British Expat Money

Non resident mortgages UK – essential guide

james@britishexpatmoney

If you are a non resident looking to secure a mortgage to buy UK property you’ve come to the right place.

With average UK house prices hovering near £300K it’s no surprise then that roughly half of UK properties are mortgaged.

And even if you have £300K to buy a property, there’s a good chance you’d use a mortgage anyway.

Home buyers get more for their money and professional UK property investors juice their returns. What’s not to like?

Let’s get into it.

Can I buy a house in the UK if I’m classed as a non resident?

The fact that you are classed as a non resident shouldn’t prevent you from being able to purchase property in the UK.

And whilst a British passport is an advantage in some respects, it’s certainly not essential.

The fact of the matter is, people from allover the world buy holiday homes and investment property in the UK.

Can non residents buy investment property?

Non residents aren’t restricted from buying investment property. In fact, while second homes and holiday dwellings are common, most buy for investment purposes.

In fact, I’d go so far as to say overseas ownership of UK property is seriously big business.

What is the scale of overseas ownership of UK property?

According to the FT, overseas property ownership in the UK accounts for over 250K residential properties in England and Wales alone.

On the one hand that sounds like a really big number, but on the other it might not be. You see, there are so many properties out there that this ends up only accounting for about one per cent of total housing stock.

In recent years Hong Kong buyers have been the most active.

The chart below shows land registry titles (in thousands) of English and Welsh properties registered to individuals with an overseas address.

Foreign ownership of UK real estate
Non resident mortgages UK foreign ownership
Source: FT

If that’s not proof that foreigners can buy UK property I don’t know what is.

Can an overseas resident get a UK mortgage?

Last time I looked the majority of overseas property buyers were using cash.

However, this doesn’t mean you can’t secure a UK mortgage if you live overseas.

Just like, with buying property as home, it will usually come down to whether or not you meet a particular lenders criteria.

Mortgages tend to fall into three key groups:

And it’s worth going into each of these in a bit more detail.

Overseas mortgages for purchasing UK property

A local bank in the country where you live may be able to provide you with a mortgage for buying a home in the UK.

It’s just like a Brit borrowing from a UK bank to buy a holiday home in Spain (which of course many people do).

Some readers will live in a country where banks are willing to lend to buy UK property. These international mortgages tend to be available because the UK is considered to be an established property market with good financial diligence.

The key being, in the eyes of many overseas lenders, the UK tends to rank pretty well for financial risk (see Basel Index below for more on this).

In many cases, it could be easier and cheaper to get a loan locally. But of course that’s not always the case.

If you can’t get a mortgage locally then there are lenders within the UK that will provide loans providing you meet their criteria (more on this below).

UK mortgages specifically for British expats & non British citizens

If you can’t secure a mortgage locally or if you can’t get hold of one on favourable enough terms, your best bet is to look at UK lenders.

This is where UK lenders provide the loan to somebody living overseas.

All things being equal, a British expats should be at a slight advantage here.

If nothing else, it is an indication you’ll probably have some kind of credit foot print in the UK and lenders do prefer this.

However, some specialist lenders will provide loans to other nationalities as long as they meet the relevant criteria (more on this below).

Why use a mortgage anyway?

There are three popular reasons to use a mortgage:

  1. You wouldn’t be able to buy without one
  2. You get more bang for your buck
  3. Investment returns
  4. Tax savings

Whilst the first couple of these are pretty self explanatory the other two might not be, so it’s worth spending a few moments going over them here.

Why mortgages make for better investment returns

If you invested £100K in a property and the house price increased by 10% you would make £10K. Not bad considering you didn’t have to do anything much to make that money.

However, what about if you’d borrowed £300K from the bank so you could by a £400K property.

A 10% increase on that would have put £40K in your pocket.

And the important thing is you still only invested £100K of your own money, so in reality that’s a 40% return.

A mortgage has quadrupled your investment return.

Now, in practice you have plenty of fees to pay when you take out a mortgage so you wouldn’t get all the increase, but I’m pretty sure you make a lot more if you take out a loan.

This is the magic of gearing or leverage!

However, it is very important to understand that this whole process could work in reverse.

A 10% drop on a £400K property reduces your £100K equity to £60K. You’ve instantly lost £40K.

The thing is, if history is anything to go by, house prices do tend to recover so as long as you can meet your mortgage payments and are in it for the long term you shouldn’t have anything to worry about.

Just make sure you speak to a good mortgage advisor so that you don’t overstretch yourself. You need to be able to meet your mortgage payments no matter what comes your way.

We are coming to the various options you can choose to lower your mortgage payments shortly (Non resident mortgages UK options), but suffice to say you want to keep yours easily manageable so that if something happens in the economy or to your personal finances you’ll still be able to make your repayments.

How mortgages can help reduce your tax bill

Have you ever wondered why the ultra rich use mortgages to buy property when they could pay cash?

It all comes down to tax evasion. Sorry, I mean tax planning.

