Expat home buyers cut adrift from UK property
When the Dubai resident Kevin Hyland wanted to get a mortgage to buy a property in the United Kingdom, he had no idea he’d have to jump through so many hoops.
The 57-year-old expat has been working at Dubai’s Wildlife Protection Office for 32 years, and thought his long employment history and other property assets would make securing finance easy.
Not so. Despite owning two other UK properties at the time, Mr Hyland found that most lenders didn’t want to know.
“I’ve had mortgages and there have been no changes in my employment for many years so I thought I was a pretty good bet,” he says. “But nobody seemed interested in giving expats mortgages.”
Mr Hyland, who holds Canadian and Irish passports, was looking for a UK house to rent out and eventually live in when he retires. He found the perfect place in North Devon, but was advised by a UK-based financial adviser that a mortgage would be almost impossible.
“I came back to Dubai thinking: ‘well, what do I do now?’” says Mr Hyland.
He is not alone. Before the financial crisis, it was relatively easy for UAE residents to obtain mortgages on UK property, either for investment purposes, family use or both.
But many banks and building societies have either ceased offering mortgages to British expats and foreign nationals or tightened lending restrictions – leaving many stuck for options when looking to finance their dream home. Notably, the Lloyds Banking Group – once one of the most active lenders – pulled the plug on all its expat mortgages in 2012.
According to the financial comparison service Moneyfacts, there are just seven providers of expat mortgages in the UK, down from 19 in 2004. The seven include HSBC, NatWest International and a few niche players.
Ronan Lynch, a consultant at the Dubai-based financial planning firm Mondial, says UAE residents now have few options.
“The clients themselves will tell you it is near-on impossible,” says Mr Lynch, who heads up Mondial’s mortgage desk.
“If you were a normal resident of the UK you’d have access to all the banks and building societies. I could basically get you a [mortgage] decision in 60 seconds. But offshore is totally different.”
Yet it can be done. Mr Lynch helped Mr Hyland obtain a mortgage on his North Devon home in September last year. The interest-only loan, which financed 60 per cent of the house purchase, was provided by NatWest International.
Both UK expats and other overseas residents can apply for mortgages in the UK but many lenders only accept applications from UK passport holders while others only deal with those who work for multinational companies.
“It’s easier for a British expatriate than it is for a foreign national,” says Adrian Wright, of the UK-based International Mortgage Plans, who has been working in the field for more than 25 years.
Expat mortgages differ to regular property loans in several ways. In the UK, some residents can obtain a mortgage with a deposit of just 5 per cent. But expats typically have to put down at least 25 per cent of the property value. Interest rates are almost always higher and a mass of paperwork – including bank statements and salary certificates – is required when applying.
One reason for this is that lenders like to have access to UK credit score information, which will generally not be available for the years an expat is out of the country, says Simon Tyler of the UK-based broker Tyler Mortgage Management.
Even when an expat returns to the UK, some lenders will not offer them a mortgage for at least three years because they will not have built up an adequate credit score.
“That’s just part of the ‘computer-says-no’ culture many lenders operate by at present,” says Mr Tyler. “We see so many buyers looking for loans that commercially could not be safer … But still, many lenders refuse to deal with them as they are ‘invisible’ in the UK.”
UAE residents have two options when looking for a UK mortgage: approach a lender direct, or go through a specialist broker.
Most brokers know lenders’ requirements inside-out, allowing them to present their clients’ details in the most favourable way.
For example, Mr Lynch personally reviews his customers’ finances before presenting them to the bank, advising them what is and isn’t likely to make for a successful application. Brokers can advise on how to present monthly outgoings, and typically have professional relationships with lenders, allowing for a personal touch when arguing a client’s case.
Brokers also have access to several lenders’ products, allowing borrowers a bigger choice of mortgages – although, because this is a niche market, options are still limited.
Using a broker can save you hassle but will cost you: Mr Lynch charges a flat fee of £500 (Dh2,920), payable when a mortgage application is successful. Other brokers typically charge 1 per cent of the loan value.
But going through a broker is not a necessity. HSBC, for example, offers expat mortgages directly to customers.
The Guernsey-based Skipton International is one of the few new entrants to the expat mortgage market. It offers loans in England and Wales – but not Scotland – of between £100,000 and £1.5 million. It has three rates available: a discounted variable rate of 3.99 per cent, a three-year fixed mortgage with a pay rate of 4.99 per cent, and a five-year fixed rate at 5.49 per cent.
Yet one catch of the Skipton International expat mortgages is that they are purely buy-to-let loans – with the borrower expressly forbidden from occupying the property themselves.
Nigel Pascoe, director of lending at Skipton International, says this is because the lender does not have a licence to offer residential mortgages in the UK. Borrowers who did return to live in their property “would be breaking the terms of the loan agreement”, he adds.
Yet despite Skipton’s entry to the expat market in March, other UK brokers remain exasperated at the lack of choice.
“Lenders just don’t want to deal with expatriates,” says Mr Wright. “There were twice as many expat lenders when I started this operation. But they’ve fallen by the wayside.”
Ray Boulger, senior technical manager at the UK mortgage broker John Charcol, says the UK’s anti-money-laundering regulations caused difficulties in the expat mortgage market.
“I suspect that is one of the reasons why a number of the banks that used to be active in this market have pulled out,” he said. “They find the hassle involved in underwriting these mortgages is just not worth the risk.”
Mr Boulger also pointed to the European Mortgage Credit Directive, set to be implemented by March 2016. That is likely to mean that, when a mortgage applicant is paid in a foreign currency such as UAE dirhams, the maximum loan they are likely to be offered is lower to account for exchange-rate fluctuations.
HSBC’s Dean Blackburn insists that such safeguards need not be a barrier. “It’s about us making sure that we’re doing right by people,” he says.
Mr Blackburn says the best advice for those considering buying UK property is to consider financing options as soon as possible.
“Plan early: mortgages can take some time to draw down,” he says. “Then it’s all about finding that dream home or property for investment.”
Conundrum over the British capital gains tax
UK property prices rose by 11.7 per cent in the year to August, but expatriates and other overseas investors will soon be hit by a tax on such gains – diminishing the return on their investments.
Most UK residents are required to pay a capital gains tax (CGT) on the profit they make when selling a property that is not deemed their main residence.
British expatriates and other overseas investors are not currently required to pay CGT. But from April 2015, all non-residents selling UK residential property will be liable.
David Hannah of Cornerstone Tax, a UK-based advisory firm specialising in property tax, says the exact terms of how CGT will apply to expats and overseas investors have not been announced. But it is presumed that the basics will be the same for overseas investors, Mr Hannah says. The tax is 18 per cent for basic rate taxpayers, and 28 per cent for higher-rate taxpayers. Residents of the UK currently receive an £11,000 (Dh64,262) annual CGT exemption. Their main home is usually exempt from CGT, but how this rule will apply to expats is unclear.
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Updated: November 14, 2014 04:00 AM