5% in year 1, stepping down to 1% in year 5. None thereafter

10 Year Fixed

Interest rate: 2.64%
Monthly payment: £6,206
Early repayment charge: 7% years 1-4, 6% year 5, 5% year 6, 4% year 7, 3% year 8, 2% year 9, 1% year 10. None thereafter

As we have detailed above, there were numerous challenges which we had to overcome to secure this relatively high level of funding on a very high LTV. The issue of currency controls in China is unlikely to change significantly in the foreseeable future. However, we have now secured numerous foreign mortgages for Chinese nationals where many of our competitors have refused to consider such enquiries.

What can Enness do for you?

There has been a significant rise in the number of Chinese nationals investing in UK property with many looking to relocate their families on business/investment related visas. Even the most successful business people will have challenges withdrawing significant funding from Chinese operations. Therefore, there is a need to ensure that mortgage funding is structured around the client’s specific scenario and flexible in nature. This particular case study had numerous hurdles for us to overcome although we managed to put together an extremely attractive bespoke mortgage funding arrangement.

If you find yourself in a similar scenario please feel free to contact us for a no obligation chat. We are experts in securing bespoke arrangements, allowing us to structure mortgage funding around your particular situation with a degree of flexibility. We would welcome the opportunity to discuss your situation in more detail, allowing us to obtain real market rates so you can compare and contrast the various options.

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