Proper Wealth – Episode 12: Mortgages – David Eggison (Director of OME)

Paul Mahoney: Welcome to proper wealth with me, Paul Mahoney. The show in which we cover all things wealth creation with a focus on property. Joining me today is David Eggison from OME mortgage specialists. Welcome David.

David Eggison: Thank you Paul.

Paul Mahoney: So today we’re talking about Expat mortgages. Perhaps we can start with just a general overview of what they are, what they are used for and who they relate to.

David Eggison: Generally, expats will fall into two categories. You’re going to have the residential client who either has a property in the UK that they want to remortgage or they’re looking at buying a property in the UK. And then you have the investor client who is looking to buy a property to rent out, or even they’ve already got existing properties and they want to remortgage. Quite often there’s a myth going around that once you live outside of the UK, it’s nearly impossible or very difficult to get a mortgage.

That situation has changed drastically, I would say certainly over the last two or three years, there’s an awful lot of new lenders coming into the market and there’s some lenders who have mended and changed their criteria to make it realistically easier for guys who live overseas to get a mortgage.

And typically, you will have clients who are first time buyers and first-time landlords, so they may be working overseas, they’ve got some spare cash, they want to look at some sort of alternative investment. So they will look at buying their first property, which would be a rental property. Now in the UK that can sometimes be harder to get if you don’t own any property. But as an Expat that is an easier job. It’s quite common for you not to own a residential property in the UK but want to buy property as Buy-to-let.

Paul Mahoney: So, Expat lenders, if I’m understanding there are more flexible on first time buyers as opposed to your traditional Buy-to-lender.

David Eggison: Yeah, there are still some lenders who won’t talk to a first-time buyer. if you’re in a let market, they want to see experience of the mortgage market. That is a concern to some lenders, they need to see that you understand the UK mortgage market. You might own 10 or 15 properties in another country in Africa or China or somewhere else, but if you don’t own anything in the UK, there are some lenders that won’t talk to you. Alternately though, there are some lenders that will talk to you.

Paul Mahoney: And the definition of Expat being somebody who’s from the UK or from the country of origin and has moved overseas, do Expat mortgages also apply to people who are just simply from overseas?

David Eggison: Yeah, you will find that you broadly fall into one of three categories. You’ll be a UK passport holder, and have moved over to another country for a short period of time or even a long period of time. You could have moved permanently overseas. You may be a spouse of a UK passport holder. So quite often you’ll have an Expat who is a UK national himself and he’s married to a local national South African or Thai national or a Chinese or Australian. So there are lenders that will cater for what we’d class as foreign nationals as long as they are connected to a UK passport or residence. And then you have the pure foreign national. So someone who has never necessarily been to the UK or had any financial ties to the UK.

There are less lenders that will lend to those clients, but they’re still are lenders and sometimes what you can do is you… The first port of call that you can get for a lender for a foreign national, they may not be as attractive as what we class as a standard Expat. The interest rates, they may get slightly higher, the terms that they can get could be more expensive, but that’s typically because they don’t have any footprints in the UK. Once they bought one property and they’ve had that property for 6 to 12 months, then they are starting to create a credit footprint. They also have a reason to invest further into the UK, so other lenders will then start looking at them, so their rates can get better.

Paul Mahoney: And I assume it would differ depending on where that person is from?

David Eggison: To a degree. There are some countries where no matter how much money you’ve got where you come from, there are lenders that will not tend to talk to you. And then it really just depends sometimes on the lenders appetite. There are a vast amount of countries now that you can be in that you can get a mortgage from, but it won’t necessarily be with the same lender. So if you’re in China, there will be a selection of so many lenders that you can talk to. If you’re in Australia, there’ll be different types of lenders that you’re in that you can talk to, if you’re in mainland Europe, again, then another source of lenders, et cetera.

And then if you’re in the far east, depending on where you are in the far east, et cetera, and the middle east, there’s a whole variety of lenders. But it can be that you are with lender ‘A’ because you’re in Dubai at the moment, three years later you moved to China and when you come to remortgage lender ‘A’ doesn’t deal with people who are in China. So, you then go to lender ‘B’, but the terms can be just as good, if not better.

Paul Mahoney: And how would somebody find that out?

