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 European Commission introduced the Mortgage Credit Directive (MCD) 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. As a result, fewer mortgages may have been available to the expat market.
As an expat, you should expect the mortgage criteria and application process to be more complex. The available mortgage products can also more expensive than regular UK residential mortgages.
Buy-to-let from abroad
If you want to buy a property to generate rental income while you live abroad, you’ll need a “buy-to-let expat” mortgage. But property you purchase to be your primary residence will require a “residential expat” mortgage.
To apply for either, you’ll need a substantial deposit (ideally held in a UK bank account) and evidence of the deposit’s source. You’ll also need 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.
You should also take the repayment currency into account. MCD means that lenders must monitor exchange rates to ensure foreign currency loans remain affordable for the borrower. Some specialist lenders also have an “approved currency” list.
Benefits of an expat mortgage
The fall in sterling means that it’s currently cheaper for international buyers to buy 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 they can take advantage of specific mortgage products. They can also join 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. This 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. Tipton and Coseley has announced that it is considering expanding its expat mortgage offering to include residential properties and foreign income loans.
At BuyAssociation, many of our clients are resident overseas. Get in touch to find out about our property investment opportunities. We can also put you in put with an expert, independent mortgage broker.