Yacht crew mortgage: How to get finance for a UK property
Where do you "live" for the purposes of a UK mortgage application if you work on superyachts? You don’t have to be counted as an "expatriate" and pay higher rates if you’re a seafarer.
You’ve managed to outlast the work-hard play-hard junior crew lifestyle and build a career in the superyacht or shipping industry.
Your tax-free earnings and generous tips are building up in your offshore account and you want to put them to use buying property before you return to shore life fulltime.
It’s complicated enough trying to apply for a mortgage to buy property in the UK when you’re professional yacht crew.
Either you’re trying to get everything done during your October shore leave. Or you’re trying to access all your financial records when you’re on board and working 20-hour shifts as captain, chief officer, stew or deckie.
So let’s start by understanding your status as a UK resident, and whether you’re eligible for the same domestic lending rates that your friends back home are paying.
What’s the difference between expatriate and domestic-rate mortgages?
- The interest rates and set-up costs for mortgages that you’ll find in a quick Google search are not the rates you’ll be charged if you’re classed as an expatriate borrower – someone living outside their home country either temporarily or permanently.
- Banks and building societies are generally more reluctant to lend to expatriates because it’s riskier lending to a customer not based in the UK. If you default on your mortgage it’s difficult for them to stay in touch with you overseas.
- It’s also more complicated – and time-consuming – confirming a non-UK resident’s earnings and tax status.
- Lenders compensate for those increased risks and costs by charging more in application fees and also in the monthly interest rate you’ll be quoted.
Added exchange rate costs for expat yacht crew
There is also the added uncertainty of fluctuating exchange rates, which can radically alter the amount that a non-sterling salary earner needs to remit to the UK each month to cover their mortgage payments.
- Some mortgage lenders make a simple one-off calculation of the exchange rate on the day the mortgage application is processed, to get the sterling equivalent of your foreign currency salary.
- Other "worst-case" lenders use the lowest exchange rate recorded for that currency over the previous 10 years.
- And some others subtract an additional flat-rate percentage from your salary calculation, after their conversion rate – sometimes as much as 25%. Which can put a major dent in your affordability.
Who counts as an expatriate?
Most people are pretty clear about whether they’re an "expatriate" or not, even though they may not like the term.
- If a UK citizen pays taxes in the country they’re living in overseas, they will be classed as UK expatriates.
- Or if their income is tax-free but they don’t spend the minimum number of days in the UK each year, as defined by the HMRC’s Statutory Residence Test, they will also be classed as expatriates.
But what about yacht crew, who don’t technically "live" in any one place?
Special UK tax exemption for yacht crew
A unique tax provision, negotiated with UK tax authorities by seafarers’ unions in 2012, allows seafarers to claim a 100% tax exemption on their foreign earnings: HMRC’s Seafarers Earnings Deduction (SED).
This was seen as a recognition of the long periods of time that seafarers spend outside the country (not using the services their taxes would pay for), and the fact that they work in a highly competitive labour market.
Using offshore banks and limited companies to receive salary payments
Some crew members choose to have their foreign currency salaries paid into limited companies set up offshore. It’s possible that this might be a tax effective solution for you, but there can be implications for future property finance.
- All offshore banks are required to disclose the dealings of their clients to the relevant tax authorities under the Offshore Disclosure Facility.
- Rather than keeping your tax-free earnings discreetly out of sight of the UK tax authorities, using an offshore bank account can lead to increased scrutiny by HMRC.
- Offshore accounts commonly charge higher fees, don’t pay interest, or offer any lending facilities and don’t contribute to your UK credit rating.
So it can make it more difficult getting a mortgage – certainly a non-expatriate mortgage – if you bank offshore.
Clarifying your UK-based tax status
Meanwhile you could be taking advantage of the UK’s 100% SED tax exemption.
- As ever, complete openness and honesty is the best policy – because you don’t want to be investigated and hit with a hefty tax penalty.
- There are foreign-currency bank accounts available in the UK that you can use to have your foreign currency earnings paid into.
How yacht crew can claim the 100% UK income tax exemption
1 Satisfy the HMRC Statutory Residency Test and Valid Claim Period rules
- You may not spend more than half the year (183 days) in the UK during a tax year. You need to keep all the evidence relating to your travel, and your return trips to the UK.
