For British expats who currently don’t reside in the UK, or have previously lived abroad, getting a mortgage can present extra complications compared to mortgage applications for UK residents.
You may simply need an expat mortgage to buy a main residence for you or your family in the UK.
Or perhaps you’re considering buying rental property in the UK to provide you with some extra income, and you need a buy-to-let mortgage.
You may even want to release equity in a home you’ve owned for many years in the UK but your existing lender now won’t give you a deal because you live in another country.
No matter your intentions, UK expats can struggle to find a home loan that suits their needs.
However, even though it can be more difficult, it is by no means impossible for expats to find mortgage deals with competitive rates that work for them.
So, can an expat get a UK mortgage? In this blog, I’ll take a look at how difficult it is for a British expat to get a mortgage while working and living abroad, or previously having resided in another country.
I’ll look at the different types of UK property you may require a mortgage for, the challenges that you may face with a mortgage lender, and where you could consider looking for a deal that works for you.
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What kind of mortgages can expats get?
Before looking at the challenges that expats may face, it’s useful to first consider the sort of deals available in the UK.
Provided that they can find a lender that accepts them, expats can get access to all sorts of UK mortgages.
The three types of mortgage deals that expats are most likely to find in the UK are fixed-rate, variable-rate, and tracker.
1. Fixed-rate deals
Fixed-rate means your interest rate is fixed and cannot change for as long as the deal lasts.
Most fixed-rate deals last for one, two, or five years. However, some lenders also offer fixed-rate deals for up to 10 years.
Fixed-rate mortgages are useful for having certainty and stability over what your mortgage payments will be for a certain amount of time.
2. Variable-rate deals
Variable-rate deals use a lender’s standard variable rate (SVR) to determine how much interest is added to your mortgage each month.
As per the name, the SVR can change. The obvious downside to this is that a lender can choose to change their SVR whenever they want or need to.
As a result, this can change how much you owe from month to month.
3. Tracker mortgages
Tracker mortgages work in a similar way to variable-rate deals except, rather than the interest rate being set by the SVR, your rate is determined by the Bank of England’s (B0E) base rate.
The base rate is the BoE’s internal interest rate that determines the cost of lending across the entire UK economy.
The BoE may change the base rate to achieve its goals for inflation in the UK. This means your mortgage payments are linked to the performance of the wider economy.
You can save money if the base rate drops. But, if it rises, you may end up paying more than you were previously.
Repayment or interest-only?
As well as choosing how interest is calculated on your mortgage, you can also decide how you would like to make your monthly repayments on your mortgage.
Repayment deals are where you pay off a total portion of the money you owe plus interest each month. Over time, this would mean you pay off the entirety of your mortgage.
The majority of mortgages in the UK are repayment deals.
Interest-only deals are what they say on the tin: you only pay off the interest you accrue on your mortgage each month.
This means the entirety of the amount you borrowed stays the same while you pay off the interest that gets added to it each month.
Interest-only mortgage deals are increasingly difficult to come by in the UK.
Why would an expat need a UK mortgage?
A UK expat living in another country might need a UK mortgage for a variety of reasons.
Most of those reasons fall under the umbrella of which type of property they’re looking to buy: a residential property or a buy-to-let property.
Residential property refers to property that you or your family intend to live in.
You may want to buy property like this if you’ve moved to a new country but plan on coming back to the UK at some point in the future.
Alternatively, you may live and work overseas while your family live in the UK, and so want to buy a property for them to live in while you’re away.
You can find residential mortgages that offer either repayment or interest-only terms. If you’re buying a property you intend to live in during retirement or in the future in general, a repayment deal may serve you better so that you can clear your entire mortgage balance and live mortgage-free.
Buy-to-let expat mortgages
An expat may want a mortgage to buy UK property while living in another country that they intend to rent out. If this is their intention, they’ll need to look at buy-to-let mortgages.
UK property is popular as part of a retirement strategy, particularly thanks to the income you can derive from rent payments from tenants.
This rental income can provide you with a source of money in retirement, while also securing a tangible asset for your children’s inheritance.
To do this, you would need to find lenders that offer a buy-to-let mortgage product.
Most deals for expat buy-to-let mortgages are interest-only deals. Make sure this is a suitable choice for you before you choose a deal like this.
Which UK mortgage lenders and banks offer expat mortgages?
Most lenders, including major high street lenders and banks in the UK, offer specific mortgages for expats.
HSBC, The Family Building Society, Skipton Building Society, and Ipswich Building Society all offer specific expat mortgage products for prospective expat homebuyers living abroad.
There are different deals depending on whether you need a loan for buying a residence, or whether you need a buy-to-let expat mortgage.
Bear in mind that these deals are still subject to individual lending criteria, including credit history and affordability checks. You will also need to have a UK bank account to be eligible.
These deals may also be more expensive than if you were looking to buy a property in the UK using a UK bank, building society, or lender.
