Brokers predict the recent pilot of a range by Skipton International and the interest shown by Market Harborough, Saffron Building Society and Kent Reliance since the beginning of the year will attract further new entrants.
Ian Gray, senior partner of Large Mortgage Loans, said: “We are seeing interest from building societies with some form of private equity injection ready to exploit this gap in the market.
“I predict there will be more entrants to this market because they can undercut existing lenders and still make a lot more than if you were lending to a UK resident. There is huge margin to be made.”
High street lenders exited the expat mortgage sector to focus on UK resident customers when funding lines fell away in 2008.
Mortgage demand from onshore customers has been steadily increasing since 2011 providing enough business to satisfy lenders’ targets without going overseas to look for more business.
Santander said it currently has no plans to re-enter the expat market while Halifax confirmed it had simplified its range to focus on first-time buyers, remortgage customers and homemovers.
But Gray said there were huge profits to be made for lenders which didn’t mind a little more hard work when underwriting mortgage applications.
Payslips and bank statements will be in different currencies and languages and lenders may be unfamiliar with the financial and legal systems of other countries which can be off-putting.
Expat mortgages are typically available around 5% for two and three-year fixed rates on an interest-only basis up to 70 and 75% loan-to-value (LTV) compared to 3%, on average, for UK based buy-to-let investors up to 70% LTV.
Gray said: “These mortgages are expensive in relation to a normal buy-to-let loan for a UK resident. We need to see some more competition in this market to bring these rates down.
“The banks will say they charge more to take into account the higher risk because the person is physically not here so if they had to repossess it would be harder to track down the property owner.
“But it is not really that much of a risk. The lender still has the charge on a UK property. It is not like they are securing money on a Malaysian flat.”
