UK property investment still a good option for expats
With growing interest in expat mortgages, lenders are relaxing borrowing criteria and offering more products to Britons living abroad
Despite the recent tax changes and 3% stamp duty for UK landlords, the UK buy-to-let is still a desirable investment option for Brits who live and work abroad.
Mortgage providers are reporting an increase in the number of people living in the EU who are buying a property in the UK.
The biggest surge in interest, however, has come from expats living in the Middle East, Singapore or Hong Kong. Expats in these areas pay little or no taxes, enjoy higher wages and, as a result, have cash in a bank that they want to invest into assets that they feel comfortable with..
Consequently, demand for expat mortgages has risen by 30% compared to the previous year.
At present, Al Rayan Bank, Kent Reliance and the Market Harborough Building Society have been leading the way as expatriate mortgage providers.
However, in order to drive even more future expatriate mortgage business, existing lenders are expanding their range of mortgage products for expats while new lenders are jumping into the growing market.
“Getting an expat mortgage isn’t always straightforward but there are a lot more lenders offering them now than there were a few years ago.”
Aaron Strutt, Trinity Financial
The challenge for both brokers and clients is that a Buy To Let mortgage for expats is a very different product to type of mortgages available for UK residents. Tougher identity checks, a comparatively small number of available lenders and restrictions on certain countries can all prove challenging.
Expat customers also have to invest a bigger deposit, usually at least 25% of the property’s value.
Expat mortgages are slightly more expensive in terms of interest rate than their regular counterparts.
Many lenders no longer require expats to have an existing property in the UK, however when considering the amount to lend, they often take into account not only rental income but also earned income. The higher the wage, the easier the affordability, the lower the interest rate.
Some lenders, such as Market Harborough, have very low interest rates but require a minimum income of £45,000.
Several other lenders accept only employed income where the employer being a sizeable company.
Another issue for expat mortgages is stress testing.
Under the Mortgage Credit Directive foreign currency mortgage lenders have to share the risk of any currency fluctuation with the borrowers. These rules apply to every expat unless they are still paid in pounds sterling. To protect themselves, many lenders shave 20-30% off the value of expat customers’ income to allow for currency fluctuations and meet the stress test.
As to a country of residence, there are fewer blacklisted countries now. Many lenders only refuse to lend if expats reside in the countries classified as “politically exposed” by the United Nations. Lenders such as Vida have relaxed their rules and lend to existing UK property owners working in FATF member countries around the world, including Australia, America and Canada. They even allow non-British spouses to be on the mortgage.
“We’ve been offering this extension to our Buy to Let Expat range via selected key distributors over the past couple of months and we are now rolling the proposition out to the wider market in response to demand. Intermediaries have been telling us that our criteria-driven BTL Expat proposition – including niche criteria such as HMOs and MUBs and no minimum income requirements – is hard to beat.”
Louisa Sedgwick, Director of Sales – Mortgages, Vida