If you are an expat considering your first move into owning property in the UK and you intend to finance your purchase with an expat mortgage, there will be a host of potential problems that you will need to overcome.
Buy to let (BTL) or residential expat mortgages– One of the important considerations will be whether you are planning on returning to the UK and be looking for a permanent home or whether you are considering taking your first step into the rental property market and perhaps creating a portfolio of BTL properties. If it is the latter, you may want to also consider if it is worthwhile creating an special property vehicle (SPV) which is a type of limited company to hold your property.
Expat mortgage lending – There are currently around 25 lenders in the UK who will consider lending to expats but all have very different lending criteria so it is likely that when you look at your own specific circumstances, this group of lenders may be considerably reduced.
Lending criteria– mortgage lenders treat residential property purchases differently from BTL property purchases. With residential, they look at the clients affordability to repay the mortgage. They will take your basic salary as a basic starting point and the look at your lifestyle to assess how much they need to reduce that basic salary to account for your continued lifestyle. They will apply factors to that number to assess how much they will lend. With BTL investment property, lenders generally use the rental value of the property to assess the amount they will lend, rather than your specific income.
Regulation – residential mortgages in the UK are regulated by the financial conduct authority and should something go wrong that is not your fault, there are procedures in place that entitle you to recompense. With investment property purchases, this is not the case as they are not as yet regulated in the same way. When things go wrong here, you are likely to be on your own.
What can you afford?
Everyone’s situation is different and each lender will apply their own criteria to establish what they will lend as a mortgage. Depending on the type of use of the property you intend to purchase, the factors that affect affordability for a mortgage fall into the following two types.
Residential expat mortgages – Your income from employment is the prime mover for establishing mortgage lending. So if you are returning from overseas, it will be important that you will be able to show that you have secure employment in the UK. If you intend to be self employed when you return, you might have to delay obtaining a mortgage for a period while you build your accounts reference with your business.
Most lenders will be prepared to lend up to 4.5 times your income from employment but will adjust the final amount downwards to take account of your lifestyle. Where you spend a lot of your income on entertaining and holidays etc, the lender will take account of that and reduce the amount they will lend while those who have a more frugal lifestyle will tend to get the maximum allowed.
Investment BTL expat mortgages – with these mortgages, the lender isnt so much concerned with your income and will base their decision using standard guidelines to establish if the rent from the property is sufficient to cover the mortgage loan. Currently, the mortgage repayment on a capital and interest basis will be calculated using an arbitrary interest rate of 5.5 percent. Having obtained the monthly payment on that the rent obtained by the property would need to be at least equal to that figure multiplied by 1.45. To illustrate this if your monthly repayment on your mortgage was £1,035 your rent would need to be £1500 per month.
Deposits with expat mortgages – the amount of deposit you put down on the property you are purchasing will have an affect on the interest rate that the lender will apply to your mortgage. With residential mortgages, deposits can be as low as 5 or 10 percent. However to get the best rates you would need to put down considerably more than that.
With investment (BTL) property the minimum deposit is 25 percent but again, better rates can be obtained where the deposit is higher.
What amount of money do you require?
Having established how much you can borrow and are satisfied that you can keep up the repayments on your mortgage the amount of money you will need to complete the sale will depend on what you pay for the property less the mortgage amount, plus the other things that will be needed. Some of these are shown below.
Deposit – this will be the difference between the buying price of the property and the mortgage you agree with the lender. On BTL property this will be a minimum of 25 percent and on residential property probably a minimum of 10 percent.
Lender fees – Your lender will charge fees for arranging your mortgage. These can sometimes be added to the mortgage loan. A rough guide will be £500 to £2000 depending on the size of the mortgage.
Survey fees – the lender will engage a survey to establish the value of the property, at your expense. However, if the property is old then you might want to have your own survey carried out. Rough guide is £300 to £600 for lender and £1,500 to £3,000 for your own structural.
Legal fees – You will need a solicitor to carry out the searches on the property and ensure everything is legally correct. Rough guide is £750 to £1,500.
Broker Fees – If you employ a mortgage broker to arrang your mortgage, there may be fees to pay. Rough guide £500 to £1,500.
Property upgrading – Often when you purchase a property there will be decoration and some improvements to be made. In the case of rental property there will be certain alarms etc requiring to be fitted to meet regulations. No guide can be given on these things as they will vary from property to property.
