Last year, we launched a series called “Commercial Watch Episode 1 | The Brilliant When One Door Closes,” which was well received. In the spirit of fairness, we introduce a new series: “Buy-to-Let Watch.” Of course, we start with “Buy-to-Let Watch Episode 1.”
Current Market Trends
Recent UK Finance figures show a 5% year-on-year decrease in purchases amid discussions about a supposed industry slowdown. However, these figures do not cover the entire market. Many specialist lenders, a crucial segment, are omitted. While general trends suggest a downturn, there is a significant exception: the expat Buy-to-Let (BTL) sector. This sector has seen an impressive 30% surge in demand annually.
Lender Response
This upward trend in expat BTL hasn’t escaped lenders’ notice. Existing players are expanding their offerings. Additionally, those who previously withdrew are re-entering the market. A notable influx of new lenders is also entering the scene. This signifies a broader and more dynamic landscape than overall statistics suggest.
Sector Resilience
The resilience and growth in the expat BTL sector demonstrate its ability to adapt and evolve. This challenges the notion of a blanket slowdown in the property market. Thus, we publish our first instalment, beginning with “Buy-to-Let Watch Episode 1.”
Despite a general market slowdown, the expat BTL sector is thriving. This growth attracts existing and new lenders, highlighting a vibrant market segment. Stay tuned for more insights in “Buy-to-Let Watch.”
Buy-to-let watch episode 1 | Surge in EU expats investing in UK properties
The anticipation of a rise in EU residents acquiring a refuge in the UK has materialised. A notable portion of this trend is attributed to expats from the Middle East, Singapore, or Hong Kong. These regions are characterised by low or no taxes and elevated income levels.
Despite an additional 3% stamp duty, the UK property market remains a secure investment haven. Interestingly, this stamp duty increase appears to have little impact on potential investors’ enthusiasm. This is particularly true for those seeking rental properties in the country.
Challenges for Brokers in Buy-to-Let Mortgages
For brokers, the complexity lies in tailoring Buy-to-Let (BTL) mortgages for expats. This is a distinct challenge compared to mortgages for UK citizens. The unique financial dynamics and regulations associated with expat BTL mortgages demand a more nuanced approach. This necessitates expertise and adaptability in the ever-shifting real estate market.
Buy-to-let watch episode 1 | Distinguishing Features in mortgage approvals for expat compared to UK citizens
Expats seeking mortgages often face distinct requirements compared to UK citizens. While interest rates might not differ much, lenders impose notable distinctions. Due diligence for expats tends to be more rigorous. Some lenders no longer require owning UK property. Instead, they evaluate loan approval based on rental and earned income. Higher wages usually lead to lower interest rates.
Certain lenders, like Market Harborough, offer low interest rates but require a minimum income of £45,000. This threshold applies to both employed and self-employed individuals for Buy-to-Let (BTL) mortgages. However, residential loans are available only to employed individuals.
Some lenders consider only employed income. Additionally, they specify that the employer must be a substantial entity. This adds complexity to the mortgage approval process for expats, who must navigate lender requirements based on unique financial circumstances.
Buy-to-let watch episode 1 | Evolving criteria & stress tests in mortgage lending
The geographical scope for potential borrowers is expanding. Numerous lenders now adopt a cautious stance, refraining from extending loans to individuals in countries labelled “politically exposed” by the United Nations. Vida is noteworthy among these lenders. It has adopted a more inclusive approach by extending its mortgage offerings to individuals worldwide. Furthermore, Vida includes non-British spouses in the mortgage application process.
Recent Developments in Lending Landscape
A recent development in the lending landscape pertains to stress testing. The Mortgage Credit Directive (MCD) has implemented stringent regulations for foreign currency mortgages. This impacts expats unless they receive their income in pounds sterling. Many lenders adopt a precautionary approach to mitigate the risks associated with currency fluctuations. They do this by deducting 20-30 per cent from an individual’s income when conducting stress tests. This adjustment accounts for potential currency fluctuations. It ensures borrowers can meet the stress test requirements.
Need for Staying Informed
This changing landscape underscores the need for borrowers to stay informed about evolving lending criteria and regulatory measures. As the global lending environment adapts, staying abreast of these developments is essential. Individuals navigating the mortgage market must be aware of these changes.
Buy-to-let watch episode 1 | Increasing lenders support first-time buyers & landlords abroad
