Expats looking towards UK property market

Since the 2016 EU referendum there has been a steady increase in the number of expats looking back towards the UK property market. Even though many will have been away from the UK for decades, the fall in the value of sterling against the dollar and euro has created what many would describe as a rare investment opportunity. So, how easy is it for expats to secure funding to acquire UK property?

UK expat mortgage services

Those who follow the UK property market will be well aware that the country has one of the most liquid mortgage markets in the world. We have the traditional high street banks, private banks and niche lenders covering a whole range of different situations and requirements. Therefore, while it may be difficult for expats to secure mortgage finance in the UK it is certainly not impossible.

There are a number of challenges facing expat property investors such as:-

?   Lack of a financial footprint

?   No UK address

?   Difficulty in proving income

While there are other issues to take into consideration, these three are perhaps the greatest challenges when it comes to expats looking to secure mortgage finance in the UK. However, it is worth reminding ourselves that unlike many countries, there are no barriers for foreign investors looking to acquire UK property. Securing the relevant finance may well be more challenging but it is possible.

Attractions of UK property

Before we look at the process of securing mortgage finance for expats, it is worth reminding ourselves why UK property looks so attractive to overseas investors at this point in time. In the aftermath of the 2016 EU referendum sterling fell by as much as 20% against the dollar and the euro. Recent indications that a deal may be possible in the short to medium term have prompted a recovery in sterling but it is still down by around 10% against the dollar and the euro.

There is also the potential to secure very attractive rental yields in the private rental market. In some cases these yields can be approaching double digits and beyond with houses in multiple occupation. So, the potential for long-term capital appreciation together with very attractive rental yields, significantly greater than current mortgage rates, have been attracting a raft of expats back to the UK property market. The only downside has been the ongoing tightening of regulations and tweaking with property taxes which has placed a little pressure on investment profit margins.

Buy to let expat mortgages

As we touched on above, there are a number of challenges when it comes to expat mortgage funding. It basically comes down to the risk/reward ratio with many traditional banks taking a step back from the expat market. An inability to prove not only income but also perform an in-depth credit check can see the number of expat mortgage opportunities reduced significantly. However, there are ways and means of increasing your chances of securing expat mortgage finance such as:-

?   Asking your accountant to certify your income

?   Maintain a degree of UK income

?   Offer additional assets as security

?   Look towards an assets under management arrangement (AUM)

?   Apply via an international bank

If you are living in another country there may also be a number of legal considerations which could complicate the situation. As one example, many French banks are reluctant to take on U.S. based property investors because of different legal protections in either country. The risk of losing a court case, together with legal expenses, has been deemed too much by some French banks.

Certifying your income

When applying for any mortgage finance it is traditionally based upon a multiple of income. So, if a mortgage provider has difficulty in clarifying your income beyond any reasonable doubt then they may deem the risk is too high. As we touched on above, approaching your accountant or another recognise professional to certify your income should help to strengthen your case.

Maintaining a degree of UK income

Some expat investors may rent out family homes as they seek a new life overseas. This creates a very useful income stream from a UK base and can prove beneficial when looking to apply for mortgage finance. In simple terms, the greater the financial footprint in the UK the greater the number of potential expat mortgage opportunities.

Additional security

Whether looking at income, credit checks or address footprints, everything comes down to one issue, the risk/reward ratio. If an expat is able to offer additional security against any mortgage finance then again this will obviously help their case. If this asset is UK based then even better.

AUM arrangement

An AUM arrangement is very popular with private banks in the UK and allows them to expand the services they provide to customers. In effect they will agree to provide mortgage finance in exchange for the transfer of some investment assets to their asset management division. These funds will remain in the asset management division for the duration of the mortgage finance. The customer still has access to future income but the capital would remain under the management of the mortgage provider. In effect this is a type of insurance policy and one which allows clients to secure finance and private banks to expand their client base.

International banks

Such is the reach of international banks these days that when leaving the UK for pastures new it may even be possible to retain the same banking arrangements. For example, the likes of HSBC have banks across the globe and may well accommodate continuity of service. Therefore, expats looking towards the UK who already have a relationship with, for example HSBC, may find it easier to raise finance. HSBC, via one of its international branches, will be able to monitor funds in and funds out of the client’s bank account. This will give them an idea of income and expenditure and what level of mortgage funding may be deemed appropriate.

Cash buyers

One way to avoid potential issues with regards to mortgage finance is to acquire properties without the need for finance. There will still be a requirement to comply with money-laundering regulations but these are much more straightforward. There tends to be a common misconception that all expats are cash/asset rich when this is not always the case. However, if in a position to acquire property with cash, the process is much quicker and more straightforward.

Types of mortgage finance

You will tend to find that expats looking for mortgage finance in the UK will require higher than average deposit. This could be anywhere up to 40% although it will depend upon the client’s individual circumstances. Many traditional mortgage providers will also favour a capital repayment mortgage which ensures that the capital is reduced on an ongoing basis. However, it will ultimately depend upon how you use the finance as to the eventual return.

While high street banks tend to approach expat mortgage in a very straightforward manner, with little flexibility, private banks and niche lenders are different. They will look at creating a long-term relationship with a new mortgage client and also look at multiple incomes and certifications in a different way. In effect it is possible to create bespoke mortgage funding arrangements which reflect the client’s underlying finances both now and going forward.

That is not to suggest that private banks/niche lenders operate a riskier business model but they do look at things differently and are often more flexible. Sometimes this will come at a cost – a higher long term interest rate.

Currency considerations

One potentially unique consideration for expats looking to acquire UK property but remain living overseas is currency exchange rates. For example, taking out a ￡100,000 mortgage in the UK today would in theory increase in value if sterling was to make a recovery, to previous levels, against the dollar and the euro. In effect, a circa 10% recovery would lead to a 10% increase in foreign currency requirements when exchanging into sterling. The sterling mortgage instalment rate would not change but the exchange rate could have a significant impact upon future financial liabilities.

There are ways and means of mitigating the impact of currency movements but there will still remain a degree of risk. This is especially so where the client has no option but to receive their employment income in a currency other than sterling.

Conclusion

It is fair to say that the UK property market is currently attracting more than its fair share of overseas investors. With the exception of London, UK property prices have remained fairly robust during these challenging economic times. However, currency movements have prompted a circa 10% purchase bonus for overseas investors looking to convert into sterling and acquire UK property.

The vast majority of expats will still check and monitor the UK investment markets including real estate. A deep-seated knowledge of popular areas, values and prospects going forward often means they are one of the better qualified foreign investors looking towards UK property. There are obviously risks with regards to any property investment and challenges when looking to secure mortgage finance. That said, short-term fluctuations in the UK property market could turn out to be a very lucrative long-term investment opportunity.