For the lucky few Britons who have begun a new life in a different country, the prospect of keeping a foothold on the UK property ladder is still appealing, especially in today’s buoyant market.
The majority of expatriates want to buy a property here in the UK as a financial investment and despite the buy-to-let expatriate market being relatively new, it is growing.
Many expatriates want to maintain a UK property as a stake in the property market, so that when they eventually return to the UK they do not have to worry about getting a foot onto the property ladder. Alan Keneley, head of property acquisition and asset management at Property Investment Portfolio Services, which buys property all over the UK for investors, says he has noted a substantial increase in business over the past few years.
‘The expatriate market is still moving upwards ‘ over the past couple of years we have transacted 40%-80% of our business in this market,’ he says.
Definitive statistics for the actual size of the market appear to be scarce but, according to the experts, it can be profitable if tackled in the correct way.
Ian Barr, director of Elite Mortgages, which specialises in buy to let for expatriates, says: ‘Overall, expatriates have a good choice, even though the market is more restrictive. It is becoming more popular because it is a lucrative market, but it does have to be targeted in the right way.’
The majority of expatriates buy UK properties as an investment, rather than for a home to return to after their stint abroad.
Keneley says: ‘I would say that 75% of expatriates buy property as an investment and 25% want to live in it. Generally, they don’t want to reside in the properties ‘ but want to keep a foothold in the UK market. Most people tend to buy two or three properties, after initially buying their first one.’
Word of mouth
The opportunities for UK advisers entering the market can be rewarding, as expatriates tend to recommend advisers to each other, according to Chris Cummings, marketing director at Sunbank. He says: ‘The opportunities for UK brokers are substantial. Advisers interested in targeting expatriates can generate business through existing contacts, or contact the embassy of the expatriates communities, which are often closely knit and where word of mouth or personal recommendation is important. What can look like one deal can potentially turn into 30. It is a big area of business and advisers who do their research can do very well.’
Advisers interested in targeting expatriates can generate business through existing contacts, or contact the embassy of the country they are interested in. However, for brokers to excel, John Heron, managing director at Paragon, believes a local presence will optimise business.
He says: ‘It is like any market ‘ the businesses which are going to be successful are those which try the hardest to understand their customers and to communicate most effectively, and this means having a local presence.’
However, even for advisers with an office based in the country they are targeting, there are still hurdles to overcome in the form of obtaining employment and credit references, and adhering to money-laundering compliance.
Anyone wishing to buy a property in the UK will need to submit proof of identity and residency to arrange the mortgage.
‘While expatriates can produce proof of identity, such as foreign bank account statements, employment details and passports, they wouldn’t want to send the original of such documents by post or courier to an adviser in the UK. Many lenders will not accept a copy unless it has been certified by a solicitor ‘ which can be a problem,’ says Barr.
Having a close relationship with lenders can reduce this problem, says Cummings: ‘Think about your lender, because most lenders have a list of countries they deal with. If a broker is relying on a wage slip from Tel Aviv, they need a lender who can translate it, or have a strong enough relationship with the broker who will certify the copy and provide the translation.’
Obtaining a credit check can also be an obstacle in the application process, as international credit checking systems can be different to ones here in the UK; money-laundering regulations also need to be adhered to, as UK lenders will carry out thorough checks.
‘The biggest problem is complying with money-laundering regulations. UK lenders have instructions from the Bank of England that they must apply certain due diligence checks,’ explains Barr.
Depending on the circumstances, expatriates entering the market from a foreign country must also be aware they could be buying a property which they have not seen. Many tend to buy in the new-build market and leave the whole process to an agent. Agents oversee everything ‘ from finding a property to eventually re-selling it.
However, Cummings warns: ‘As an expatriate living overseas and wanting to buy property in the UK, there are issues such as buying a property unseen or working through a third party. Ultimately, you could be engaging in a business transaction without the best understanding of either the market you are buying in, or to whom you are letting out the property. You need to recognise that you are engaging in a business transaction ‘ consider it seriously and seek professional advice,’ says Cummings.
A simple investment?
Clients buying a property as an investment vehicle with a view to letting it out also need to be aware that the buy-to-let market is not regulated.
Barr says: ‘It is a grey area as far as compliance goes. The Mortgage Code Compliance Board only regulates mortgage business where the applicant is buying a house which they will live in. If it is to be rented out, then it is classified as buy to let, which is not regulated. I can’t see how regulation can be implemented for expatriates buying to let in the UK. Theoretically, expatriates live in many countries where English law obviously doesn’t apply ‘ so regulation can’t apply either.’
Although there are a couple of glitches which could slow the mortgage application, the process of buying a UK property as an expatriate is relatively straightforward.
In the past, those wishing to buy a UK property from abroad would have had to go through one of the large international banks or IFAs with offices abroad, which was restrictive. Other options included returning to the UK for a holiday and purchasing while in the country. But with the advent of the internet and an influx in companies specialising in expatriate property investment, the process is becoming much simpler.
There are also a number of services available such as expatriates’ magazines and organisations, which can help as well as agencies which will take over the whole process.
Property Investment Portfolio Services offers such a service. Keneley says: ‘We offer a complete service, we organise the finance, find the property, buy it, let it, manage it and then sell it later on. We use a couple of IFAs, but most of the business is word of mouth from expatriates who have bought with us. We also do exhibitions, shows and seminars.’
Brokers operating a website are more likely to succeed than others, as more people are turning to the internet when looking for property.
Barr says: ‘The advent of the internet has opened the market up considerably. More and more expatriates are using the internet. If advisers have not got an interactive website, they will not get the business, as there is no other way of doing it. Even when they get the website it may take a year or two to get prominence on a search engine.’
There are also tax benefits to consider for expatriates buying property in the UK.
Cummings has noted a surge in ‘single purpose vehicles’ (SPVs) This is where someone buys a property under a company name, which can have substantial tax savings.
‘A number of expatriates might purchase a property in their own name, but they may also be buying in a company name. We have seen a rise in single purpose vehicles to purchase property. The benefit is that you are spared capital gains tax. A lot of brokers haven’t twigged on to the tax benefits and, if you set up an offshore single purpose vehicle, there are even better tax benefits,’ he says.
These tax benefits can persuade many expatriates to enter the buy-to-let market, but before jumping in, thorough research must be undertaken. Although it may provide a profitable income, there are pitfalls which can occur and it is not a market to be entered into lightly.
Adele Burton is a staff writer
The majority of expatriates buy UK property as an investment rather than as a home to return to.
One deal can turn into 30 as satisfied clients will recommend their advisers to others.
International credit checks can prolong the mortgage application for expatriates.