Living in Hong Kong? 4 Ways A British Expat Can Get A UK Mortgage
Work hard, get paid well… Even on local plus rather than an expat salary package, your low tax means you’ll be looking for somewhere secure to invest.
You may not feel as adventurous about playing the HKEX as the locals. And a local property market described by Swiss bank UBS as the most overvalued in the world is a worrying place to buy into at valuations 18 times the median HK income.
The UK has always been a popular and secure investment destination for HK Chinese as well as British expats. One leading UK property finance provider has seen a 65% rise in buy-to-let mortgage applications from HK investors in recent years.
Looking beyond London
Profit-conscious HK buyers have been increasingly willing to look beyond the capital. Direct flights from the SAR into Manchester and Birmingham, as well as Edinburgh, Glasgow, and London have led investor growth.
The cities with the strongest rental yields in the UK have been those with strong student populations, and those in the north and north east.
The university city of Nottingham in the heart of England, (which coincidentally was the first university to establish a campus in China) is the most profitable rental property location in the UK, with average yields of 12%.
Average 2018 rental yields in many suburbs of London wavered around 2%, with the best-performing areas that HK buyers will be familiar with, such as Hampstead or Westminster, only returning 4.3% maximum.
Excellent returns for HK buyers in Manchester
Manchester’s paifang on Faulkner Street, the heart of the city’s Chinatown, is reportedly the first authentic imperial Chinese arch to be built in Europe. Xi Jinping’s 2015 visit to Manchester was a recognition of China’s strong connection to the city.
Manchester has four universities. Housing prices jumped 8.8 per cent in 2017, according to Savills Research analysis of Land Registry data, and are up 32.5 per cent in the past five years. New developments such as Jackson’s Row, New Islington and Meadow Side are proving particularly attractive for HK investors.
National property consultants JLL predict Manchester property values will continue to rise by a further 22.8 per cent to 2022, which compares impressively with 16.5 per cent for the north-west in general.
Strong rental yields in Birmingham
This West Midlands city also has its own Chinese Quarter (as well as a Jewellery Quarter and the much-loved Balti Triangle).
New mill developments are repurposing the city’s industrial past, such as Sherborne Mill, King Edwards Mill, Washington Mill and Snow Hill Mill, and new builds like The Tower of Broadway, St George’s Urban Village, and Nexus Point are appealing to HK buyers.
The Hodge Hill area, east of the city centre, is the 5th "hottest-to-buy" postcode in the UK.
The pricing of Birmingham properties is a major attraction, with profitability to be found less in capital growth than rental yields.
HK expats UK property buyers guide: what you need to know
Securing a UK mortgage as a British Hong Kong expat can be troublesome for a few reasons.
Have you checked your UK credit score?
Due to the limitations of the global banking system, your success in Hong Kong will not be reflected in your UK credit score. If your British credit card is inactive and you haven't been carrying UK loans for the last few years, your credit score will have suffered.
If you have any outstanding UK bills this will a black mark on your credit score (mobile phone contracts which clients thought they had cancelled are a frequent problem). Any mortgage application that is first-screened by a computer algorithm may be declined.
You can check and correct your credit rating at no cost.
An experienced mortgage broker (such as Clifton Private Finance) can advise on how to proceed with an adverse credit rating, or source a lender who will take a considered view of your circumstances.
Issues with foreign currency mortgage payments
If you’re paid in Hong Kong dollars your application is currently (spring 2019) and for the foreseeable future subject to the Mortgage Credit Directive (MCD), introduced by the European Commission in 2014.
The directive is intended to address the risks surrounding mortgage payments that are subject to currency exchange, imposes two key points:
- The consumer has the right to convert their mortgage into a foreign currency at any point, and,
- Other arrangements are put in place to negate the risk of exchange rates falling dramatically to protect the consumer.
On the face of it, these are positive protections for borrowers. But the result has been that lenders now bear greater risk for currency fluctuations on expat mortgages, and are often less willing to consider lending.
Different rates for expats intending to return to the UK
If you’re looking for a mortgage on a property which you intend to return to as your home, specialist broker advice, such as from Clifton Private Finance, will find you a lender who can offer the most advantageous rates relevant to your future circumstances.
4 ways we can help British expats in Hong Kong obtain UK mortgages:
1. Purchasing a UK property for residential purposes
Whether you’re buying a second home, or this is the property you intend to use whenever you return to UK, all of the issues outlined above apply.
