Non expat UK mortgages

Although expatriates.co.uk is a site that is dedicated to expatriates of all nationalities living anywhere in the world, we want the services we provide to be available to UK residents in the same way as they are with expats.

As can be seen from the expat mortgage information on the site, expats face real restrictions on the mortgage products that are available to them. For expats, there are very few lenders available and the criteria they apply in the case of expats is very restrictive and the number of products available is very limited.  This is not the case when it comes to UK residents looking to mortgage a UK property as for them there are numerous lenders who between them have literally thousands of mortgage products on offer.  If you are a UK resident browsing this site for mortgage information and would like to be put in touch with an experienced mortgage broker to assist you then please complete the form below.

The UK mortgage market

Over the last year or so there has been a marked slowing in the number of new mortgages being completed and today, lenders are confirming this slowdown as they report on the monthly completions they handle. There are a number of reasons for this slowdown being muted and different experts point to different things. Here are some of the possible reasons.

• Brexit – the decision taken by the UK to leave the European Union has been used as a convenient place for blame, not only for mortgage availability difficulties but for just about anything that is not the way people want it to be. It is argued that people do not want to commit to purchasing a property while the outcome of the negotiations is unknown. This may be true for foreign nationals purchasing an investment property in London but not for the general British public.
• UK house prices – Property values are still rising although in many areas they are just about back at the levels they were before the credit crunch of 2007 / 2008. However, since that time wage growth has been very limited which means that family incomes are becoming stretched. The income multiples that lenders apply to income haven’t increased and in some cases decreased meaning that property is slowly working itself out of the reach of some people particularly first time buyers.
• UK interest rates – the Bank of England (BOE) meets monthly to discuss and set bank interest base rates for the UK. The current rate of 0.25 percent is the lowest rate in living memory and rates have been held low since the credit crunch. What this has meant for borrowers is that their monthly repayments on their mortgages have been low by historical measure and in some cases, people have tended to borrow a little more than perhaps they should. The BOE has recently been hinting at increasing base rate and borrowers are becoming worried that their payments may rise sharply. This may be a reason for people holding back on moving.
• UK lending criteria – gone are the days of the 125% mortgage and easy lending criteria that at one time would have virtually qualified almost any employed person for getting a mortgage. Today, anyone with a poor credit history will find it much more difficult to obtain a mortgage and this may be contributing to the lower number of people looking to move home. In addition to this, lenders no longer simply take your gross income as the measure for setting the loan amount but will now look at the borrower’s lifestyle commitments and take account of that expenditure when assessing them for a mortgage. This again tends to reduce the size of the mortgage that might be available and in turn, puts restrictions on that ability of that borrower to move home.
• UK employment – the UK is currently enjoying almost full employment. On the face of things, that is the ideal position but if the recent employment trends are anything to go by, then what is becoming clear is that gradually the better quality jobs have been reducing but being replaced with lower level jobs. This situation is beginning to show itself in average earnings starting to reduce rather than increase. This may well be a factor in the difficulties that people are facing when buying a home.
• UK housing shortage – the UK population has been growing sharply in recent years partly through the influx of people from the European Union. House building simply hasn’t been keeping up which puts existing homes in short supply. This tends to support rising house prices at a time where really the market cannot afford it and this may be a further factor in the slowdown. When the UK leaves the European Union it is possible that the UK population may reduce a little easing this house price pressure.
• UK rental Market – as young people find themselves priced out of the buying market they have been renting. This has caused an explosion in buy to let purchases for rental. Landlords now account for around 15 percent of all privately owned property in the UK.
• UK new BTL rules – tax changes to the way landlords can claim relief on mortgage interest payments plus increases in stamp duty on property purchases have reduced the number of properties being purchased by landlords. On top of this lenders have been changing their lending criteria and in particular, have been increasing the amount that the monthly rental income covers the mortgage payment. This factor can be as high as 1.45. In applying this calculation a lender will use a fixed interest rate of about 5.5%, not the actual rate being charged. These things together are making it more difficult for landlords to make a profit which in turn reduces the number of properties they will purchase.

