For British citizens living abroad or foreigners seeking to invest in the UK, the mortgage application process can be quite a surprise. You may be earning very well, have a stable career, and a large deposit in your hand, but still you find yourself in a predicament that no UK resident with a lower wage rate will be in.
The fact is that non-residents are considered by the expat mortgage lenders UK from a totally different perspective than domestic borrowers. This does not really mean discrimination; this is merely a matter of risk management. The key to winning a proposal and avoiding rejection without a proper explanation is to understand these nuances and realize they may actually occur.
- The “High-Risk” Classification
A borrower is more dangerous to a bank when he is physically unreachable. Should the resident of the UK miss the payment, the repossession procedure is quite easy and regulated by UK legislation. Nevertheless, once an expat defaults in Dubai, Singapore, or Hong Kong, the recovery of the debt is even more complicated and costly.
Due to this cross-border jurisdictional problem, the lenders hedge themselves by crippling their requirements. This often manifests as:
- Reduced Loan-To-Value (LTV) Ratios: Whereas residents have a maximum of 90 or 95% mortgage, expats have a maximum of 75% or even 60%, resulting in a larger deposit to account for a financial safety buffer.
- Tighter Employment Verification: Your lenders might require a longer employment record with your current international employer than with a UK-based job.
- Currency Fluctuations and Income “Haircuts.”
Among the most bewildering factors for the applicants is the reason why their full salary is not accepted. Lenders are forced to consider exchange-rate volatility in case you make your income in Euros, Dollars, or Dirhams. Markets are evolving by the day, and an abrupt depreciation of your local currency would badly hurt your sterling mortgage paying capabilities.
To avoid this, banks usually impose a “haircut” on your foreign income – usually by a fifth to a quarter – and then they will determine its affordability.
Example: One can earn, say, the equivalent of £100,000, and a lender may only consider £75,000 affordable.
Tip: On an expat mortgage calculator, it is always a good idea to subtract a quarter of gross income to have a realistic picture of what a lender would actually consider as your gross income.
- The Credit History Void
A credit score is the golden ticket for the residents of the UK. It has a record of financial reliability. But when you relocate abroad, your UK credit record tends to evaporate. You may quit using the credit cards in the UK, shut utility accounts, or deregister from the electoral roll.
There are numerous high-street banks depending on the use of automated computer marking. In case the computer refuses to give any data, it automatically rejects the application. Specialist expat mortgage lenders UK have a different approach; they tend to have a manual underwriting process, where a human underwriter evaluates your financial health in the rest of the world, examining foreign credit reports and wealth in general as opposed to just using a score based in the UK.
- Regulatory Hurdles (AML and KYC)
The Anti-Money Laundering (AML) and Know Your Customer (KYC) rules are much stricter towards international funds. Lenders have to strictly commit to the origin of your deposit to ascertain its authenticity.
When you have your savings in a foreign bank, you are likely to be asked to give a lot of documentation. This might include:
- 12 months of bank statements: rather than the usual three, to depict the accrual of funds.
- Certified Verification: Letters by your employer or lawyers in your host country that, in most cases, must be certified by a notary.
- Translation: Documents that are not in English will have to be translated professionally, which will increase the time and cost of the process.
- The Impact on Interest Rates and Product Fees
Expat products have higher administration costs and risk, hence they are not charged just like normal residential mortgages. Interest rates may be a little bit higher to reflect the complication of handling a non-resident account.
Moreover, the cost of arranging expat mortgage lenders UK may be double that of the domestic counterparts. It is also not rare to find product fees being computed as a percentage of the loan value as opposed to an absolute fee. That is why it is important that extensive research will be undertaken; a high entry fee can be covered by a low interest rate.
Conclusion
Due to these peculiar variables, currency haircuts, country-specific limitations, and deposit regulations, an average online mortgage tool is likely to provide false information. It can present you with products that you are technically eligible to have but fail to get because of your place of residence.
It is necessary to use a specialized expat mortgage calculator. These are created to consider the particular stress rates and affordability checks non-residents receive so that they do not find themselves disappointed that you are about to get a loan amount that does not match what they expect and the real one.
It is important not to go to the high-street banks that do not have the infrastructure to cater to international clients, but rather turn to the experts. To get your way around these complexities and ensure that you have the property of your dreams, the team at Expat Mortgages UK is available to assist you in getting the right property.
