Buy-to-let watch episode 1
Last year, we introduced a series called Commercial Watch, Commercial Watch Episode 1 | The Brilliant When One Door Closes…. and in the spirit of fairness, we’re now launching a new series focusing on Buy-to-let watch, starting with, of course, Buy-to-let watch episode 1.
Amidst discussions about a purported slowdown in the industry, recent UK Finance figures indicating a 5% year-on-year decrease in purchases have raised concerns. However, it’s crucial to note that these figures do not encompass the entire market, as numerous specialist lenders, a key segment, are not accounted for. While general trends might suggest a downturn, there’s a notable exception to this narrative: the expat Buy-to-Let (BTL) sector, which has experienced a remarkable 30% surge in demand annually.
This upward trajectory in expat BTL hasn’t gone unnoticed by lenders. Not only are existing players in the market expanding their offerings, but those who had previously withdrawn are re-entering the fray. Additionally, a noteworthy influx of new lenders is entering the market, signifying a broader and more dynamic landscape than the overall statistics might imply.
The resilience and growth in the expat BTL sector serve as a testament to the sector’s ability to adapt and evolve, challenging the notion of a blanket slowdown in the property market.
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, with a notable portion of this trend attributed to expats from the Middle East, Singapore, or Hong Kong—regions characterised by low or no taxes and elevated income levels.
Despite introducing an additional 3% stamp duty, the UK property market continues to be perceived as a secure investment haven. Interestingly, this stamp duty increment appears to have little impact on the enthusiasm of potential investors, particularly those seeking rental properties in the country.
For brokers navigating this evolving landscape, the complexity arises in tailoring Buy-to-Let (BTL) mortgages for expats, 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, necessitating 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
While the interest rates for expats seeking mortgages may not significantly differ from those available to UK citizens, notable distinctions exist in the requirements imposed by lenders. The scrutiny involved in due diligence tends to be more rigorous for expats. While some lenders have dispensed with the necessity of owning a property in the UK, the evaluation for loan approval is often based on both rental and earned income. Notably, the amount lent is influenced by rental revenue and the level of earned income, with a direct correlation between higher wages and lower interest rates.
It’s imperative to acknowledge that certain lenders, such as Market Harborough, boast remarkably low-interest rates but necessitate a minimum income threshold of £45,000. Interestingly, this income requirement applies to both employed and self-employed individuals for Buy-to-Let (BTL) mortgages, whereas residential loans are restricted to employed individuals only.
Beyond these considerations, a range of lenders exclusively considers employed income, further specifying that the employer must be a substantial entity. This additional layer of criteria adds complexity to the mortgage approval process for expats, making it crucial for them to navigate through the nuances of lender requirements based on their unique financial circumstances.
Buy-to-let watch episode 1 | Evolving criteria & stress tests in mortgage lending
The geographical scope for potential borrowers is expanding in the realm of borrowing. In a notable shift, numerous lenders now adopt a cautious stance, refraining from extending loans to individuals residing in countries labelled as “politically exposed” by the United Nations. Noteworthy among these lenders is Vida, which has adopted a more inclusive approach by extending its mortgage offerings to individuals worldwide. Furthermore, Vida has even opened its doors to non-British spouses, allowing them to be included in the mortgage application process.
A recent development in the lending landscape pertains to stress testing. The Mortgage Credit Directive (MCD) has implemented stringent regulations for foreign currency mortgages, impacting expats unless they receive their income in pounds sterling. Many lenders are adopting a precautionary approach to mitigate the risks associated with currency fluctuations by deducting 20-30 per cent from an individual’s income when conducting stress tests. This adjustment accounts for potential currency fluctuations and ensures borrowers can meet the stress test requirements.
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 becomes essential for individuals navigating the mortgage market.