What is an expatriate mortgage?
Expatriates are often high net worth individuals who usually fall into two categories: permanent absence and temporary absence. The former are people who have no intention of returning to the UK. The latter are those who work and live overseas for a finite number of years (at least one full tax year) and will eventually return to the UK, which they see as their home. These expatriates are more likely to maintain links ‘ including financial links ‘ with the UK.
Both types may wish to buy property in the UK or even overseas, and can do so via an expatriate mortgage available from a select number of UK mortgage lenders.
In addition, there are many people who are non-UK nationals who buy property in the UK. Effectively, these will be expatriates of their own country and in order to buy UK property they may require an expatriate mortgage that has terms and conditions allowing for non-UK nationals.
Where do British expatriates generally reside?
In the last calendar year for which data is available, 131,000 people left the UK. The most popular destinations for British expatriates are other parts of Europe, followed by the Commonwealth grouping of Canada, New Zealand and Australia.
Why do British expatriates wish to own property in Britain?
Some expatriates will maintain that they wish to retain their family home for a time when they return home. But on the whole it is seen as a good investment opportunity, particularly when the housing market is on an upward curve.
The buy-to-let route is being pursued by more expatriates who wish to take advantage of this asset class. They hope they will gain from capital growth while rental income can sometimes be paid tax free into an offshore bank account, depending on the client’s own circumstances. However, it should be noted there might be capital gains implications should the property be sold in the future.
How do expatriate mortgages differ, both from mainstream mortgages and each other?
Those intermediaries who operate in this sector find that expatriates mortgages are no more arduous to do than arranging a mortgage for a permanent resident of the UK.
The first noticeable difference is the number of lenders operating in this market is small compared to the mainstream market. And if brokers are trying to secure a mortgage from a UK lender for an expatriate’s client buying property in a specific country, then the choice is even more limited.
There are also differences in product features. Interest rates are often higher and loan to values reduced (to around 75% to 80%). This is in part due to the problems involved in chasing bad debts from overseas should the borrower ever default, although experienced lenders do have policies and procedures in place to make it much easier.
Some lenders will only lend to employed clients while others go further and insist that the client is working for a multinational organisation or a Government agency. Others might insist the client has a UK bank account and be remunerated in sterling. Some lenders will only lend to expatriates living in particular countries, such as those in the EU or the Commonwealth. And expatriates living in those countries that do not participate in the Financial Action Task Force may face even more problems obtaining a mortgage.
Due to money laundering regulations, a client is likely to have to supply more forms of identification than their UK counterparts. This is because it is often difficult to know all the financial details of an expatriate client ‘ which is the fundamental requirement of a mortgage lender to counter money laundering. Due to the geographical restrictions, obtaining this identification can take longer than normal (especially as some lenders ask for a copy of the passport certified by an attorney or consulate.)
What opportunities are there for mortgage brokers in the expatriate market?
If brokers have clients who left the UK and let out their property, it may be worth contacting them. They may not be aware interest rates have dropped substantially in the last few years, and they may benefit from re-mortgaging.
Some expatriate clients’ properties will have increased in value, and as a result they may wish to release equity in order to purchase additional property for investment purposes. Anecdotal evidence has also indicated an increasing number of expatriates are releasing equity to do this.
Then there are expatriates returning to the UK. These clients will also require assistance, if they plan to purchase or remortgage property. Having been out of the country for several years they may need expertise to help them find an appropriate lender.
With the euro in full operation, expatriates (and all UK nationals) can take advantage of a lower rate of interest applied to loans denominated in euros from the European Central Bank.
For more adventurous clients, there are other lenders that offer expatriate mortgages in different currencies, and even currency switching options. However, brokers need to bear in mind that currency-led mortgages are a greater risk due to market movements.
When it comes to expatriates, there is a lot more to the game than ‘vanilla’ mortgages. But, with technology moving forward at pace, arranging mortgage for expatriates will only get easier.
Jeff Knight is residential mortgage marketing manager at Sun Bank