David Eggison: That’s the challenge. You can go mainstream, you can Google and if you Google, you’ll come up with a whole plethora of companies that will do Expat mortgages. There’s some of the high street banks that will be there. The difficulty you have is when you get down to the nitty gritty and you get behind the scenes, it’s not very easy to get a mortgage as an individual. You’re always better to use professional services, over a broker or an introduce because they work every day with clients all over the world.

They’re used to dealing with the unique situations and they’ll also be able to find lenders that are not necessarily available to the general public. There are lenders in the Expat market that will only deal through brokers. They want to make sure that they’re getting a certain type of clients.

Paul Mahoney: And that seems to be recurring theme in this show: the value of advice. Dealing with somebody who has an understanding of the market and can help guide you toward what might be suitable for you rather than going from lender to lender for example and getting knocked back or not getting great terms or whatever it might be.

David Eggison: And that is the, main thing, if you go to a specialist or an expert, they will have the contacts initially anyway, but they will also know what the lending criteria is of that particular lender. So, they’ll know whether your criteria meets that lender and they can also be able to advise on the tons of documentation and paperwork and guide you through the process. It can be a very complicated process. If you try it yourself there are lenders that you can go to and you will get an Expat mortgage straightaway. But it’s not necessarily going to be the best deal for you. And the only way you’re going to find that out is to speak to a specialist who knows the market.

Paul Mahoney: I suppose that otherwise you kind of leave it up to luck a little bit don’t you.

David Eggison: Yeah. To a certain degree. And then what happens is it’s like anything, you then find out the next time around when you talk to your friend and you tell “I just bought myself a property in the UK and I’ve got Expat mortgage this” and he says, “well didn’t you look at this one?”. And then you suddenly find out, oh okay, I’m paying one percent higher or I paid a thousand pound more in fees, et cetera. So it’s always best to, to talk to someone who knows what they’re doing.

Paul Mahoney: That makes sense. So, we spoke very briefly about the different types of Expat mortgages and I think you mentioned there the difference that, there’s obviously residential and Buy-to-let. Can we just touch a little more detail, the difference between the two and who would use it?

David Eggison: Yeah. So typically, your residential mortgages is not as popular for an Expat as a Buy-to-let I’ll come back to the Buy-to-let in a sec. But the typical person who have a residential mortgage would be an Expat who has their home already: they’re in the UK now, they’ve got a house with a family are living in and then they’re going to move or abroad because of their employer or because of choice and they’re still going to keep their home. Now they may want to keep that as a property to come back to, in which case they will then look at remortgaging that property. So that would be classed as a residential.

They might not be renting it out. It could be that the spouse or the children are staying in the property. So you have the clients who have an existing residential property and then you have the clients who are overseas and they want to buy a holiday home. They’re coming back to the UK on a regular basis to visit family and friends. So they want to have a base rather than having to stop in hotels, so you’ll buy a residential property on that side. And then you also have the clients that have family that are going to come back. So it could be that they’ve got 18 year old, 20 year old children coming back to study so they want to buy a property for them to use as a base.

Not everyone is fortunate to do that, but that’s quite a recurring thing nowadays. And then you also have the clients who are planning to move back to the UK maybe in a year, two years, three years’ time. So they want to look at buying a residential property. That in itself, buying a property when you moved back to the UK is quite an important thing because there are curiously enough, there is residency rules with some lenders that when you’re in the UK you’ve got to be living in the UK for a minimum period of time.

So some lenders, it’s from the minute you land in the UK. Other lenders as long as three years. And there are some Expat lenders that will talk to you today if you’re in China or if you’re in Dubai or if you’re in Switzerland or Australia and they’ll look at lending you, provided you meet criteria on a residential property, but if you move back to the UK tomorrow, they won’t talk to you for two years. So sometimes it’s quite beneficial for the Expat to buy a residential property before they come back [crosstalk 00:09:15].

Paul Mahoney: I suppose another reason for advice, [crosstalk 00:09:18] some guidance…

David Eggison: You can trip on simple things like that. And then overseas Buy-to-let mortgage is twofold. You’ve got clients who want to buy a property and investment property which they’re to rent out so they may have existing property or they’re buying further property or it could be that the residential property that they once owned, they now know no longer wants to keep it as a residence, so they want to rent it out so they would re-mortgage that into a, into a Buy-to-let.

Paul Mahoney: And with the Buy-to-let side of the expert mortgages, is that somewhat similar to the standard buy-to-let market and that the lenders look at the yields and the serviceability, or is it more about the borrower?