Clifton Private Finance can give you the advice you’ll need to keep you on the right side of a lender’s residential mortgage property requirements. Do you intend to have family (a spouse, dependent parents or children) living in the property while you’re in HK? If the property will be empty for long periods of time, what arrangements will be made for its security?
For your affordability assessment we will take into account all of your different income streams, and take your application to a lender who won’t apply unreasonably high interest rates as a penalty for foreign currency payments.
The issues then will essentially be the same as any other residential mortgage. You will need to decide how much you can pay as a deposit (which can be as low as 20%), how much you would like to borrow, and how long you want the mortgage to run for.
A capital repayment mortgage will have higher monthly payments which cover the interest on the mortgage and also reduce some outstanding capital balance on the loan.
An interest-only mortgage allows for substantially lower monthly repayments, covering only the interest charges, but you will need to have a clearly defined strategy for eventually repaying the amount of the loan itself.
If you are self-employed, or a contractor with irregular earnings, or if a substantial part of your income is paid in quarterly or annual bonuses, it may be most cost effective for us to arrange an interest-only mortgage for you that allows for substantial one-off capital repayments without penalty.
Bespoke mortgages can be arranged for individuals earning over £300,000 a year or who have a net worth of over £3,000,000, with lending structured to your individual circumstances.
2. Buying a UK property for investment purposes
Properties purchased to generate rental income are termed "buy to lets." They may be rented to one family unit or "household," or to a group of tenants.
A property rented out to three or more people sharing facilities such as kitchen and bathroom, but who are not from one household, is defined as a House of Multiple Occupancy (HMO). "Share houses," and student lets are commonly HMOs.
A rental property is defined as a Large HMO if it’s rented to five or more people from more than one household, and some or all the tenants share toilet, bathroom or kitchen facilities. Large HMOs will incur higher management costs for overseas landlords paying local managing agents, but the
Large HMOs must be licenced by the local authority, and landlords will be accountable to local residents for the behaviour of their tenants. (Licences for Large HMOs last for five years, and landlords need separate licences for each Large HMO that they run.)
The mortgage requirements for HMO properties are different: many lenders prefer borrowers to have experience as a landlord before they will consider a landlord for an HMO mortgage
A lot of our clients come to us having had an unhelpful response from their own bank in Hong Kong or Singapore, or one of the big UK high street banks,” says Alex Chambers, Clifton Private Finance expat mortgage specialist .
"We’re a boutique broker and we deal with smaller lenders who can be much more flexible: these are not conveyor-belt decisions.
Negotiating with lenders
3. Refinancing existing UK residential and buy to let properties
Re-mortgaging your existing UK property could be advantageous for a variety of reasons.
- If a previously-negotiated fixed rate interest period is coming to an end, there will be better rates available to you than your current lender’s default rate.
- Your investment has probably gained capital appreciation in the value of the property. And mortgage repayments will have reduced the size of your principal. The combination of both factors will have generated a sizable pool of equity that can be leveraged to negotiate a more favourable mortgage rate.
We offer an independent residential refinancing service to expats for properties valued over £150,000 tailored to meet your specific requirements.
The term of borrowing can be arranged between 3 and 30 years, and the value of your investment portfolio, other held properties and your pension funds can be applied to your borrowing to ensure that you benefit from the most flexible lending criteria and best interest rates available to you. This service is offered for both residential and buy-to-let mortgages.
Refinancing can be in either Hong Kong Dollars or sterling (other alternative currencies are also available), and you have the option to change currency when it benefits you.
4. Source development finance to buy land or property in the UK to develop/redevelop
UK land investment may not offer the same levels of astronomical returns as in HK, but there are profitable opportunities available for smaller scale investors. Land not yet granted planning permission is less expensive and offers the most promising uplift in value, but there is no guarantee that planning permission will be granted. Land sold with planning permission will be a more substantial investment, but can still offer good returns to owner-developers.
We offer finance solutions for development projects starting from £100,000, on terms up to 24 months for both simple and complex developments.
Your expat status will not limit your access to our extensive network of specialist lenders, and you can remain an active investor in a development while based in HK.
Contact Clifton Private Finance
Our experienced expatriate property finance team can discuss your plans with you and propose lending solutions you may not be aware of. Just call us to arrange a time for a detailed conversation whenever it suits you: