Despite attempts by the Chinese government to control the outflow of investment funds, Chinese investment in UK property continues to grow. While this is a trend which is likely to continue it can present some challenges when looking to raise mortgage finance in the UK. Therefore, it is no surprise to learn that we are being approached by foreign nationals on a regular basis, with no UK footprint, looking to acquire UK property.
This particular case study involves a Chinese national looking to acquire an off-plan property in the UK.
Very often we are approached with fundraising propositions where the scenario looks straightforward at first glance but under the surface there are challenges. With this particular scenario it was fairly obvious at first glance where the challenges would be although these are situations we see on a regular basis. So, we have a Chinese national, residing in Shanghai looking to acquire an off-plan new build flat in Manchester.
The basics of the case study are as follows:-
Residency: Shanghai, China
Investment: UK off-plan new build flat
UK income: Zero
Even though the provision of foreign national mortgages is a competitive market in the UK, raising funds for those with no UK footprint does reduce the potential participants. Even though many will take into account rental income from the property itself, even this is not a given. We also know that off-plan new builds can be subject to delay which can seriously impact cash flow. As a consequence, we knew from a very early stage that the number of potential lenders would be significantly reduced compared to more traditional fundraisings.
Issues to address
After in-depth discussions with the client we were fully aware of the challenges ahead although there was one strong positive, the size of the deposit. So, the issues to address were:-
Residency: Shanghai, China
Other UK properties: None
UK income: Zero
UK footprint: Non-existent
Rental stress test: Property failed traditional test
Other income: No evidence available
Positives: Client able to fund a 40% deposit
So, we have a Chinese national, living in Shanghai, with no UK income, no other UK properties and no evidence of any income. To make the situation a little more challenging, the property failed the traditional rental stress test which meant that we had to look at a niche lender. It is also worth bearing in mind the challenges associated with new build properties; potential time delays and cash flow issues. The fact that the client was able to fund a 40% deposit was a telling factor when looking to negotiate a competitive package. This ensured that any lender had more than ample headroom between their exposure and the underlying value of the property.
As we touched on above, it was fairly obvious from an early stage that we would need to negotiate with niche lenders. There was no UK footprint, no UK income and no evidence available regarding other worldwide income. The 40% deposit was the major positive in this scenario and proved to be a valuable bargaining chip when approaching lenders. As a consequence, we managed to negotiate the following solution:-
Funding: 60% LTV
Rental stress test: 100% at pay rate
Interest charge: 7.49% with 2% per annum deferred
Deferred payments: Option to defer interest until end of term
The niche lender from whom we secured the above funding did not require evidence of income and was unconcerned that the client did not own any other UK properties. While the client obviously provided the traditional compliance paperwork there was no requirement for bank statements. Even though there is still a degree of risk in dealing with foreign nationals with no UK footprint, the 40% deposit was a key factor. It created headroom with which the lender was comfortable and as a consequence able to offer a competitive mortgage interest rate (as well as the opportunity to roll-up at a rate of 2% per annum). It is fair to say that the client was extremely satisfied with the deal that we negotiated.
What can Enness do for you?
Over the last few years we have dealt with a growing number of foreign nationals looking to secure funding in the UK. As we are an independent mortgage broker we have access to more than 300 different lending institutions across the market. Traditional mortgage lenders would be highly unlikely to consider the above scenario therefore our relationship with niche lenders proved invaluable. We know the information they require, the level of headroom/insurance they look for and the range of mortgage interest rates they offer. Therefore, we were able to secure funding relatively quickly thereby allowing the client to complete on their off-plan new build.
This type of scenario is becoming more commonplace in the UK. If you are faced with a similar situation we would welcome the opportunity to discuss your requirements in more detail. As we specialise in bespoke mortgage funding, we can create a structure which best accommodates a client’s underlying financial position. Access to real-time market rates ensures that we can provide you with a range of suitable options/structures so that you can compare and contrast cash flow requirements.