David Eggison: It’s a combination of two, the challenge in some respects with an Expat is depending on which country you’re in, will depend on which lender or lenders will talk to you, but they still look at the property and the same basis, you have to have majority of lenders, you have to have a minimum income before they will talk to you. It’s as simple as that. You’ve got to be.

Paul Mahoney: Is there an average to that?

David Eggison: It can vary anything from 25,000 pounds up to 50,000 pounds. Fifty thousand pounds is probably the highest. But increasingly now there are lenders coming into the market if you’re looking at Buy-to-let who don’t necessarily have a minimum income. Which is a good thing. The other criteria you have is then property value or loan amount. So a lot of lenders have a minimum property value or a minimum loan amount and [crosstalk 00:10:41]

Paul Mahoney: What is that usually?

David Eggison: That is where the challenge is, because there are lenders at minimum loans of 30,000 pounds and then other lenders have minimum loans of 100,000 pounds. But again, if you’re in China, you might only have 100,000 pounds selection. If you’re in Dubai, you might have the 30 thousand pounds selection. Then it also comes down to the location of the property, there are a huge amount of lenders who will only lend on a Buy-to-let basis in the London centric area, or over a certain amount of money if you’re buying outside of London. But there are now increasingly more lenders now looking at the northern powerhouses. So, you’ve got the likes of if you’re outside of London, you were buying in one of the big four that the management [crosstalk 00:11:20]

Paul Mahoney: I suppose that’s due to demand rentability and salability.

David Eggison: Yeah, down the side on that side. So you have to fit all those little bits of jigsaw into place. And then you end up with a degree of choice. Once you get to that level, the assessment is very much the same as the UK. They will use the rental income from the property and then they’ll do a multiple of that based on stress tests. The good thing also is that some lenders will do what they call top slicing. So, if you have excessing, because if the rental income isn’t quite enough to what you want to borrow, they will use excess income. And obviously a lot of Expats do have an excess income. So that does come into play as well.

Paul Mahoney: It’s about understanding the terms. we need to go to break right now, join us after the break for more an Expat mortgages with David Eggison.

Paul Mahoney: Welcome back to Proper Wealth with me, Paul Mahoney. Joining me today is David Eggison and we’re talking about Expat mortgages. So, before the break there we covered Expat mortgages, how they were used, the different types and I suppose who they relate to. As we getting into some of the nitty gritty now around how the market’s changing and then maybe some of the terms and things that people can expect. So, what has been happening in the Expat market lately?

David Eggison: If you go back probably two to three years ago, there was a limited range of lenders on the market and the rates tended to be probably around about two percent higher than what you would get in the UK. And then the challenges were typically half a percent, five to a thousand pounds more for a straightforward mortgage. In the last two or three years, that’s changed as more lenders have come into the market and as lenders have realized that there is quite a large market of people who want to buy a property.

And they’ve opened up and they’ve relaxed some of the rules. So, the interest rates have become nearer to the UK, if you’re a UK resident, they’re still slightly higher. The charging structure hasn’t, has reduced in some, so it’s become near but obviously you do pay a little bit more as an Expat because it’s a more complicated process. But there are, there’s a much wider choice now.

So, before you would go to a lender and they would have an Expat product and that could be a tracker mortgage, it could be a discounted mortgage, or it could be a fixed rate mortgage. There are now lenders who have more and more choice of products. They don’t always have the same scope, but it’s quite often if you want a fixed rate mortgage then they will probably be a lender that will give you a fixed rate mortgage, if you wanted a discount mortgage or a tracker mortgage lender that will do that.

So that’s scopes is more. And then you have really probably three types of lenders. You’ve got what I would class as a mainstream lender. Their rates tend to be, one to one and a half percent higher than the standard base lending you would get in the UK. Then you have a specialist lender, where you don’t quite fit the norm, but you are still a good lending prospect. So, their rates will be a little bit higher, so you might be looking at say five or six percent, now, obviously those rates will change. And then at the back end of it you’ve then got what I would call the niche lender and these are the ones that we spoke about earlier on where you’ve got a foreign national maybe who’s got no ties to the UK whatsoever.