Was it Churchill who said ‘whilst the poor pay income tax, the rich avoid capital gains?’ Probably not, but whoever did was onto something. You see capital gains has a couple of advantages over income. First up, it is usually taxed at a lower rate. But even more importantly, tax is only applied to realized gains.

In other words, you can enjoy capital gains tax free. The most common way people do this is through mortgages.

Use £25K and £75K from the bank to buy a £100K house that increases in value to £200K and then go back to your mortgage company. They should let you borrow £150K now ie an extra £75K tax free!

Mortgage criteria

I’m not going to lie and say UK mortgage criteria isn’t a tad more stringent for overseas residents than it would be if you lived in Britain, but that doesn’t mean you can’t get a mortgage.

The fact of the matter is, anybody who meets the relevant criteria should be able to get one.

I always find it is easiest to think about this in terms of the perfect candidate for a loan.

Here is a list of seven key characteristics lenders tend to appreciate:

  1. You work for a global blue chip company
  2. You have a six figure annual income
  3. Your income is constant and predictable
  4. You already have a UK bank account
  5. You are an existing UK property owner
  6. The country where you live has a low credit risk (explained below)
  7. You have a good credit history in the UK

If you can tick off all those boxes, chances are, you’ll find it very easy to get your hands on a mortgage. In fact, you should have plenty of choice available.

Conversely, the more you don’t measure up to that list, the less relaxed lenders will be about handing over their precious cash.

But let’s get one thing straight. People who don’t share a single characteristic with that list still manage to get a loan. They do it through borrowing a little less, paying a little more and by working with a mortgage broker with non resident experience.

A couple of other things to bear in mind here. First, there’s usually a lower limit to how much you can borrow and that is more likely to impact you than any higher limit a lender has in place.

Second, if you rental property has rental cover requirements.

Rental cover

Here’s a quick example of how this works:

You’ll usually be given a statement along the following lines:

Minimum rental income should be at least 125% of your mortgage repayments when the interest rate is 6%

If we then assume you are borrowing £100K to simplify the number crunching we get the following:

6% of £100K is £6K

125% of £6K is £7.5K

So in order for the lender to give you a mortgage in this example, your rental income needs to be at least £7.5K (or £625/month).

The Basel Index

Experience suggests item 6 on our list of characteristics probably needs a little further explanation.

In basic terms, some countries’ residents are more likely to pay back money they borrow than others.

To get an idea of which countries residents are more financially reliable lenders tend to use recognised criteria such as the Basel Index which ranks countries according to financial risk.

The lower the number the lower the risk.

The list below shows some popular non resident locations alongside their Basel score.

Whilst it is true that most lenders don’t usually like lending to residents of countries with a score of 6+, some do. You just need to spend a bit more time finding one.

Your options

Just because you tick all the boxes and secure funding doesn’t mean you can sit back and relax. In all likelihood you’ll have a few decisions to make.

Here are the most common alternatives you need to think about:

And it’s worth going over each of these in a bit more detail.

Residential vs buy to let

Normally, you choose a residential mortgage if you are going to live in the property and a buy to let mortgage if you plan on letting the property out to tenants.

On the face of it simple, but when you delve a little deeper not so much.

What if you want to buy a property for investment purposes that you don’t let out? What about if you are buying a house to use as a holiday home?

Could I get a residential mortgage and then change it to a buy to let later?

These are the kinds of scenarios where a non resident mortgage broker could be a big help.

The key difference between residential and buy to let mortgages is the fact the latter come with higher interest rates so you almost always choose a residential mortgage if you have that option available.

If a an overseas resident could prove that they intended to move to the UK to live in the property then a residential mortgage may be a possibility.

Similarly, second home mortgage products are available at some lenders. These are often used by those purchasing holiday homes.

In some cases you can convert from BTL to residential and vice versa and in some circumstances you can even let your property out to tenants on a residential mortgage providing you get ‘consent to let’ from your provider.

The key with all this is to ensure the property is being used according to the type of mortgage being used.

Because if that’s not the case you could find yourself committing mortgage fraud and you probably don’t want to be doing that.

Capital repayment vs interest only

Perhaps, the biggest decision you have to make when choosing a mortgage is whether to go for capital repayment or interest only.

With interest only you just payback the interest applied to your loan. With capital repayment you pay back the interest and the money you borrowed.

Property investors nearly always opt for interest only mortgages because the monthly repayments are lower.

For example, on a mortgage of £100K at a 3% interest rate you pay around £479 a month repayment or £250 a month interest only.

By choosing interest only your monthly repayments are almost halved in this case. That’s money that you can either spend, save or invest. A portfolio landlord may use the difference to pay off another mortgage.

Alternatively, you can get more bang for your buck and go for a property that you couldn’t afford with a repayment mortgage.

And remember bigger properties have bigger capital gains if the house price goes up. What’s not to like?

The reason many people don’t opt for interest only is due to increased risk.

Risk vs reward

Interest only is great until you have to pay the loan back. With capital repayment you don’t owe any money at the end of your mortgage term because you will have already paid it back to the bank.

With interest only you need to find the money to payback your loan.

Property investors assume the house price will have increased to such an extent that they’ll be able to sell the property, pay back the bank and have plenty of profit left over.

