As an expat considering purchasing property in the UK either for residential use or for commercial use including BTL, there will be a host of potential problems to overcome particularly if it is your intention to fund the purchase through some form of finance.
Expat Mortgages Types – Residential, Buy to let (BTL) or Commercial
You may be planning on returning to the UK and will be looking for a permanent home or you may be considering purchasing a rental property which could be your first step to creating a portfolio of properties.
If you already have a portfolio of BTL properties, you will be aware of the recent tax changes that have been introduced and may be considering how best to cope with them. Recently, many landlords have been investigating the pros and cons of putting their rental properties under the ownership of a limited company and although this isn’t entirely straightforward it can provide some beneficial results. If you are considering this, please see our Expat buy to let mortgage guide
Perhaps you are intending to purchase a UK business which will require a commercial mortgage. Due to the wide variety of businesses on the market and their very different financial situations, commercial mortgages will be considered by lenders in relationship to the health of the business and your ability to run the business. For more information read our commercial mortgages guide.
Financing Expat Mortgages
There are currently around 25 lenders in the UK (excluding commercial lenders) who will consider lending to expats but all have very different lending criteria. Having a good understanding of what that can entail will be useful as it will let you prepare yourself in advance of making an application to a lender.
Other sources of finance
- Bridging Loans – These are loans used as a temporary measure to obtain finance quickly to secure a property. They are usually short loans to finance for periods of less than a year and should be set up to be replaced with a conventional mortgage arrangement for the long term. They are commonly used when buying property though an auction house as often there isn’t enough time to set up a normal mortgage arrangement between placing your bid and paying for the property. For more information on bridging loans.
- Secured lending – secured loans are more for people who already have property but want to upgrade. This may entail adding an extension or fitting a new kitchen. For more information read our secured loans guide.
At expatriates.co.uk we can connect you to specialist mortgage brokers in the UK who have the experience to walk you through the whole process, whether it is for a single property purchase, an addition to a rental property portfolio or to purchase a business.
Lender considerations for Expat Mortgages
- Credit Scoring – Lenders always check an applicant’s credit score using either their own systems or through specialist companies such as Equifax. If you have been out of the UK for a while or are just starting out on your career, you may not have a credit history in the UK. If you are in this category then it may be in your interest to open a UK bank account or arrange a credit card to establish some credit history.
- Correspondence address – Having a correspondence address is important as it makes you traceable for lenders. If you don’t currently own a UK residential property then you may not have a correspondence address. People often use their parents address or a close family members address for this purpose but always make sure it is someone that you trust as some of your post will inevitably end up going there.
- Employment – If you intend to remain overseas in your present employment and have never applied for a mortgage while in that employment then you should check if that type of employment and the country in which you work is acceptable to UK lenders. Lenders put restrictions on the types of employer they will accept often favouring large international companies.
- If you are returning to the UK you should try to have your new UK employment arranged before you return as any lender will need to be satisfied with your earnings going forward to agree to a mortgage. If you are returning with the same employer, things will be much easier as you have a history with that company. If you are moving to a new firm you may need to have been employed for at least three to six months before you can apply for a mortgage but if you are staying within the same industry then a letter of appointment with a start date and salary may suffice.
Legal considerations for Expat Mortgages
Having found your property and sorted out your finances there are a few other things to consider. Some of these are shown below.
- Solicitor and conveyancing – Whatever type of property you intend to buy, you will need a UK solicitor to finalise the purchase and conclude contracts. Your solicitor will check your financial arrangements, arrange payment with the seller, pay stamp duty and register you as the property owner. For more information on this process, read our residential conveyancing guide when buying and selling property in the UK.
Insurance Requirements for Expat Mortgages
- Buildings insurance – The lender will require that you take out buildings insurance covering the rebuilding cost of the property. It should be noted that if you are buying a property situated in an area that is subject to flooding you may not to get insurance for it.
- Personal insurance – If you don’t already have this insurance in place you may wish to consider this now. Protecting yourself or your family against future events that may cause you to be unable to repay the mortgage is important. A short list of the things to consider are:
- Death – if you were to die, would your family be able to remain in the property. Mortgage protection insurance can protect against this risk.
- Critical Illness insurance – it is now more likely that people with mortgages are more likely to suffer a critical illness that leaves them financially insecure than they are to die. A suitable critical illness insurance policy can protect against this.