If you’re struggling to find a loan from a mainstream lender or high street bank, you may want to consider looking into specialist lenders.
In general, specialist lenders are there for those who are unable to get a mortgage in the UK for a variety of reasons. It could be their poor credit history holding them back, or some other factor that affects their ability to pass affordability checks, such as their occupation.
For expats, there are specialist lenders who work specifically on expat mortgages to help expat homebuyers find a loan when they might otherwise be unable to.
These lenders are generally not high street banks or building societies but might be private banks or firms that offer services specifically for UK mortgages for expats.
Getting an overseas mortgage
Interestingly, some UK lenders offer overseas mortgages, allowing you to purchase property in other countries outside of the UK.
In the same way, it’s therefore also possible to find lenders in your new country that will be willing to lend to you to buy property in the UK.
Make sure a deal from an overseas lender is cost-effective for your needs before you take it out.
Barriers to getting an expat mortgage
The reason there is an issue for a non-UK resident looking to get an expat mortgage is because of the added risk that overseas customers present to mortgage lenders.
These issues make it more difficult for UK lenders to assess the financial stability of an expat when they present their expat mortgage application.
Many lenders might flat out reject expats if they cannot confidently assess the level of risk they present.
Expats present more of a risk to most UK lenders for a variety of reasons. Below are just some of the issues that a lender might face when trying to assess an expat mortgage application.
Credit history issues
For many expats, it’s highly likely that they’ve barely built up a UK credit file, as they haven’t owned a UK credit card or borrowed in the UK for many years.
Unfortunately, to meet affordability criteria for many UK mortgage lenders, you’ll need a full UK credit history to prove that you are creditworthy and able to keep up with your mortgage payments.
Proof of creditworthiness from another country may not be sufficient, depending on the requirements of the lender.
Foreign currency issues
Naturally, foreign currency presents a variety of risks to a lender.
Even if you hold a UK bank account, the issue of the exchange rate between different currencies means there’s the potential for currency fluctuations in the near future.
As a result, it’s harder for a lender to assess how much you can afford based on your income, as changes to the exchange rate might mean that your income is not of a consistent value.
Employment history checks
Some lenders might want to carry out an employment history check on an expat as part of their affordability criteria.
However, time zone differences and a potential language barrier can mean that lenders might struggle to be able to accurately check an expat’s employment history.
Without being able to fully verify an expat and their history, some lenders may fear that they could be exposed to scams, or to borrowers who aren’t able to keep up their repayments.
For some lenders, this might be enough to entirely put them off from offering an expat mortgage.
UK property and tax
One thing that’s worth keeping in mind with UK mortgages and property is that the amount you may have to pay in tax can make your purchase less worthwhile, particularly for buy-to-let.
When you buy property in the UK, you’ll first be subject to Stamp Duty or Land and Buildings Transaction Tax, depending on where in the UK you buy your property.
There is a nil-rate band (NRB) before Stamp Duty is due which, as of August 2021, is £250,000. This NRB is higher than usual, as the chancellor introduced a Stamp Duty holiday to help the UK property market recover from the impacts of the recession brought on by Covid-19.
However, this NRB will be reduced back to its normal level of £125,000 in October 2021.
The portion of your property that exceeds the NRB will then be subject to a Stamp Duty charge, with the amount due dependent on the value of the property.
For buy-to-let property, there’s an extra 3% charge on top of the standard Stamp Duty rates, including on any value of a property that’s below the NRB threshold.
Capital Gains Tax
When you come to sell your property, you may also have to pay Capital Gains Tax (CGT) on any rise in the value.
You do have a tax-free allowance for CGT, which is £12,300 in the 2021/22 tax year. But any gain in value over this will be subject to 28% CGT if you pay higher- or additional-rate Income Tax.
For basic-rate taxpayers, you’ll pay up to 18% CGT, depending on your personal circumstances.
Both Stamp Duty and CGT can cost you quite a bit in tax on your property purchase, which could be particularly detrimental if you’re buying rental properties.
Working with a mortgage broker
If you’re an expat looking to get a mortgage, it can be a good idea to consider taking expert advice from a mortgage broker or a similar financial services expert, such as a financial advisor.
A mortgage broker or an advisor can scour the market on your behalf to find the best deal that’s most suitable for you and your personal circumstances.
They’ll be able to consider a range of factors, including the best rates and terms that are suitable for you.
A mortgage broker may be able to help you find a deal from specialist lenders or from private banks that you may not have considered when searching for a loan yourself.
Mortgage brokers occasionally have access to deals that are only available when you work with them. This could mean a lender has a deal that would be perfect for you that you wouldn’t be able to find on your own.
Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.
Buy-to-let (pure) and commercial mortgages are not regulated by the Financial Conduct Authority (FCA).
Think carefully before securing other debts against your home.
Dan is an experienced Senior Financial Consultant at W1 Investment Group with over 18 years experience. He helps international and expatriate clients make tax-efficient savings and investments in Europe and worldwide.