The actual mortgage deal itself is sound, but there’s no information about the client so they’re happy to take the risk so to speak, but the cost of that will be a lot higher. So, you would pay a much higher rate at the beginning but as we said before, once you’ve had that rate for a period of time, you then start creating more of the footprint. They’d rank start to know about you. They can see that you’ve been a landlord. They can see that you’ve had a mortgage and you’ve paid it back and you can see that you’ve got a property sort of foothold in the UK so that then you start moving down the tier of the lenders that you can get.

Paul Mahoney: And those products and new lenders that are entering the market, is that being driven by an increase in demand? I suppose the world is becoming more globalized, isn’t it? More and more people are not necessarily staying in their country of origin, is there an increased demand for extra products?

David Eggison: I think talking to the lenders themselves, it’s two-fold. There’s more competition in the market so because there’s more competition, they have to be more flexible with their products. Before when there was less competition, they can say “well this is the product we have, take it or leave it”. Now it’s the question of “well I can come to you or I can go to this person and pay 500 liquid less and get half percent off until they change the rules or change the rates”.

There’s also in some respect, because the UK market itself perceptively as contracting, lenders still have targets to release and so they are becoming more and more aware that there are other people that will, that will be able to lend to and they’re just as good.

Curiously, a little-known fact about the expat market is that it’s one of the more secure. There is very, very few repossessions on Expat mortgages compared to the UK. It’s a much lower risk because realistically, the clients have the funds to pay for it and they have the management process in place for the tenant. So it’s a much better deal. So lenders are starting to realize.

Paul Mahoney: So, expats in general probably earned more money than your average borrower, don’t they?

David Eggison: Yeah, they do. Even though you would think the risk would be higher because they’ve got no ties to the country overseas, a lot of these expats of buying these things as pensions or some source of income, etc. To growth or to pay for the kids to the university. So, the necessity for them to make sure these things work and they’re very business minded people, so they’ll make sure that it’s a good sound business when they want to buy.

Paul Mahoney: All right. So, we’ve spoken about some of the changes and the new products lenders entering the market. What sort of loan to values are expected when it comes to Expat mortgages?

David Eggison: Typically, if you’re looking at a Buy-to-let property, the most common level is 60 to 65 percent. And that’s, you can get those rates all day long from the all lenders. There are more and more lenders now going up to potentially 75 percent on a buy-to-let, if you’re in the right area, the right property. If you’re looking at residential, again, 75 percent is relatively straightforward, and, in some situations, you can get as high as 80 percent. Again, if you’re in the right area.

Paul Mahoney: Do the rates rise, or [inaudible 00:17:22] the rent rises or?

David Eggison: They’re not the same, not quite the same as they are in the UK. They don’t have the same structure. What you’ll tend to find is normally there are some lenders that will have 60 percent below and then above 75 or 60 and 75, but most lenders have one or two rates and that’s about it. So there’s not that much more if they still have the five year rate. If you go for a five year rate, then you can get a better loan to value.

Paul Mahoney: That’s interesting. With regards to Expats that are overseas and are self- employed, is that a slightly different process or the products different?

David Eggison: The products aren’t different, the products that you find for an Expat regardless of your status – the products are the same. But the self-employed is an interesting situation because the biggest difficulty that lenders have is a proof of income. And obviously if you’re self-employed, what they class as self-employed, it tends to be a business owner. And so, what they’ll want to see is accounts.

Now two or three years ago, they were very, very few lenders that will lend to a self-employed person because they just couldn’t be realistically, they couldn’t be bothered to go through all the process of trying to verify the income. So they would have restrictions in the fact that yes we can take you on board, but your accounts must be done by some of the big four accountancy firms.

Those rules still apply to some lenders. They’ve spread the market a little bit more so there’s more accountancy to see that. They’ll look at it, but there are more lenders now that will look at self-employed. And self-employed as an Expat, tends to be a 20 percent plus shareholder in a company. It tends to be the owner of a manufacturing business rather than, to coin a phrase in the UK, the self-employed a window cleaner in the UK.

Paul Mahoney: So that’s probably a common misconception, isn’t it?

David Eggison: Yeah.

Paul Mahoney: Some people that are employed by their own company probably don’t view themselves self-employed but in the eyes of a lender they would be.

David Eggison: And that’s the frustration because you can have, you can have guys who are manufacturing business and they might be turning over tens of millions of pounds and dollars, dollars a year. But they’re still classed as self-employed for the lender [crosstalk 00:19:22].