- Accident sickness and unemployment insurance – this is another area that can cause a financial difficulty but one which can be protected against through a suitable insurance policy. For more information read our guide on Accident sickness and unemployment insurance.
Finally, it is important to note that within the UK, most mortgages and financial services products are regulated by the financial conduct authority (FCA) who are empowered to issue fines and or reimburse people who suffer a loss through no fault of their own. If you receive poor service you can complain in the first instance to the product provider and if that doesn’t resolve the problem you can take the matter to the financial ombudsman service, where it will be investigated and resolved.
Where there is an exception to this is with BTL or commercial lending as currently these products are not regulated in the way residential lending is. However, most mortgage intermediaries will tend to handle these mortgages as if they were regulated but this wouldn’t protect you in the event of loss.Generally speaking, the following table should give you a good idea of the maximum Loan-To-Value (LTV) available if you’re considering buying property in the UK.
Procedure for obtaining an expat mortgages for property purchase
1. First considerations for obtaining an expat mortgage
The first thing to consider is how you are going approach this as expat mortgages can be very time consuming to organise. It is for this reason that most expats will turn to an experienced expat mortgage broker to handle things for them rather than attempt to deal directly with a lender. An expat mortgage broker with proven experience will understand the market and will have contact with all lenders offering this type of service.
It should be noted that expat mortgage brokers with the right experience to obtain expat mortgages are thin on the ground. Although there are many regulated mortgage brokers operating within the UK, you will find in practice that very few actually handle expat mortgages on a regular basis.
Also be aware that if you are seeking a mortgage to purchase an investment property such as a buy to let (BTL) property or an house of multiple occupancy (HMO) property then the mortgage processes are currently unregulated and should something go badly wrong you will not have access to the same protections that would apply to UK residential property purchases.
Expats buying residential property in the UK to live in will be fully protected in the same was as a UK resident would be.
The procedure steps shown assume that you will be using an experienced expat mortgage broker to handle the process on your behalf.
2. First contact with your expat mortgage broker
Whether you are communicating with your mortgage broker by telephone or email or meeting face to face your expat mortgage broker should provide you with certain information about themselves and how they operate:
- Identity – Who they are and how to contact them
- Regulation – Explain how they are regulated to carry out mortgage business. All mortgage advisers in the UK are required to hold permissions to do so from the financial conduct authority (FCA) which they obtain through being either directly authorised by the FCA or by being an appointed representative of a network who is authorised by the FCA.
- Terms of business – Provide you with their terms of business. This will include information on how they will charge you for their time and explain your rights in the event something goes wrong.
Having got that out of the way your mortgage broker will gather comprehensive information on your circumstances. This process is called fact finding and it is absolutely essential that it is carried out thoroughly as the information gathered will form the basis for deciding on the mortgage product most suited to your needs.
If the expat mortgage you seek is a regulated product then should there be a dispute at a later stage the information you provided at fact find will be taken into consideration and may affect the outcome.
3. Obtaining an agreement in principle for your expat mortgage
With the fact find information to hand your mortgage broker will research the market and identify a lender and product that he or she believes would best suit your needs. Many people think this is simply a question of finding an expat mortgage provider offering the lowest rates of interest or low arrangement fees but in fact many other factors can come into play. Some such situations could be:
- Time constraints – if a lender is known to be slow to consider a case or is known to complicate the process and you need a decision quickly then you may be prepared to accept a slightly higher interest rate if it lets you complete the mortgage within your fixed timeframe.
- Lender criteria – lenders all have different criteria under which they will lend and it may be that the lender with the best rates may place you just outside their accepted criteria. You would then have to make the best deal possible with a lender who is prepared to accept you.
- Credit rating – the best rates and terms are usually only available to those with a clean credit rating. Where this is not the case lenders will take account of this in the terms they offer and may even refuse to accept your application.
Having decided on one or two suitable products your mortgage adviser will discuss them with you and when you agree on the most suitable one for your circumstances, your mortgage broker will obtain a decision in principle from the lender. This is not a binding agreement but is only an indication that if the supporting mortgage information you provide with the formal application confirms what has been indicated for the decision in principle then there is a strong possibility that the lender will accept you.
Please note that the lender may carry out a credit check on you to assess your credit rating.
4. Submit the full expat mortgage application
With a decision in principle acceptance you will be clear to make your formal application for your expat mortgage. Your expat mortgage broker will do this in conjunction with you as the application form needs to be accurate and will require a number of supporting documents, such as:
- Proof of identity – documents such as passports and driving licences are normal.