- Worrying about staying a day too long, or getting caught up on travel arrangements, is probably one of the greatest deterrents to ships’ crew applying for the SED exemption.
- But a 100% tax exemption is worth a bit of effort.
2 Start or end a voyage at a foreign port
During each tax year at least one of your voyages must begin or end at a foreign port. (This prevents crew members who only work around the British Isles from claiming the SED.)
3 Work on a ship
This sounds obvious, but a 1988 amendment to the SED clarifies the definition. It doesn’t include:
- Fixed production platforms
- Floating production platforms
- Mobile offshore drilling units
4 Fill out a UK tax return
And apply for the Seafarers Earnings Deduction (SED).
How yacht crew can make sure they’re not classed as expatriates for a UK mortgage
1 Be a UK resident - and be able to demonstrate that you have a home in the UK, where you can stay for 91 days continuously (ie not a hotel), which is your postal address, and where you're registered to vote.
2 File an annual UK tax return (as above).
What else can yacht crew do to help your UK mortgage application?
1 Check your UK credit score
- You can use their free credit check services (don’t feel obliged to sign up for their subscriptions).
- Checking your credit score yourself doesn’t affect your rating.
- Not all lenders report your credit details to all three credit agencies, so to be sure there aren’t any surprises lurking you do need to check all three of them.
2 Address any problems on your credit score
- Challenge any adverse ratings on your credit report that you know are incorrect. These may be an account you had cancelled but which is still showing as open, with overdue payments. Or an address that a company has recorded incorrectly.
- Mobile phone companies can be a particular problem for people now working overseas. You might think you’ve cancelled the contract, and be ignoring the bills they keep sending you, but this could be counting as a black mark against you. Contact the company and get their adverse report removed from your record.
- Avoid making any applications for additional credit (any kind of hire purchase, store credit cards, or online credit) in the run-up to making a mortgage application.
- And get a notice of disassociation from anyone linked to you financially who may have a poor credit rating, who you’re no longer connected with.
3 Improve your credit rating
- If someone with a good credit rating really trusts you (a parent or partner?), you can "share" their credit score by becoming an authorised user on their credit card.
- Maintain an active UK bank account and credit card: use them for regular transactions and payments.
- Update your listing on the electoral register. Having your latest (current) UK contact address on the electoral roll is a key element of your credit rating (creditors want to be confident they will be able to contact you).
The 3 most common questions about UK yacht crew mortgages
1 Can I get a bigger mortgage because my income is tax-free?
This is a common misunderstanding. Mortgage lenders calculate affordability based on gross salary rather than salary after tax, so you’re in the same boat (so to speak) as a UK-based borrower who earns the same.
The only advantage is that lenders do look at borrowers’ other credit commitments as well. So if you have a car loan, or other substantial monthly loan payments, those could be assumed to be paid for by the additional untaxed portion of your salary, leaving your overall affordability calculation unchanged.
2 Can I get a Buy to Let mortgage if I’m a first-time buyer?
If you’re spending half the year out of the country it’s likely you might want to rent out your property, in which case you should be applying for a Buy to Let mortgage.
Traditionally, banks and building societies have been very wary of lending to first-time buyers for rental properties, concerned that they’re getting a cheaper interest-only mortgage on the basis of projected rental income, but are then going to live in the property themselves.
Obviously that’s not the case with genuine seafarers who are working outside of the UK.
So long as you have some kind of contact address in the UK which conceivably could be your accommodation whenever you return, selected lenders should be willing to give you a mortgage to buy a rental property.
3 Can I only get a mortgage if I’m on permanent contract?
Lenders recognise that the employment landscape (or is that seascape?) has changed for all borrowers, and that many will still be working on contract into their thirties, or later.
If you can show two years of employment history on your tax returns, and you have at least six months remaining on your current fixed term contract, you can still get a contract.
You don’t need to have payslips.
You do need a mortgage broker
Even the most experienced yacht crew property owners will recommend that you use a UK-based mortgage broker to find you the best finance arrangement on a UK property.
It’s not just a case of looking, for example, for lenders who don’t apply punitive charges on exchange rates. Their other lending costs may be more expensive, or their terms less suitable for your needs.
Clifton Private Finance has experience in arranging mortgage finance for yacht crews. We won’t make the process more complicated than it needs to be. Call us to arrange a convenient time for a detailed discussion:
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