Expats looking to acquire family home in UK, limited income

THE SCENARIO

It is fair to say there has always been fairly healthy demand from UK expats looking to acquire family homes in the UK. This trend may have been strengthened of late due to the weakness in sterling and the relatively low mortgage rates available. There is a fairly large expat community living and working in the Middle East and we have seen an increase in demand for UK property from this area.

Our next case study involves a lady looking to acquire a family home in the UK to be used solely when visiting the country. The details of this particular fundraising make for interesting reading together with a twist in the tale.

Client scenario

It is no surprise to see that demand for UK property from expats based in the Middle East is growing. As we touched on above, there are a number of reasons for this strengthening trend which often brings challenging scenarios. This client was looking to buy a family home in the UK for use when in the country. This all sounds fairly straightforward with the figures as follows:-

Property value: £1.9 million
Nature: Wife raising funds, husband not to appear on mortgage
Deposit: 25% – limited funds available
LTV: 75%
Typical expat mortgage: Capped at 70% LTV
Typical expat mortgage interest: 3% to 4%

After chatting with the client we were informed that the couple had an additional buy-to-let investment in the UK which was mortgage free. It quickly became apparent that this would be very useful when looking to raise additional funds for the required deposit.

Issues to address

The main challenges for this particular case involved the limited income from the client, the husband not appearing on the mortgage together with an ambitious LTV. We also knew that some lenders would have concerns that the property would not be let out when not in use by the family. Many lenders prefer a property to be in constant use; whether the client, family members or friends, thereby enhancing security.

Income: Client had limited income, husband not to appear on mortgage application
Mortgage funding: £1.425 million
Mortgage type: Interest only
LTV rate: 75% required against 70% maximum when lending more than £1 million
Mortgage interest rate: Relatively high for expats

It very quickly became apparent that the private banking sector would be the most appropriate for this scenario. Over the years we have built up very strong relationships with many private banks offering an array of different services, and most importantly, a high degree of flexibility.

The solution

Our initial discussions with the client highlighted the fact that it may be difficult to obtain the required deposit without utilising additional assets. We will cover this issue below but we were able to make use of a UK based buy-to-let investment held by the client. Turning back to the initial scenario, we were able to use our strong private banking relationships to secure a generous funding package against the client’s personal income. We had to convince lenders that the client was able to cover her expenses in Dubai while also having sufficient income to cover mortgage payments.

The final solution was as follows:-

Property value: £1.9 million
Mortgage funding: £1.425m
Mortgage type: Interest only
Mortgage term: 20 years
Mortgage affordability: Based on a generous assessment of the client’s income – excluding husband
LTV: 75%
Deposit required: 25% or £475,000 (see below)
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).

As well as securing a high LTV on limited income the client was also given the option of a two-year, five year or 10 year fixed rate package. Product details and interest rates were as follows:-

2 Year Fixed
Interest rate: 2.09%
Early repayment charge: 2% in year 1 & 1% in year 2. None thereafter

5 Year Fixed
Interest rate: 2.34%
Early repayment charge: 5% in year 1, stepping down to 1% in year 5. None thereafter

10 Year Fixed
Interest rate: 2.49%
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

Securing additional mortgage finance

We knew from the outset there was limited funding available for the deposit required on the new family home. While discussing the scenario with the client we found that they already had a buy-to-let property in the UK valued at £950,000 on which there was no mortgage. We therefore set about raising capital against the second property on the following terms:-

Property value: £950,000
Loan amount: £712,500
LTV: 75%
Mortgage type: Interest only
Mortgage term: 20 years
Rental income: £590pw
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.

As with the mortgage on the new property, we were able to secure some very competitive options regarding interest rates:-

2 Year Fixed
Interest rate: 2.49%
Early repayment charge: 2% in year 1 & 1% in year 2. None thereafter

5 Year Fixed
Interest rate: 2.74%
Early repayment charge: 5% in year 1, stepping down to 1% in year 5. None thereafter

10 Year Fixed
Interest rate: 2.89%
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

We managed to raise £712,500 on the client’s mortgage free buy-to-let property (with rental income contributing to monthly payments) more than covering the deposit required on the new £1.9 million family home. Suffice to say the mix of high LTV, generous appreciation of income, competitive interest rates together with the option of overpayments went down extremely well with the client.

What can Enness do for you?

There has always been a very healthy expat mortgage market in the UK as many expats look to secure UK property for short, medium and long-term stays. The current uncertainty regarding Brexit has seen expats benefit from a fall in sterling not to mention low mortgage rates. This particular case was challenging because of the limited income the client had in their own right, her husband’s omission from the mortgage application and the difficulty in raising the deposit required. While initially we were not aware of the additional buy-to-let property this came in very useful when remortgaging to raise funds.

If you’re in a similar situation, or perhaps you have been turned down by other mortgage brokers, please feel free to contact us for a no obligation chat. We would welcome the opportunity to discuss your finances and goals in more detail and create a funding structure which works for you. We have access to real-time interest rates and can therefore show you actual monthly payments so you can compare and contrast various options. We have a reputation which goes before us, the ability to work with more than 300 different lenders and an independent status which gives us freedom across the marketplace.

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