Mortgages for Expats and Foreign Nationals

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Mortgages for Expats and Foreign Nationals

Richard Campo shares his expertise on mortgages for expats and foreign nationals.

Can expats and foreign nationals get a UK mortgage?

Yes they can. People are often surprised that if you have a valid passport, whether you’re a UK resident or not, you can get a mortgage in the UK. That’s subject to various criteria that we’ll expand on in a moment. It’s more flexible than most people think.

Can I buy a house in the UK if I live abroad – and vice versa?

It all depends on the purpose. If it’s an investment, that’s actually easier. There’s a difference between regulated and non-regulated lending, which makes investment borrowing relatively straightforward.

If you’re looking to use the property as either your main residence or a second property, it can get a little bit more complicated.

Can I get a mortgage if I’m paid in Euros?

This comes up more than you think. So if you’re an EU citizen buying in the UK, more often than not your money will be in Euros. Increasingly, people based in the UK, even residents, are paid in Euros because of European companies having a subsidiary in the UK.

In all of those situations, whether you’re inside or outside the UK, most banks will accept non-sterling income. But the majority of them will apply a ‘haircut’ – so they’ll take between 10 and 15% off the value of the Euro income before converting it into sterling. It’s really important to take that into account when trying to calculate how much you can borrow. If you just convert it at face value you might come up short.

The reason banks do that is because currency markets change over time. Taking a cut will give them some leeway should Sterling drop against the US Dollar, Euro or whatever.

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What are the challenges when applying for this type of mortgage?

The biggest challenge is often the language barrier. I can speak a little bit of Spanish and French but beyond that I’m a bit stuck!

Another challenge is getting the documentation. Globally, systems are so different, and particularly the tax system. In fact, the US is actually one of the best jurisdictions to deal with. The IRS has a specific form that states all of your income whether you’re employed or self-employed.

Additionally, with proving income, it can be a challenge to evidence your employer. If you work for a big multinational that’s quite easy, because we all know PWC or Coca-Cola or Google. But if it’s a more localised employer, how does the bank in the UK know they really exist? A natural extension of that is where you’re self-employed. Again, it can be a job to understand the tax system in a different jurisdiction.

There’s a lot of challenges there, but again good brokers will know the way around it. You’d be surprised by the number of countries that we deal with. London in itself is one of the global financial hubs, because it has the longest trading hours in the world – with America on one side and Asia the other.

How much deposit is needed and how much can I borrow as an expat or foreign national?

As we’ve seen there are more challenges to get a mortgage, and that’s a factor in how banks determine risk scores. They try to mitigate their risk by asking the buyer to put in more cash initially.

The typical starting point is a 25% deposit. It can be more flexible if you’re a UK national – an expat living abroad can perhaps go down to 10% with some lenders. Conversely, if you are in a high risk jurisdiction some banks want up to 50% in a deposit.

High risk jurisdictions tend to fall within the Home Office list, which is what we’ve always gone by. The Home Office website has a list of high-risk jurisdictions that changes over time.

A final factor is around money laundering. There’s an international money laundering standard, so if countries sign up to that it gives banks clarity and reassurance. Not every country has to sign up, it’s voluntary. So if a country hasn’t signed up to that list, they might be deemed high risk and banks have to do more due diligence.

All of these things can be overcome. Years ago I remember I did a mortgage at a time when Iran was high profile. I helped two Iranian brothers buy a property in London and their business was dealing in chemicals. Because there were so many sanctions imposed on Iran at the time, big cosmetics companies wouldn’t deal there so the brothers were creating aerosols like deodorants and hairsprays for domestic demand. The business was legitimate so we could still get them a mortgage.

Can expats and foreign nationals purchase Buy to Let properties in the UK?

Absolutely, and it is in fact easier to buy an investment property as lending is not regulated by the Financial Conduct Authority (FCA). It’s actually regulated by the Prudential Regulation Authority (PRA) which is a slightly different body with its own rules. Various high street lenders are happy to work in this area.

If you’re not in the UK, the bank will instruct the surveyor to look at the property and rental value. The affordability side is ticked off by the rental income you’re going to receive.

We have a lot of experience in overseas Buy to Let. We work with a central London agency that is relatively high end, with an average property value of around £1.6 million. We’re particularly active around the Kensington and Mayfair area where there’s a lot of international traffic.

Cultural factors can be a big thing. There are many different customs around the world and in some countries it’s unusual to talk about your finances. Some people have flown halfway around the world to talk to someone they don’t know about mortgages. So we need to be thoughtful in how we handle each client to get the information we need and present it to the bank. I really enjoy it – I just like talking to people.

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Our key aims are to fully understand what you are looking to achieve, create a solution tailored to your needs, deliver results through an excellent service and build a relationship for life.

How do I apply for an expat or foreign national mortgage?

There’s nothing different at all about this. There are essentially three Cs in mortgages: collateral, commitment and capacity. The collateral is the property itself which in central London is good!

The commitment is about your credit history. If you’ve not paid bills in the past, there’s more risk that you won’t be able to pay in the future now. With international mortgages, it’s hard because banks often can’t access your credit record. As a result, banks are more cautious.

Capacity is affordability – how much income you have or the rent you will receive to support the loan.

Those basic rules have never changed – it’s fundamental to how mortgages work and what you will need to get approval.

How do I better my chances of getting a mortgage as an expat or foreign national?

It’s really a case of having your documentation nice and clear. Some countries find this quite intrusive and I respect that. If you’re from the UK you understand that, it’s not an issue, but if you’re new to the UK you might be surprised how much information you need. The aim is to prove what we’re saying about you and your financial situation.

I would also say the bigger the deposit the better. It is a higher risk sector so that will significantly improve your chances of getting a mortgage.

In summary, there are three key points to emphasise around international mortgages. First, always talk to a broker that has experience in this area. A lot of banks only deal via brokers so that’s the best way for you to get the most suitable outcome.

Secondly, where you get advice is important. Post-Brexit, there’s now a very specific rule now that if you’re an EU resident looking at buying a residential property in the UK, you have to have advice in the UK. That’s also true for expats. It has tripped a number of people up because it’s a new ruling.

Third – be open and honest about documentation. Being totally honest will increase your chances of getting the most suitable outcome. A good broker will ask the right questions. This is a very specialist area, so make sure you’re dealing with a specialist broker who can actually help you.

Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it. The Financial Conduct Authority does not regulate most Buy to Let Mortgages.

A fee of up to 1% of the mortgage amount may be charged depending on the individual circumstances (i.e. £1,000 on a £100,000 mortgage). A typical fee of £495 is payable upon offer of the loan. We will also be paid a procuration fee from the lender. The amount of the procuration fee will be disclosed to you. You will receive a Mortgage Illustration which will tell you about any fees relating to a particular mortgage.