How To Get A UK Mortgage For British Expats Living In Dubai
The sterling buying-power of the dirham combined with a national housing shortage in the UK: the British property market is a natural choice for expats living and working in Dubai who want to lock away some capital and possibly earn rental income.
3 common reasons why people buy UK property while living in Dubai
- Buy to let property is an excellent means of providing financial security in later life, and with salaries higher in Dubai than in the UK, and tax-free, a property to rent out is an accessible option for many expats.
- Off-shore workers in the Middle East are often looking for a UK property where they can spend time between contracts each year (up to 91 days a year for four years doesn’t affect your Dubai tax-free status).
- Individuals and couples living and working in Dubai (and other parts of the Middle East) are buying homes to return to permanently back in the UK.
High street banks unwilling to lend mortgage finance to expats
Highly motivated and financially qualified expatriate buyers based in the Middle East nonetheless often find they encounter unwillingness and intransigence from high-street lenders in the UK when they’re look for mortgage finance.
That can apply to residential or buy to let mortgages, on a repayment or interest-only basis.
This can prove incredibly frustrating, especially if you’ve gone through the whole process of completing an application only to be refused at the final stage.
The private banking divisions of high street banks that may be willing to provide expat mortgages will only do so for high minimum annual earnings, and loan amounts of at least £300,000. They usually won’t consider any applicants who are contract workers (because they’re considered to be "freelance", with a variable - and not guaranteed - income).
Higher cost of finance from the high street
Expatriate finance will always be charged at a higher rate than domestic mortgage products, reflecting the greater risk of working with clients based overseas in the case of default.
But the fact that fewer banks and building societies are willing to provide UK mortgage finance for British nationals living in Dubai means that there’s less competition on rates.
These are the reasons why most Dubai-based investors and home-buyers use a mortgage broker (such as Clifton Private Finance) to access the most cost-effective finance they’re eligible for.
Why is it so difficult obtaining a UK mortgage as an expatriate?
A lack of credit details: One of the main difficulties usually centres on an applicant’s credit score. A lack of activity on your previous UK accounts does not mean that your previous credit rating is frozen in time: evidence of current and regular UK-based credit commitments, linked to UK bank accounts and a substantiated UK address, is necessary to maintain a strong rating with UK credit agencies. Without that evidence, high-street lenders lack assurance about an applicant’s trustworthiness with their money, and will err on the side of caution.
Complications in providing documentary evidence: All lenders require a copy of a borrower’s income status and proof of their current residential address (usually in the form of a utility bill relating to the property). Easy enough to provide if you work and live (renting or as an owner) in the UK.
Payslips (electronic or paper) will usually suffice when it comes to income verification and if it’s an international company you’re working for there shouldn’t be a problem in this respect. The difficulty lies in a salary which is paid in Euros or US dollars and which would result in currency complications.
Proof of address can be problematic if your accommodation is provided as part of your salary package, with utility bills included. A letter from your employer will be needed to verify your address.
Regulatory changes affecting expat mortgage financing
British expats wanting to buy property in the UK have been affected by changes in regulations introduced by the European Commission relating to foreign-currency mortgages, and the British government relating to landlords’ mortgages.
EU regulations: Regulations introduced by the European Commission in February 2014 with the Mortgage Credit Directive (MCD) became law in 2016. They’ve had the effect of making high-street lenders more reluctant to offer mortgages which will be paid for in foreign currency mortgages.
The regulations under Section 2A. 3.1 of the MCD state:
Where an MCD regulated mortgage contract relates to a foreign currency loan ... the MCD mortgage lender must ensure:
(1) the consumer has a right to convert the MCD regulated mortgage contract into an alternative currency under specified conditions; or
(2) there are other arrangements in place to limit the exchange rate risk to which the consumer is exposed under the MCD regulated mortgage contract
The reason traditional mortgage lenders are reluctant to lend to an expat in Dubai - or elsewhere - is that the MCD gives overseas borrowers the opportunity to increase the value of their salary by changing the currency of their loan mid-mortgage, to take advantage of a change in exchange rates.
At the same time lenders are obliged to create an arrangement with the borrower to protect the buyers if the currency the applicant is paying in dramatically increases or decreases in value. This could be in the form of a cap on the extent to which the exchange rate would affect the mortgage: if the exchange rate drops beneath that capped percentage the lender themselves would be out of pocket.
UK regulatory changes: In 2017 the Bank of England’s Prudential Regulatory Authority (PRA) reviewed the way buy to let mortgage applications were made. Their overall intention was to cut back on the number of landlords in the UK property market in order to free up housing for residential use.
Applicants are now required to prove they can afford interest rate payments if they were to increase by as much as 5.5 percent. Rents must also cover 145 per cent of the buy to let mortgage - 170 per cent in the case of House in Multiple Occupation (HMO) - in order to cover for void periods. Evidence for these rental returns must be based on a surveyor’s valuation.
If you have a portfolio of properties (now defined as four or more mortgaged rental properties) each individual property must now be able to demonstrate a sustainable rental return. (Landlords are no longer able to spread equity across their portfolio in order to show an overall profit.)
The detailed documentary evidence required for all of these can be complicated and time-consuming for borrowers to provide, and for lenders to verify. In the case of expat borrowers, many high-street lenders just put these applications in the too-hard basket.
Trouble-free UK mortgage applications for Dubai expats
The good news is that there are specialist lenders who want to lend to UK expats in Dubai.
Private banks and specialist lenders take a bespoke approach to their mortgage application process.
When assessing a loan they will take into account all income streams – not just basic salary, but stocks holdings as well as business profits. Each application is based on its individual merit rather than how well it conforms to a standard affordability template.
Neither will they insist on a substantial deposit (some may go up to 80% loan to value).
The specialist lenders we work with at Clifton Private Finance offer customised mortgages tailored specifically for expats. Residential and buy to let finance is available for UK properties valued at a minimum of £250,000 and for periods from three months to 30 years. Pre-approval terms can be obtained within 24 hours.
To find out more about what we can arrange for you here at Clifton Finance, call our expatriate finance team on: