There has been a lot of talk about a slowdown in the sector, with UK Finance figures showing a 5 per cent drop in year-on-year purchases. But this does not reflect the entire market, as many specialist lenders are not included. One part is positively buoyant: expat BTL, with a 30 per cent annual rise in demand.
Lenders have recognised this, too. Some already lending are expanding their offerings, those who had left the market are re-entering it and new lenders are joining.
An increase in the number of people living in the EU and buying a bolthole in the UK was expected. But while there is evidence of this, most of the uplift has come from expats living in the Middle East, Singapore or Hong Kong – areas with little or no taxes and higher wages.
The UK property market is still regarded as a safe haven and the additional 3 per cent stamp duty seems to have had little effect on people’s appetite to buy rental property here. The challenge for brokers is that a BTL mortgage for expats is a very different beast to one for a UK citizen and far more challenging to write.
While interest rates for expats are not much higher than for UK citizens, lenders’ requirements can be quite different, with due diligence a lot stricter. Many lenders no longer require someone to have an existing property in the UK, but most will base the amount they lend not only on rental income but also on earned income. The higher the wage, the lower the interest rate. Some lenders, such as Market Harborough, have very low interest rates but require a minimum income of £45,000, which can be employed or self-employed for BTL, but employed only for a residential loan.
Several other lenders accept only employed income, and even then the employer must be a sizeable company.
The countries a borrower lives in are expanding. Many lenders now only refuse to lend to countries classified as “politically exposed” by the United Nations. Lenders such as Vida have relaxed their proposition to those living worldwide, and will even allow non-British spouses to be on the mortgage.
Another new issue is stress testing. The MCD introduced rules for foreign currency mortgages that apply to every expat unless they are still paid in pounds sterling. Many lenders are shaving 20-30 per cent off the value of someone’s income to allow for currency fluctuations and meet the stress test.
A positive is that a growing number of lenders will lend to both first-time buyers and first-time landlords living abroad. Borrowers who have a home here but are moving abroad often want to remortgage their home to a BTL to rent it out while they are away. Although this is a regulated loan, with the right due diligence and information a growing number of lenders will accept it so they do not miss out on this rich seam of business.
Expat BTL is a growing market and one every broker should be aware of.
Liz Syms is chief executive of Connect for Intermediaries