Expat mortgage guide
Many UK expats all over the world aspire to own property in the UK. While they may currently be living abroad, there are many reasons why expats are buying property in the UK and why UK real estate is desirable; as an investment, as somewhere to stay occasionally or as a way to provide for future needs.
Purchasing UK property is fairly straightforward, but expats should be aware that for those who live overseas, things are not always quite so simple. While it is certainly still possible to buy property as an expat, there are several extra factors which must be taken into account; expats often find it harder to secure an overseas mortgage, for example, and may also need to accommodate foreign exchange rates.
In order to help UK expats secure the property they need, we’ve created this useful guide to buying UK property as an expatriate. We’ll cover the basics of purchasing UK property, what to expect when applying for an oversea expat mortgage and some of the most common obstacles expats must overcome in their search for a British property. It’s vital that anyone seeking to purchase property in the UK seeks guidance from a qualified financial advisor before proceeding, as the task of negotiating a purchase whilst overseas can be somewhat complex and time-consuming.
Can you get an overseas expat property loan?
The short answer is yes, they can - it’s just a little more difficult. Basically, the system of checks and guarantees that banks use to verify borrowers isn’t usually set up to accommodate overseas clients, so few banks provide any form of expat mortgage at all. Those that do require information from expats that might be a little tougher to arrange; for instance, banks need to see proof of address from mortgage applicants, which is usually achieved by providing a bank statement or utility bill. However, many expats won’t have a bank account registered to their overseas address, and it’s common practise for businesses to pay their expat employee’s utility bills for them. This can be worked around, but it’s a more complex procedure than that for domestic mortgage customers. This sets the tone for expat mortgage applications in many cases; it’s certainly not impossible, but as a minority customer group expats generally have to jump through more hoops in order to obtain a UK mortgage.
Best expat mortgages for UK property
There are several different types of mortgage available to expats, but the two main types are residential and Buy-to-Let mortgages. If you (or a family member) is planning to live in the property for any time at all, then you will need a residential mortgage. If not, and the property will be rented out to private tenants, then you will need a Buy-to-Let loan.
So what’s the difference, and what does this mean for expats? Let’s take each mortgage type on its own, and examine what sets them apart from one another.
Residential mortgages for expats returning to the UK
Residential mortgages are regulated by the Financial Conduct Authority, the UK oversight body which guarantees consumer rights across the country. This regulatory body safeguards homeowners who have a mortgage, and establishes several key ground rules that define the terms of a mortgage loan. However, because residential mortgage providers must receive FCA accreditation (which isn’t that easy to do), not every lender offers it. Additionally, the fact that few mainstream mortgage providers are keen to offer mortgage products to overseas customers means that expats have a fairly limited choice when it comes to finding a mortgage lender.
Mortgage lenders are reluctant to lend to overseas borrowers because they’re often not set up to handle the extra work this entails. Banks are concerned with the risk each individual borrower poses, and the likelihood of them losing their money if they approve a loan to them. When a customer lives in the UK it’s not too hard to get hold of them (and their property, should it be necessary); if they’re abroad, though, the bank must deal with another country’s legal system, which can make it much more difficult to resolve lending issues. For many banks this is reason enough not to offer mortgages for expats at all - it simply isn’t worth the hassle, when the vast majority of their customer base resides in the UK. This is the Catch-22 that residential expat mortgages fall into; banks need to have FCA certification in order to provide a residential mortgage loan, but most banks large enough to be FCA-accredited are chiefly concerned with their UK customers, not overseas ones.
Expats in need of a residential mortgage still have options though, and it’s by no means impossible to find a reliable, competitive lender in the mortgage market. Many specialist mortgage brokers such as Expat Mortgage source the best mortgage products for British expatriates, and help them to find the funding they need to buy a property in the UK.
For more information on how residential mortgages work please refer to our guide to UK residential mortgages, which covers everything from application to interest rates.
Expat Buy-to-Let Mortgages
Buy to let from abroad with a UK expat buy to let mortgage is increasingly popular amongst UK expats. It allows expats to retain a potentially valuable slice of UK real estate which they can either move into or sell in the future, and the rental income it provides is often enough to cover the costs of the mortgage. In many ways buy-to-let investments are ideal for expats who want to keep their options open, which explains their continuing popularity.
If you’re planning to purchase a property in order to let it out, you’ll need a specific type of mortgage in order to do so. These so-called “Buy to Let” (or BTL) mortgages differ from standard residential mortgage in many key aspects, and if you become a landlord you’ll need to take out a Buy-to-Let home loan rather than a residential one. If you already own a home and wish to let it out, you’ll need to tell your mortgage provider - they will then switch you onto a Buy to Let mortgage instead.