- Permanent address – Normally utility bills and bank statement type documents will be accepted.
- Expat employment – Proof of income from employment or business will be required. Payslips and business accounts are usually used for this.
- Affordability – Bank statements let the lender see your income going through but they also allow the lender to see how you spend that income. Today lenders look at a borrowers lifestyle to ensure that any expat mortgage offer they make will be affordable to their client if the clients lifestyle is maintained.
5. Lender reviews your expat mortgage application
On receipt of the formal expat mortgage application the lender will review the information provided. In all likelihood the lender will ask for further information or documents to be provided and this process may be repeated several times until the lenders application processing team becomes satisfied that the case is sufficiently compliant to go to underwriting.
As part of this process the lender will instruct a valuation on the property. You will be expected to pay for this but will have no rights to see the valuation report. The lender will use that valuation report to decide how much they would be prepared to lend against that property.
At this point and if the valuation given in the report meets the lenders requirement the mortgage application review team will take a final review of the case and decide whether to send the case for underwriting or reject the application.
6. Lender conducts final review of your expat mortgage application
The underwriter is the lenders final decision maker and will review the whole case and check it carefully against the lenders lending criteria. If the underwriter is satisfied an offer for a mortgage will be issued. Copies are usually sent to your solicitor and to your mortgage adviser who will check the offer and alert you to anything that is not as agreed.
Note that by this time your expat mortgage broker should have issued you with a letter outlining his or her reasons for advising you to accept that particular offer.
7. Lender issues your expat mortgage offer
If the lender issues a mortgage offer it will be sent to your solicitor with a copy to your mortgage broker who will check the offer and alert you to anything that is not as agreed. This is a formal document and it will show the amount of loan that is available and the monthly repayments. It will also provide the term of the mortgage and the terms and conditions under which the offer is made.
8. Solicitor receives your expat mortgage offer
Once the solicitor has received the offer they should complete any checks and searches on the property, exchange contracts and move to finalise the purchase. Your solicitor will be the person that will draw down on the loan and arrange to pay the sellers solicitors for the property and pay any taxes such as stamp duty that may be required.
This whole process from first contact with your mortgage broker to your solicitor concluding the purchase can take a long time and anything between 6 weeks to 6 months would be considered as fairly normal.
If your reasons for purchasing the property for investment purposes such as a buy to let (BTL) property or a house of multiple occupancy (HMO) then you should have by now made arrangements to handle the lettings for the property. This would normally be arranged through a letting agent somewhere in the vicinity of the property.
If the property you intend to purchase is in Scotland then you will find the legal system to be slightly different. It is normal in Scotland for offers to purchase a property to be made through a solicitor which usually means engaging a solicitor right from the beginning.
Mortgages Fees and Costs
When taking out a mortgage there other costs associated with it which will also need to be taken into account when purchasing a new home or re-mortgaging a property. These include:
Solicitor’s Legal Fees
Legal fees typically include:
- Stamp Duty: In England, Northern Ireland and Wales property buyers are liable to pay Stamp Duty when buying residential property or land, that costs more than £125,000 for first time buyers or in the case of second homes if the value is more than £40,000. Stamp duty is a tax that applies to both freehold and leasehold properties whether you’re purchasing the property outright or with a mortgage.
- Solicitor’s or Conveyancing fees : a solicitor or licensed conveyor is normally required to carry out all the legal works when buying and selling your home. Legal fees can typically be anywhere between £850-£2,000 . Searches will also need to be conducted with the local authorities to check whether there are any local plans or problems with property or land.
Mortgage Lenders Fees
Fees normally charged by mortgage lenders are:
- Mortgage arrangement fees; these can vary quite significantly and can be up to £2000 depending on the lender and your chosen mortgage product.
- A booking fee; this is normally a charge that is paid upfront and books the loan while the application is processing.
- A valuation fee -this is charged by your mortgage lender for commissioning a mortgage valuation which is a basic inspection of your property,
Some lenders assist with legal costs or may offer special promotions and incentives for new business. Our job will be to find you the most suitable package for your requirements.
This fee is for the mortgage broker and is for services provided for arranging the mortgage or giving you advice. However there are some mortgage brokers that won’t charge the customer a fee but will instead receive a commission from the mortgage provider.