Moving abroad for work might seem like an exciting, life-changing adventure but for many Brits it can create a headache if they own a property.
While selling might seem like an obvious solution to the dilemma, this could turn out to be reckless if things don’t work out overseas or, indeed, if the placement is for a limited time period.
What’s more, many expats who have made a permanent move, want to keep a property which they can use as a bolthole when they return to the UK.
Others are keen to take advantage of any investment opportunities in the property market and keep a financial interest in the UK to support their credit profile.
Either way, it means, for many UK residents living and working abroad, the best option is to rent out their home.
Kim and Colin’s story
The problem is, this is not always straightforward, something Colin and Kim Baines of Cockermouth in Cumbria discovered when they moved to Vienna.
Kim had landed a new job for the UN in the Austrian capital and the couple had planned to rent an apartment whilst letting their Cumbria house.
As first-time landlords they were disappointed to discover their mortgage provider had no arrangements in place for a buy-to-let property.
They granted the couple ‘consent to let’ for one year, which allowed them to rent out their house without changing the terms of the mortgage.
But when a year passed, the ‘stopgap’ deal came to an end. Although Kim and Colin had the option to reapply for another year, they decided there would be no guarantee they would be accepted. So, they decided to search for a more permanent solution.
Specialist mortgage
This move turned out to be no easy feat. Firstly, the Baineses discovered, lenders get twitchy upon learning money and earnings are outside the UK.
What’s more the couple also had to contend with the additional complexities of buy-to-let mortgages as well as the limitations which come with doing a loan search remotely from a different country.
“The trouble is,” explained Kim, “every lender has different criteria. Some said that we couldn’t have a loan if we ever planned on moving back in, while others would have been happy to lend if it was another family member living in the house, rather than a tenant.
“Others wanted it to be ‘all business’, while others wanted no business at all! Whilst some just refused point blank to lend money to people living in Austria – even though they would lend to other EU countries.”
The couple only needed a loan for 50% of the property’s value, However, most lenders would only consider earnings in the UK, which meant Kim and Colin could only use their rent as repayment on the mortgage – and this was not enough to cover the monthly cost.
Building societies
With so many barriers being put up the couple’s options diminished fast. It meant they were left with only two mortgages for which they were eligible – both of which were from building societies.
Kim and Colin ended up plumping for the expat mortgage from Ipswich Building Society. It was the slightly more expensive option, but represented better value over the longer term.
Kim said: “[The Ipwsich] looked at the income from the property and my own income together.
“We had to send statements showing all the finances we had in the UK and Austria, including the UK account that we’d be paying the mortgage from, and go through various credit checks too. But everything was clearly explained at every stage.”
“Everything was really straightforward,” added Colin. “The Ipswich were happy to deal with us by email too, which is handy when you’re phoning from overseas all the time. Overall, the service has been excellent.”
Why expats need to get a mortgage
According to the Ipswich, there are normally three reasons expats need to take out a mortgage in the UK.
The first is for investment purposes – indeed, buy-to-let allows them to invest in the UK property market. So-called ‘long distance landlords’ can take out expat buy-to-let mortgages and join the HMRC’s non-resident landlord scheme which exempts them from UK income tax.
Another reason is, as mentioned before, to provide a home should they return to the UK. This, said The Ipswich, means they can maintain a UK credit rating and collect rental income.
What’s more, lenders are more likely to lend to applicants who have had an address in the UK during the last three years.
Finally, keeping a UK property can provide a base for UK family, especially if not all members are moving abroad.
Expat mortgage rules
Although the expat mortgages market is growing, there are still limitations as a result of the fact the applicants live and work abroad.
Indeed, fluctuating exchange rates make it tricky for lenders to accurately calculate whether an applicant’s income can sustain the mortgage repayments. It’s also tricky to check an employer which is based abroad.
These two factors alone make expat applicants look more risky which can limit their options and cause many lenders to increase interest rates.
If you have a good UK credit report this will help you gain access to more competitive rates. The Ipswich said, if you have been living in the UK for the last three years, your credit history becomes even more important so it advises you should look to improve this where you can.
Are expat mortgages residential or buy-to-let?
Expats can apply for both residential and buy-to-let mortgages. Residential applicants are assessed in the same way as a borrower in the UK but the added costs of living overseas are taken into account, along with exchange rate fluctuations.
Buy-to-let is available for those who want to keep their foot on the property ladder and also generate rental income.
Options if you aren’t paid in GBP
If you are living overseas and being paid in that currency your options become more limited. Each lender has an individual criteria and their approach to non-UK earnings will be different.
Some will restrict certain currencies. Meanwhile, others will require the currency in which the applicant is paid to match their current country of residence.
Buy-to-let applicants have an advantage here, explained The Ipswich, as their ‘income’ will also include their rent they receive. If this covers the mortgage repayments, they will look more attractive to lenders.
In both cases, lenders will require evidence of the source of the mortgage deposit, e.g. through bank statements showing the build-up of savings.