Types of UK mortgages available

• UK first time buyer mortgage – 95% mortgages are available for first-time buyers but if higher deposits are made you will get better rates of interest from the lender. First-time buyers tend to be young people starting out in adult life and often their parents will want to help them obtain a property. There are also special government help schemes that may be of interest. Here are some things to consider.
  • Bank of mum and dad – parents who have sufficient funds can gift deposit monies to their children to help start them off. Lenders will often allow this but parents need to consider any tax implications with this.
  • Lending deposit money – parents who want to provide larger sums but need security that their money will be returned to them should the house be sold or repossessed can do this by setting the loan as a second charge on the property. This means that if the property were sold, the lender has the first charge would get back their loan but you, as parents would then get your money back as the second charge. Any equity left over would stay with the property seller.
  • UK government key worker scheme – There is help available from the government for people who are considered to be key workers in areas where property prices are high. If you fit that category then it would be well worth your while to check if you qualify.
  • UK home buy schemes – this is where you purchase part of a property and rent the remainder. This lets people get onto the property market at a lower cost and they can later purchase more of the property or move to conventional purchase arrangements. For more information on this and the key worker schemes, our partner site homebuyservice.co.uk provides very detailed information on what is available to first-time buyers. Please click on the link provided to access that. (SEE LINK)
• UK residential purchase mortgages – these can be considered mortgages for both buying a new property and for re-mortgaging your existing property. Provided you have an acceptable credit history and can show you have income from acceptable employment you should be able to obtain a mortgage in the region of 4.5 times your income. Rates of interest will depend on the level of deposit you put down.
• UK BTL mortgages – this is where the property is bought for the rental market. Normal criteria for this type of mortgage is the deposit must be at least 25% and the rental from the property as defined by a surveyor must be sufficient to cover the mortgage repayment by a significant factor. Interest only mortgages used to be the norm but that is now changing to repayment mortgages. This is where part of the capital is repaid along with the interest.
• UK let to buy mortgages – if you own a residential property and want to buy a new residential property but keep your existing property for renting, a let to buy mortgage allows you to set your property up with a BTL mortgage to release the equity from the property to use as deposit on the new residential property.
• UK commercial mortgages – these can be complex mortgages to set up as they are for business purposes and no two businesses are ever the same. The lender will study the proposed business detailed, your ability and experience with that type of business and any accounts from the business and use this information to decide on a loan.
• UK Islamic mortgages – these are special mortgages that do not generally follow the standard criteria. There are only a few lenders specialising in that market and every case will be reviewed separately.
• UK bridging finance – these are loans intended for short-term applications such as bridging the gap between buying a new home and getting your existing home sold. They are often commonly used for purchasing a property at auction.
• UK secured loans – these allow people with equity in their property to obtain a loan which can be used for any purpose. These loans tend to be for £10,000 upwards and are secured on the property.

Procedure for obtaining mortgages for property purchase

1. First considerations for obtaining a mortgage

Mortgages can be very time consuming to organise depending as there are a vast number of different mortgage products to choose from.  Each lender will have its own large number of products on offer but as lending criteria can be quite onerous, if you find your application has been rejected you will have to start all over again with another lender. Most people don’t have the time to spend on this so they tend to turn to experienced mortgage advisers to take care of things.  An experienced mortgage adviser will understand the market and should have access to all of the available mortgage products.

Please be aware that if you are seeking a mortgage for an investment property such as a buy to let (BTL) property or an house of multiple occupancy (HMO) property then these mortgages are currently unregulated and should something go badly wrong you will not have access to the same protections that would apply to mortgages for residential purposes.

The procedure steps shown assume that you will be using an experienced mortgage adviser to handle the process on your behalf.

2. First contact with your mortgage adviser

Whether you are communicating with your mortgage adviser by telephone or email or meeting face to face your mortgage adviser 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 adviser 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 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 mortgage

With the fact find information to hand your mortgage adviser 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 adviser 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 mortgage application

With a decision in principle acceptance you will be clear to make your formal application for your mortgage. Your mortgage adviser 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.
• Employment Status – 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 mortgage offer they make will be affordable to their client if the clients lifestyle is maintained.

5. Lender reviews your mortgage application

On receipt of the formal 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 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 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 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 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 4 weeks to 4 months would be considered as fairly normal.

If your mortgaging a 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.

Scottish Law

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.

Should you need help arranging a mortgage or would like further information, please complete the form below.