Exactly. Yeah. And it’s frustrating. So that again, that comes back to the reason why it’s always beneficial to speak to a broker because they’ll know who the lenders are, who you can talk to, how you can interpret the accounts, etc.

Paul Mahoney: So, it’s mainly the criteria that shifts a little bit when you’re a self-employed person.

David Eggison: Yeah, just it’s the proof around the income. But having said that, an employed person can have the same challenges because a lot of Expats work for employers that don’t provide pay slips. So typically, in the UK you’ll go to prove your income, and the lender will want to see at least one month, or three months’ pay slips. Now not all experts can get pay slips. So, the criteria and the documentation that an Expat would need to have for a mortgage is different and a little bit more intense.

Typically, they would need between three- and six-months’ bank statements to show their income and outgoings; they would need pay slips if they’re issued. The majority, if not all, lenders will go for an employer’s letter and a lot of lenders will contact the employer. So, they’ll need an HR email to contact the employer just to make sure that the contract is valid and so on. They’ll do their due diligence that way. One of the biggest challenges is proof of address. Proof of ID is not a problem because you can get it certified through a notary and you can get that initial original documentation sent through or a scanned copy.

Proof of address can be a challenge because if you are working for an employee in the middle east, a lot of the addresses over there, they use P.O boxes. Lenders don’t like P.O boxes. You may also be working for an employee where they actually provide the accommodation for you. So you don’t have any, any bills or utilities in your name. Again, if you talk to a specialist and you talk to the lender, they’ll know how to get round that, what documentation that you can use to prove your address and other addresses.

Paul Mahoney: Right. So the lenders must be somewhat accustomed to that if it’s, if it’s relatively common?

David Eggison: Yeah. I mean quite often you will have an employer’s letter which will confirm, because if I’m an employer and I’m employing someone and they’re living in, I’m providing accommodation for them. It’s very easy to me to provide it as an employer letter to confirm that Joe Bloggs works for me, he earns this much money and he lives in this apartment which I provide for. And then as long as that employer is a large multinational company, the lenders will obviously contact them, direct through the HR to verify that, they do their own due diligence. What we’ll do is make sure you can get the right amount of documentation to them.

Paul Mahoney: So it sounds again, a reason for, advice and guidance there is to make sure that you are providing everything that’s required and therefore giving the lender what they need to give you a positive outcome.

David Eggison: Yeah, and that’s a very good point because quite often, the Expat situation can sometimes dictate which is the most suitable lender for them. They might be two lenders that you can go to because one of them wants a pays lip and the other and the Expat doesn’t have pay slips. Then that’s not really going to be an option. It’s too complicated. So you can go to the other one.

So knowing someone is guiding you round the relevant criteria of each lender and what documentation you need and knowing that upfront, is a very [inaudible 00:22:24], you know, that if you’re going to be an Expat, it will traditionally take a little bit longer than a standard mortgage and you’ll also need to get, various forms of documentation. Most of these documents are easy to get, bank statements you can get online nowadays, employees’ letters that’s not really a problem, normally from proof of address, we can get that from a variety of different ways. And then, you know, the usual.

Paul Mahoney: I suppose it will be quite difficult as a borrower to know those different things and especially the difference in the lenders and what the different lenders want.

David Eggison: Yeah. And the lenders understand that, so there are some lenders that have a very fixed idea of what they need and if you can’t provide it then that’s it. Majority of lenders though, the expats are becoming more flexible because they understand. The thing you have is a lot of these lenders now have a lot of Expats on their books, so they know the journey that they have to go through to get to this. They know that if a client is in Thailand, this type of documentation is available. They know if someone’s in Dubai or in Saudi then or this type of document, this is a standard situation. Someone who is in Switzerland, someone in Australia, so they’ll have an idea. The other thing that you have to look at is if you’re in China or Switzerland or Africa, etc., is sometimes a lot of the documentation can be in a foreign language. Chinese bank statement can be in Chinese, so some lenders will have translation departments in there, other lenders will just say, yeah, that’s fine “we can take that documentation” because they can see the figures, etc. Other ones will ask for you to make sure it’s translated.

Paul Mahoney: Alright, we’ll look all great points. There are things people look out for and guidance on how to go about getting an expert and mortgage than what they are. Thanks very much for joining us, David. That’s all we’ve got time for now, but thanks for joining us on Proper Wealth with me, Paul Mahoney joining us next time for more on wealth creation with a focus on property.

 

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