Because buy-to-let mortgages are essentially a form of commercial finance (a privately rented property is a business), they are not subject to the same regulation as a residential mortgage. This means that lenders without FCA certificates can provide BTL mortgages to expats, and the range of lenders available to expats is consequently much broader. This means that expats generally have more options to choose from when seeking a buy-to-let mortgage, and the lenders operating in this sector are also better able to handle applications from expat borrowers.
Buy-to-let expat mortgages are significantly more expensive than residential expat mortgages, even for UK customers. Generally applicants will need to provide a much larger deposit, be able to prove that they have a reliable income, and verify that their property will generate sufficient rental income to cover the costs of the mortgage. In addition to this, the UK Government has recently changed the rules for buy-to-let buyers, tacking on an increased Stamp Duty fee and reducing the amount of tax relief available for landlords. BTL mortgages are complex at the best of times, and expats will need to fully understand what they need to in order to get the best deal - check out our guide to UK Buy to Let mortgages for more information.
Applying for British expat mortgages
As an expat, the requirements of the best expat lenders often mean that you’re on the back foot. Some of a bank’s standard requirements for new applicants will be harder to meet, simply because of how an expat’s life is lived; it’s harder for expats to fit into mortgage provider’s “check boxes” than it is for domestic UK borrowers. Here we’ll discuss a few of the common requirements which UK banks have for mortgage applicants, and what you can do as an expat to meet these criteria.
We discuss this in more detail in our guide to building UK credit history as an expat, but in broad strokes the bank will want to know how financially responsible you are. They’ll establish this by looking through your financial history, but if you’ve been living abroad for several years you won’t have a financial history - countries don’t share these records with each other. Banks won’t be able to establish whether you’re a safe bet or not, and will likely decline your application rather than take the risk.
The best thing to do is to keep a line of credit open in the UK whilst you’re abroad. If you have family here, register a UK current account to their address while you’re away - this will keep up a minimum level of credit history, and make it much easier to buy UK property when you return. If this isn’t an option, don’t worry - you can build up a credit history fairly quickly, though you’ll need to spend a good few months working on it. Read the full guide for an in-depth walkthrough on building your UK credit rating, but in broad strokes; register on the electoral roll, take out a credit card (and keep up repayments), and make sure you’re not behind on any bills.
Unsurprisingly, banks will want to know where you’ve been living for the past few years before they lend you the money to buy a home. As an expat returning to the UK you may well have just moved into a UK home, or you may not have an address at all; this makes it hard for the bank to verify your application, and can be a major stumbling block.
If you’re moving back to the UK, it’s a good idea to rent for a few months before purchasing a home. This gives you time to get your feet on the ground and sort out where you want to buy, rather than diving in with an immediate property purchase. As well as giving you time to sort your yourself out, renting for a few months also gives you a UK address from which to apply for a mortgage, and though you won’t have the several years of history which banks generally look for you’re still more likely to be approved.
If you’re buying from overseas and with no intention of moving back to the UK any time soon you’ll need to use your overseas address. Because it’s hard for a bank based in the UK to verify your foreign address, you may well need to have your application countersigned by a trustworthy source; employers will usually be happy to do this for you, but a solicitor or doctor can also provide the necessary verification.
Just as with your other personal records, banks will want to know what your job is, how long you’ve been doing it, and most importantly how much you’re paid for doing it. Borrowers who’ve been in their jobs for a long time are seen as a low-risk option, while those without a long employment history may be seen as a higher risk. Many expats return to the UK to take up a new role, which means that from the mortgage provider’s point of view they have little employment history, despite the fact that they’ve been working abroad for the last few years.
This can be guarded against to a degree if your employer is a UK-based company. They’ll be able to provide records of your employment during your time overseas, and if you’re coming back to the UK to work for the same business this makes it even easier. If you aren’t working for the same company but you are staying within the same industry, banks will usually accept your employment history without too much complaint. If you’re starting a brand new job, or if you’re working and living abroad, you’ll need to obtain written evidence from your employer of your new role. You may find that banks want you to jump through some extra hoops in order to verify your employment, and may want to speak to someone at your company; it can be trickier than it sounds to put a lender in touch with your company’s HR department, so plan ahead if this will be necessary.
