For expats, owning a UK property for rental income or the security of having somewhere to live if they want to return home is an attractive proposition. However, applying for a UK mortgage when you live abroad is not as simple as a regular mortgage application.
Expat mortgages are less cost-effective for lenders since the Mortgage Credit Directive (MCD) was introduced by the European Commission in 2016. For borrowers paid in a foreign currency, it means lenders cannot use their automated affordability checks. Ultimately this has increased the burden of administrative and regulatory monitoring of foreign exchange rates resulting in fewer mortgages being available to the expat market.
As an expat, you should expect the mortgage criteria and application process to be more complicated, and the available mortgage products to be more expensive than if you were applying for a regular UK residential mortgage.
Buy-to-let from abroad
If you want to buy a property to generate rental income while you live and work abroad, borrowers will need a “buy-to-let expat” mortgage, but property purchased to be your primary residence will require a “residential expat” mortgage.
To apply for either, borrowers will require a substantial deposit (ideally held in a UK bank account), evidence of the deposit’s source, proof of residency (for the past three years) and proof of income for a residential mortgage; for a buy-to-let mortgage, borrowers will be assessed on their expected rental income.
Consideration should also be given to the repayment currency. MCD means that lenders must monitor exchange rates to ensure foreign currency loans remain affordable for the borrower, and some specialist lenders have an “approved currency” list.
Benefits of an expat mortgage
The fall in sterling means that it’s currently cheaper for international buyers to purchase property in the UK. Expats looking to invest in the UK have to save less for a deposit because they’re getting more Sterling for their foreign currency. Plus, as the mortgage repayments will be made in Sterling, they work out cheaper too when they revert back to their earning currency.
Expats seeking to buy a rental property will find that as long-distance landlords they can take advantage of specific mortgage products and join the HMRC’s non-resident landlord scheme which exempts them from UK income tax. In addition, having a buy-to-let property is a great way of maintaining a UK credit rating, which means securing UK borrowing in the future will be easier.
An expanding market
Andrew Sadler, senior business development manager at Ipswich Building Society, said: “By far the biggest hurdle for expats is the lack of choice when it comes to mortgage providers, with many of the high street lenders seeming reluctant to get involved due to the perceived risks and challenges involved…
“This underserved area of the market is where we and other smaller lenders really come into our own, with our ability to manually underwrite cases in-house and look at the details more carefully.”
And it seems that lenders might finally be seeing the opportunities in this neglected market. Skipton International recently launched a remortgage deal for the British Expat and Foreign National Market, and Tipton and Coseley has announced that it is considering expanding its expat mortgage offering to include residential properties and foreign income loans.
Credit Source: Samantha Taylor.