Feature: US expats and the struggle of UK mortgage procurement

Tight regulations and concerns over visas have made it difficult for many American citizens to secure mortgages on UK properties. Helen Burggraf looks at the banks putting the pieces together

Americans living in London are no different from other Londoners in one key way: it does not take a gathering of them long to start talking about property, and their experiences of buying, selling and owning it.

However, the complications for American expats looking to buy property are so significant that few financial institutions involved in selling UK residential properties are keen to have any US citizens at all as clients. Even Citibank, the American institution with international offices, doesn’t offer mortgages to Americans for UK properties.

That the US dollar is at its highest level against the pound for at least 12 months – making UK property more attractive – has yet to trigger a noticeable rush by mortgage providers to go after the market.

Those UK-based institutions that do welcome American expats, such as Investec Private Bank and Coutts, often cater to a high-net-worth clientele, typically US bankers who are in London to oversee a company’s European operations, and have done so for years.

One exception is Metro Bank. The FTSE 250-listed institution has been willing to take American expatriates as clients since it began offering mortgages in 2011, according to the bank’s director of mortgage distribution Charles Morley.

Metro Bank will provide American expatriates with mortgages for UK properties if they meet various criteria, such as having a minimum income of £75,000; the right to reside permanently in the UK; and, for non-dual UK/US British citizens, proof of sponsorship, such as by an employer. The lender does not find a “huge demand” for them, a representative said.

Disincentives for foreigners
Some date the beginning of hardships facing foreigners seeking mortgages to buy UK properties to 2008, when certain tax incentives for offshore mortgages were abolished.

But the complexities for Americans were then further compounded, experts say, by the introduction of the US Foreign Account Tax Compliance Act, signed into law by President Obama in 2010; and then by the EU’s 2015 Mortgage Credit Directive. The MCD was brought in to ensure that cross-border mortgage provision was more consistently regulated than it had been, but the result, say those in the business, is that lending to non-British citizens who wish to buy UK property has now become extremely complicated.

Under the MCD, even mortgages taken out in sterling are considered “foreign currency mortgages”, if the individual is paid in, or holds assets in, another currency. The issue is that such mortgages come with a raft of additional requirements.
“If an individual has indefinite leave to remain, most lenders will look to lend to them,” says John Charcol product technical manager Nicholas Morrey. “Foreign nationals without leave to remain but who are paid in sterling can also be considered.

“But when you’ve got foreign nationals, including American citizens, without indefinite leave to remain, who are paid in a currency other than sterling, it becomes much more difficult.

“In the case of foreign nationals here on a work permit (including American citizens), it comes down to what the individual lender’s policy is towards such applicants… and some of them will simply say, ‘we don’t do it at all’.”

Residency concerns
Added to these factors are concerns that those who take out a mortgage might leave the country and not return before they have paid it off.

Trinity Financial product and communications director Aaron Strutt says American expats on visas can find themselves with a narrow window of opportunity for getting a mortgage with relative ease in the UK. They need to have been here long enough to have a track record lenders will accept, but not so long that their visa is about to run out.

On top of this, there can be inheritance tax issues – yet another reason any American looking to buy a UK property must plan on getting early advice from a tax expert on these matters, in addition to consulting an experienced mortgage broker.

Size of US market
The number of UK-resident Americans taking out mortgages on British properties each year is unknown, as is the number of mortgages currently held by such individuals. The US is well known for not saying how many Americans it officially believes to be in individual countries.

Earlier this year, the Office for National Statistics estimated the number of American citizens (as opposed to US-born individuals) resident in the UK in the year ending in June 2017 as being “in the range of 121,000 to 157,000”. Another ONS estimate put the number of US-born immigrants resident in the UK in 2013 at 197,000. An unknown number of these individuals would be children and young people unlikely to yet be in the market for a home.

Also unknown is the number of so-called “accidental Americans” resident in Britain. These are individuals who do not consider themselves to be American because they have lived here for most of their lives, but who are regarded by the US as being citizens because they were born there.

The fact remains that today, the US regards such individuals as still having significant potential American tax obligations. It also means they may experience more difficulty in obtaining a UK mortgage than they had expected to.

‘A private bank speciality’
Investec Private Bank business development manager Peter Izard says that the reason private banks like Investec and Coutts tend to do a fair number of American expat mortgages relative to their total business is because they “are able to deal with these [complex] issues that Americans face, because that’s what we specialise in – whereas most retail lenders can’t”.

In addition to the problems of foreign currency mortgages, clients “can have issues having to do with the requirement by some private banks in the UK – not Investec, though – that their mortgage clients also entrust their investment portfolios with them, even if, for example, they’re a senior executive with a company like JP Morgan or Merrill Lynch”, Izard says. “Then you’ve got FATCA; and if they’re not dual citizens, you’ve got the matter of the individual’s visa status.

“Here we take a pragmatic approach, which is to say that we query an individual’s determination to invest in a London or UK property if they’re not absolutely confident that they’ll be getting their Tier 1 or Tier 2 visa, with five years or less to run, renewed.”

Andrew Grimes, head of Americas clients at Coutts, says FATCA in particular saw many traditional high street banks walk away from the American expat market. “Whereas we saw FATCA as something we had to make part of our business going forward,” he says.

Befitting its bespoke approach, Coutts offers mortgages to expat Americans resident in the UK as part of a complete wealth structuring service. It is one that Grimes says is designed to accommodate high-net-worth and ultra-high-net-worth individuals “who are seeking mortgage finance of at least £1m”.

‘No end to the appetite’
Despite the complexities, those who offer the deals are seeing “no end to the appetite” among such US expats for British residential properties, says Izard.
His observation is echoed by others, including mortgage brokers specialising in American expats, who say that any impact Brexit is having on the American presence in the UK is being softened by growth in other industry sectors, such as the currently booming and expanding technology sector.

Coutts has yet to see a drop-off in the demand of American expats in the UK for mortgages, Grimes says, adding that the number of mortgages the bank arranges for Americans each year has in fact been “steadily increasing” for some time.

“It’s difficult to say whether we’re getting a bigger share of the market or if this particular sub-set of buyers in the market is flourishing; probably it’s a bit of both,” he adds.

“London is still the international financial hub of the world,” says Izard. “And a lot of American nationals in that finance world are still relocating to London for work purposes.”

Even with the strong dollar, though, American expats will not just buy anything they are shown, and are “prepared to walk away” if they sense they are being asked to pay more than a property is worth, says Coreco brand director Andrew Montlake.

“They tend to be hard negotiators, and understand the value of things – including the value of service, so they very rarely question things like brokers’ fees.”

Like others interviewed, Montlake says Coreco stresses that its American clients get expert tax advice early on in the property buying process.

Not to mention a good mortgage broker, adds Morrey, of the Charcol mortgage broking business, before relating how a couple came to him after being told by their major UK bank that it could not give them a mortgage on a property.

“I ended up placing a mortgage for them with the Isle of Man-based international banking arm of that same major bank,” Morrey says.

“The point is that we have the information, the experience, and we’re not tied to any one lender.

“So the idea of an American citizen looking to get a mortgage over here, as long as they have some time left on their visa and they’re not looking for more than 75 per cent LTV, doesn’t phase us at all.”

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