And in many cases they’d be right, but not all. There’s always a chance there’s a housing market crash when you need to sell your property.

During the last big crash, some types of housing in some areas lost over 50% of their value. There’s no doubt some owners had to sell and take the hit.

Imagine, you owned a house on an interest only mortgage that was coming to the end of its term when the housing market crashed.

And by the way, when housing markets crash, it often indicates other troubles in the economy which more often than not impact people’s jobs.

I can’t imagine what it would be like to be in a situation where I needed to pay back a loan on a house that had halved in value whilst simultaneously facing redundancy.

Just to be clear, the chances of this happening aren’t great. Most people that use interest only mortgages do so without any problems. It just pays to be aware of the risks and perhaps have a back up plan in place in case something like that happens when you can least afford it.

I’m sure it goes without saying that this choice could have the biggest impact on your financial future, both positive and negative so it usually makes sense to talk it over in depth with an experienced mortgage broker.

Fixed, tracker or variable rate

When it comes to interest rates, a UK mortgage for non residents usually come in one of three flavours:

The clue is in the name with each of these. A fixed rate mortgage fixes the interest rate so you know exactly how much you need to pay every single month.

A tracker is pegged by a set amount to the Bank of England’s base rate. This means when the Bank of England changes the base rate to account for what’s going on in the wider economy, you mortgage rate will change too.

The advantage of trackers is that they usually come with lower interest rates so that your monthly payments are lower.

The disadvantage is that your rate could change anytime. In normal circumstances the repayments you need to make will still be less than those of a fixed rate mortgage, but there is a risk they could change dramatically as happened in 2022/2023.

The risk of interest rate rises

If interest rates suddenly rise dramatically your repayments could increase dramatically too. And that could be problematic for you and your finances.

If you borrowed £100K from the bank in the form of an interest only mortgage at an interest rate of 3% your repayments would be £250.

However, if interest rates suddenly spiked to 12% you’d need to find an additional £750/month.

Again, the chances of this happening are low, but the risk is real.

As a result, a fixed rate mortgage is usually the lowest risk option, but also the most expensive.

Variable rate mortgages are similar to trackers in that they move up and down. The difference is they don’t track anything. They are set by the lender.

These typically offer the lowest rates through introductory offers. Lenders tend to use these to get you to go with them in the hope you’ll stick with them after the introductory offer expires. At which point, the rate will go up.

There are a lot of savvy folk out there that are constantly switching to new introductory offers as their older ones expire.

Those who value cost above all else might want to go for one of these, but others who want to avoid risk will usually be best serviced with fixed rate products.

Interest rates

The interest rate on a UK mortgage given to a non resident will depend on many factors such as:

However, as a rough starting point, you can assume it will be somewhere around the BOE bank rate.

Usually, higher but not always.

You can also have a look what UK residents are getting and assume a little more, but according to Anthony Rose from mortgage broker LDN Finance that’s not always the case.

He says:

Typically, non resident mortgages have slightly higher interest rates than standard UK residential mortgages. This is because they have more niche requirements and the funders will often price for additional risk. However, depending on the location and currency some lenders will apply their standard products and criteria.

UK lenders with non resident options

Here are some lenders that may provide mortgages to people living overseas.

Though you can contact them directly, be warned that some of them either prefer to use intermediaries (mortgage brokers) or reserve their best deals for brokered clients (more on this below).

Why use a mortgage broker?

Nine times out of ten, you’ll get a better deal if you go through a mortgage broker.

And it makes sense when you think about it. It’s in the lender’s interest to provide you with the best deal for them. (The one that brings them the greatest profits).

However, a mortgage broker works for you. Typically, you pay them to find you the best deal.

If your mortgage broker can get you a lower interest rate, the money you will save will more than make up for the fee you pay.

As well as getting you a better deal, they will also be able to help you choose the best type of mortgage for your circumstances and help you weigh up the risks and rewards of each option.

And particularly important for non residents, they can help you prepare your mortgage application so you don’t mess it up.

There are a number of specialist brokers experienced that deal with non residents. If you haven’t yet found one, we’ve taken a look at three of the best here.

The advantage of being an expat

All things being equal you should find it easier to get your hands on a mortgage if you are British because you’ll have a credit footprint.

However, non Brits that have previously lived in Britain should share this advantage.

At the end of the day, lenders tend to value a good UK credit score.

But if that doesn’t describe you, don’t worry too much until you’ve spoken to an advisor. There are specialist lenders out there that can put bespoked products together specially for you.

The bottom line

Using mortgages can get you further up the housing ladder than you otherwise would have been able to climb and perhaps better investment returns. They may also lower your tax bill.

Non residents tend to have more hoops to jump through, but that doesn’t mean there aren’t options available. Whilst Brits with a credit footprint will be at an advantage, lenders used to dealing with people overseas can put bespoke products together especially for you.

In the end, it will come down to how many mortgage criteria boxes you can tick off.

In most cases the secret sauce is going to be finding yourself a good non resident mortgage broker to help you through the process.

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