Unsurprisingly, banks will be more willing to accept applications from those earning high wages. If you’ve only just moved to the UK but you’re on a six-figure salary, you’re likely to find the process of verifying your employment a little more straightforward than someone on £25,000 a year. That’s not to say that it’s impossible to verify your employment as an expat if you aren’t earning a large salary, but it can be more difficult to do.
Banks will often see expat customers as a higher risk than domestic ones, and consequently may require a larger deposit before approving a mortgage. While the exact amount varies from bank to bank, expats should expect that they will need to stump up a greater portion of the purchase price than they would if they were living and earning in the UK.
While banks may advertise attractive rates on their mortgages, these are only representative of the deals they offer to the majority of customers. Expats may well find themselves paying more than their bank’s headline rates simply because they’re seen as more of a risk. This is part of the reason why it can be extremely rewarding to work with a specialist expat lender rather than a high street bank, because these expert lenders aren’t afraid to work with UK expats.
Foreign Exchange (FX) Rates and your expatriate mortgage
As an expat, you may well have substantial assets held in another currency. This will obviously need to be exchanged for sterling if you’re taking out a mortgage from a UK lender, and the current exchange rate will have a significant impact on what your foreign currency is worth in the UK. There are several different scenarios for expats where foreign exchange needs to be taken into consideration, which we’ll explore here.
Ex pat mortgage deposit:
Before buying a property, you’ll commit to providing a certain amount of money as a deposit. This amount will be specified in the currency of whichever bank is providing the mortgage, so if you’re borrowing from a UK lender the deposit will be specified in pounds sterling. However, the agreement to contribute a deposit usually happens well in advance of actually making the deposit - it can sometimes take as long as 6 months to find the right property and complete the sale. During this interval exchange rates can vary, meaning the amount of foreign currency you’ll have to pay in order to fulfil the deposit can change.
For example, if you commit to a 25% deposit on a £300,000 property you’ll need to stump up £75,000 when the purchase completes. If you’re using dollars to pay for this, it might cost you $100,000 when you apply for the mortgage. In six months time, though, exchange rates could fluctuate and £75,000 might cost you $110,000 (or indeed $90,000). This unpredictability makes things very tough for expats, so many specialist expat mortgage brokers allow borrowers to “fix” their exchange rate ahead of time; this gives both the borrower and the lender certainty that the deal will go through as planned.
Making Monthly Payments:
If you’re going to be paying off a mortgage whilst earning in a foreign currency, you’ll need to take the exchange rate into account when deciding how to budget for your new home. As pointed out above, variations in the exchange rate will have a substantial impact on your monthly mortgage payments, and if rates go up you’ll likely find your mortgage bills increasing too.
Some mortgage providers allow borrowers to fix the exchange rates for their monthly payments, too, sometimes for several years. Known as a “forward time option”, this allows borrowers to guard themselves against unpleasant surprises when the exchange rate increases. However, it also means homeowners can’t benefit if the exchange rate tips in their favour - in order to take advantage of this, expat owners of UK property need a flexible mortgage package from a specialist broker.
Specialised expat mortgage providers allow their customers to use stop/limit orders that automatically buy foreign exchange when it’s at a cheap price. It makes no difference to the lender what their customers pay for their pounds - the only thing they’re concerned with is that the mortgage is being repaid in full and on time.
A flexible mortgage deal which allows for over and under-payments can also suit expat buyers, as it allows them to reduce the impact of expensive exchange rates or take advantage of beneficial rates; expats simply choose to pay less when pounds are expensive, and more when they’re cheap. Another useful option is a “payment holiday”, which allows homeowners to opt out of mortgage payments for a given amount of time, potentially saving thousands from an unfavourable exchange rate.
Getting an expatriate mortgage for your UK property
Throughout this guide we’ve been clear to highlight one important takeaway for expat buyers; while it might be trickier to obtain a UK mortgage for your property it’s by no means impossible. The main obstacle which stands in the way for expats is that the major UK banks simply aren’t geared up to handle mortgages for expat buyers, and the systems they have in place for their domestic customers just don’t work for overseas buyers.
Because of this, expats should consider seeking out a specialist expat mortgage broker with a system that’s designed to give them the results they need. There are many private lenders perfectly willing to lend to expats, but finding the right one by yourself is difficult; by contacting an expat mortgage broker, Brits who’ve been living abroad can find a mortgage that gives them what they need without forcing them to run around in circles.
UK property can be a fine investment, and with the country’s real estate market remaining buoyant year after year there are few more rewarding or safer places to put your money. A mortgage that works for you is a vital part of a successful real estate portfolio, so expats should make sure to thoroughly explore their options before committing to any purchase.