How To Get A UK Mortgage If You’re An Expat In Spain
Buying your first home back in the UK, or managing your property portfolio from Spain: expat Britons looking for property finance in the UK need to satisfy different borrowing criteria compared with UK residents.
If you’re a British citizen you might imagine that it’s no different applying for a mortgage on a British property whether you live in Andover or Andalucia. Sadly, not so.
Spain is the top choice for Britons relocating within Europe, but you may be looking to hedge your bets, post-Brexit, with a bolt-hole back in the UK. Or you may want to bolster your UK presence and also earn a chunk of the solid performance of the UK buy-to-let market by investing in a UK rental property.
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The process of applying for a mortgage from outside the UK can seem a little opaque. A specialised mortgage adviser can give you some clarity:
Why do you need a mortgage?
1 To buy a home in the UK
If you’re looking to buy your first home back in the UK, you will usually need a 25% deposit and a mortgage lender will need to know if you intend to rent out the property while you’re in Spain, and when you plan to return.
These will affect whether you qualify for a residential mortgage or this is classified as a buy-to-let. (Some lenders will give you a Consent to Let on a residential mortgage for up to 24 weeks a year.)
2 Re-mortgaging a UK property you already own
If you already own UK property, either your home or an investment property, and it has been on an introductory rate that’s coming to an end, you will want to re-mortgage to avoid reverting to your lender’s (considerably higher) standard variable rate. There will be better monthly rates available to you on a new fixed-term mortgage with another lender.
If you have built up equity in your property (by capital repayments on your mortgage, by making improvements which have added to your property’s value, or because prices in the area where you own have appreciated considerably) you have two choices. You can either use that equity to negotiate a better rate on a new mortgage, or re-mortgage to release that equity for a new investment project.
3 Selling and repurchasing
Your expat salary may be giving you the opportunity to upsize, and you want to buy a more substantial property back in the UK. Or perhaps a smaller city house or apartment would now suit you better as a UK landing-pad, rather than the substantial family home you left behind.
Or perhaps you’re planning to return and know that you need to be based in a different area, closer to family or a new job. Again, whether you plan to return to the UK permanently, and how much time you intend to live in the property each year will be important factors.
4 Investing in rental property
Buy-to-lets in the UK have been showing good returns: the average rental yield in England and Wales is around 4.4%, even taking into account the higher rates of stamp duty, management fees, ongoing repairs and gaps (voids) in-between tenants. Your choice is to rent out a property on a single tenancy agreement, or to run a house in multiple occupancy (HMO), such as a student let, rented out to three or more unrelated tenants using shared facilities, each on a separate tenancy agreement. HMOs have more stringent regulatory requirements, but can offer rental returns up to three times higher than single tenancies, but lenders will usually want to see that you have a successful track record as a landlord: HMOs aren’t first-time investments.
Specialist lenders are prepared to offer flexible and attractive mortgages for expats, usually up to 75% of the value of a rental property.
What you need to know about applying for a mortgage as an expat
Lenders are wary about income earned outside the UK
An income imported into the UK to pay a mortgage will be affected by fluctuating exchange rates, so your earnings will be subject to additional ability-to-pay stress testing. Salaried employment is quite straightforward, and you may only need to provide copies of three to six months’ payslips.
Freelance or self-employment requires more detailed proof of earnings – possibly two to three years’ worth of accounts, and proof that your accountant is certified by a recognised organisation.
Some lenders might not take the full range of your assets into consideration (such as stocks, shares and pensions). An experienced broker will be able to advise you on exactly the evidence a lender requires, to avoid delays in the approval process.
The requirements of the Mortgage Credit Directive
Rules recently introduced governing the financial institutions that lend expat borrowers, and mortgages which have been affected by those rules, affect all expat borrowers.
The EU’s Mortgage Credit Directive (MCD) was implemented in 2016 with the aim of providing some protection from currency fluctuations to property-owners with expat mortgages. (Purchasers have the right to convert an MCD-regulated mortgage into an alternative currency under specified conditions.)
But it has made lenders more cautious about providing local mortgages to those living and working in Spain and elsewhere, and many traditional high-street lenders stopped offering expat mortgages, or transferred them to a separate international bank. So you’ll need a broker who can access the specialist lenders not generally accessible to direct customers.
Don’t be misled by quotations for UK mortgage rates
Before you do your sums on a UK property investment, be aware that the rates for expat mortgages are different, reflecting the greater risk that lenders bear in dealing with a client outside of the UK, should anything go wrong.
An experienced broker will package your application as advantageously as possible, to minimise the additional costs.
Go to a specialist mortgage broker
If you’re trying to arrange finance from Spain, or on a brief visit back to the UK, time is money.
Most of the specialised lenders who deal in expat mortgages won’t be accessible to you as an individual borrower. An experienced broker will be able to package together all the information a prospective lender may need, and will take your application to the right lender to suit your circumstances – resulting in a speedier process.
Call Clifton Private Finance to speak to a broker experienced in expatriate mortgages