While alternative income streams are a necessity in the current market as many brokers face an uphill struggle, one area that some have overlooked due to its perceived complexity is the international mortgage market.
The market not only comprises UK customers buying a holiday home in the sun for their personal use – the part of the market that has experienced a downturn in recent years – but also several other areas, such as international buy to let, including UK property, where the market is thriving.
International buy to let offers an excellent opportunity for brokers to grow revenue and Lloyds TSB International has recently seen many investors re-entering the international property market with buy-to-let intentions.
However, many UK brokers have concerns over the sector, perhaps thinking foreign regulations and language barriers will make the process more of a headache than a valuable opportunity. But it’s actually a lot more straightforward than many would think.
The market is dominated by three groups. There are UK expats who, having moved overseas, may wish to buy in the UK or remortgage to release capital on an existing property.
There are the holiday homeowners who buy property overseas for personal use and perhaps let it for short periods.
Finally, there are global investors – wealthier individuals who buy property globally to diversify their investments and, for this group, the UK property market is currently very popular.
What benefits will brokers gain from getting involved in the international buy-to-let market? Firstly, we recognise the importance of diversifying your income stream in today’s market and international business can be very lucrative.
Lloyds TSB International pays a 0.5% proc fee in most locations, coupled with average loan sizes for UK property of around £300,000. The fee is uncapped and we often pay commissions of over £10,000 per case.
Secondly, there are signs the market is starting to grow again while the UK domestic market remains contracted. Our experience shows that overseas property investors who delayed their purchase during the downturn are now re-entering the market and we’d expect this trend to continue.
Thirdly, there are many opportunities for cross-selling various products, because international customers are generally dealing in an unfamiliar region and there is a strong incentive for them to deal with just one point of contact.
This provides an excellent chance for brokers to offer these clients other products, such as home or life insurance. Customers will also require someone to manage the property in their absence as well, another point that brokers can look at sourcing for their international customers.
Finally, taking on international buy-to-let customers offers a very high ratio of repeat business.
Customers who fit the global investor mould are usually keen to build a property portfolio and, if served well, will return to the same intermediary. We often find that many customers take on several mortgages with us as they build their portfolio.
Also, with the market being perceived as complex, it may take people some time to find a broker offering a suitable mortgage. Once they have made this breakthrough and found the right broker, they are very likely to recommend them to friends and acquaintances. With this approach, you may quickly start to deal with a new stream of customers.
It might initially seem daunting to break into such a varied and widely spread market, but there are a number of things that brokers can do in order to start picking up international buy-to-let clients.
The first and most important thing to do is to mine your existing client database – this can immediately turn up a number of clients who have moved overseas and may wish to buy or re-mortgage back in the UK.
The other point is to speak with your local estate agent, who may often see overseas-based customers looking to buy property in the UK as an investment and may require a mortgage.
There are some potential pitfalls for UK intermediaries when dealing with other markets, but as long as brokers are aware of these and can set their clients’ expectations then they do not usually present any serious problems.
Among these is the time it takes – the nature of an overseas deal means that general logistics such as sending documents takes longer.
A typical UK property transaction for an overseas client shouldn’t take any longer than a mainstream case, but it may be advisable to factor in an additional two to three weeks to your reckoning.
For overseas locations, the differing nature of many legal systems in countries means the process can take much longer than the UK. Completing a property transaction in France, for example, can typically take up to five or six months from the time of application.
For overseas purchases, language can also be a barrier when speaking to an overseas lender or trying to present your customer’s foreign supporting documentation. Our solution at Lloyds TSB International is to deal exclusively in English and we also offer a translations service for those documents we require.
Finally, it is important to be aware of the tax system in the country where the property is located, as such transactions can be often be subject to taxes that do not apply in the UK or are at much higher rates. The legal representative for the customer will be able to provide the exact costings for their circumstances and their specific property transaction.
Overall, the international mortgage market is one that brokers should not pass up.
While it might at first seem tough to break into, with adequate preparation it can provide UK intermediaries with an excellent additional income stream.
Barry Luhmann is head of lending at Lloyds TSB International Mortgage Service
