Why do British expats struggle to get a UK mortgage?

The article was written by cherryfinance.co.uk , one of the UK’s leading specialist mortgage brokers and is an expert in helping British expats secure a mortgage.

If you are British expat and you live and/ or work in Australia, either temporarily or permanently, your bank will class you as an expat if you wish to apply for a mortgage on a UK property.

Why the issue?

Firstly, you may ask, why the issue? If you are a British expat wishing to buy in the UK and have an adequate deposit and good income, why won’t banks consider you for a mortgage?

The answer is a simple one: regulation. Since the Mortgage Market Review in 2014, the Mortgage Credit Directive in 2016 and ongoing intervention from the Prudential Regulation Authority (PRA), a division of the Bank of England, set up in 2013 to prevent a recurrence of the credit crunch of 2008 – mortgage regulations have restricted the lending practices of many banks. This has not only affected expats but all borrowers.

In short, banks have become more accountable and sometimes withdraw from market segments which pose risks to them, require more detailed underwriting and account management or just don’t fit with their business models.

Location

Your location is very important. Transactions involving Australia can be complex, in part, because – in addition to the regulatory restrictions mentioned above – there is an inter-governmental treaty that technically precludes lending to each other’s residents.

There is still a number of lenders that can assist but borrowing options are limited.

Currency

The Mortgage Credit Directive set out specific rules for lending to consumers where they are paid in, or have their deposit coming from, a foreign currency.

In addition to this, the recent EU referendum vote to leave has seen some increased volatility in foreign currency exchange rates.

So the fact that you are probably being paid in Australian Dollars means that your application will be the subject of strict affordability checks when you apply for a mortgage.

Lenders adopt different approaches to underwriting but, most commonly, they will use an average (or the worst) exchange rate seen over the last few years (rather than the current rate) or use a typical exchange rate and then discount the relative income calculation by a set percentage.

Residential and buy-to-let deposit requirements

If you are buying a home for your family to live in whilst you are working overseas – perhaps whilst you are temporarily seconded to an overseas posting – then you may be able to borrow up to 95% of the purchase price of the property you wish to buy.

However, there are only one or two lenders willing to consider this.

Most lenders operating in the expat mortgage sector require larger deposits (20% is a more advisable starting point for your calculations) and the larger the deposit you have, the more potential borrowing options you have.

If you’re seeking to buy an investment (buy-to-let), you will need at least a 25% deposit or even more with some lenders.

Property

The type of property you are buying is also key to a lender’s assessment of your application.

For example, new build properties frequently come with a requirement to put down a higher deposit.

Ex-council properties too, with some lenders not willing to lend on ex-council flats at all.

Properties that will be used as a holiday let or for multiple occupation, and may fall into the category of ‘House in Multiple Occupation’ (HMO), will prompt any prospective lender to question how you will be able to manage this from abroad and, generally speaking, will only be deemed feasible for experienced investors.

The location of your potential purchase also plays a part as many lenders focus on England and Wales (some only on London and the South East), with borrowing options in Scotland remaining limited. We do not currently know of any lenders willing to provide mortgages to expats for property purchases in Northern Ireland.

Finally, it is worth noting that properties that are to be used by family members (such as retired parents or children studying in the UK) or used as holiday homes are subject to increased consumer protection, and as such, mortgage options can appear limited in the current marketplace.

Income status

Some lenders providing mortgages to expats prefer to deal with you if you work for a multinational employer and have an income equivalent of GBP 40-50,000 or more. So what if you don’t?

Smaller employers are certainly acceptable to many banks and building societies, and some even have no minimum income requirements.

If you are self-employed, you will need to supply your last 3 years audited accounts; sometimes, you will need to have your accounts approved by one of the globe’s leading international accountancy firms, such as KPMG, PWC, Deloitte or EY.

Affordability models vary from lender to lender.

For residential mortgages, you can generally borrow up to 4.5 times your income, reduced by exchange rate calculations and your existing living expenses.

In regards to buy-to-let mortgages, many lenders require the rent to cover the mortgage by at least 125% of a mortgage payment at an atypical rate of 5.5% (i.e. not the pay rate).

However, there are some notable exceptions to this, including some lenders that use a holistic affordability assessment which uses your personal income along with the expected property rental before confirming how much you will be able to borrow.

Financial status in the UK

If you already have UK property and/or UK mortgages, you will have more borrowing options than if you are a first-time buyer.

All lenders will need you to have or open a UK bank account for your monthly mortgage payments.

Application process

With very few exceptions, lenders that provide mortgages for expats generally operate paper-based application processes so you will be required to complete an application form and supply documents to confirm your identity, income and proof of deposit. Be prepared to prove everything.

Lenders will frequently request additional documents from you to assist them with underwriting your mortgage, such as your employment contract, existing mortgage statement(s) and evidence of savings.

The quality of your documentation is something that will be assessed by the lender so you must send original documents wherever possible.

You will not be expected to send your passport but you’ll be able to send a copy which has been certified by the British Embassy (if you live near one of their Australian offices) or by a large firm of solicitors – the latter of which is much easier.

Additionally, if you only receive online documents (bank statements and utility bills, for example) you should supply these documents in an appropriate format, as these will need to be assessed by the lender’s underwriter upon submission of your application.

All in all, there are many options for British Expats living in Australia to buy property in the UK; however, the market can appear rather complex at first glance – many lenders have criteria quirks that can take some time to be understood – and the application process can certainly feel somewhat protracted.

It is important to fully engage with all parties involved in your property buying process, including your solicitor, your mortgage broker and the estate agent. Communication is key in ensuring your purchase goes through as efficiently as possible.

If you’re a British expat living/working in Australia and want to buy property in the UK, call Matthew Fleming-Duffy at cherryfinance.co.uk on +44 (0) 1202 651300 or by emailing matt@cherryfinance.co.uk.

Disclaimer: This information has been supplied as a guest blog by Cherry Mortgage and Finance, one of the UK’s leading specialist mortgage brokers. Home Loan Experts has not investigated the accuracy of such information and, consequently, cannot be held responsible for any inaccuracies arising out of such information. It is for the reader to check the validity of the information provided before taking any form of action. Home Loan Experts does not accept any liability to the reader or to any third party for any loss arising out of or in connection with this information.