The UK has a vast number of expats – individuals who live outside their home country – dotted around the globe. In fact, there is an estimated 5.5mn people from the UK who live abroad on a permanent basis, according to the Institute for Public Policy Research.
Many of these Britons opt to live in Australia, Spain and the US, but not all of them cut ties with the UK completely. There are a healthy number of expats who, despite living overseas, own or are seeking to acquire property in the UK.
Some do so from an investment perspective, others for practical reasons, namely a desire to have a property for them or friends and family to stay in when they do visit (given many will maintain social or professional ties with the country).
However, this is not always a simple task. Specifically, expats can face unique challenges when seeking mortgages for a property purchase, with their experience differing significantly from those encountered by the average UK homebuyer.
Therefore, for lenders and brokers, understanding these hurdles is crucial. It allows them to provide tailored financial solutions that address the specific needs and financial situations of expat investors, helping them navigate this complex landscape with confidence.
Expat investors: a profile
Putting an accurate figure on the number expat investors that have a property investment is a challenge. However, given the strength and resilience of the UK’s real estate market, it would not be surprising to find that a very significant number of expats maintain a connection to the UK through their ownership of a property, whether it is for personal use or investment reasons.
These investors typically range from middle-aged professionals to retirees, and so often fall into the 40 to 65-years-old bracket. For the most part, investors will desire these property holdings for buy-to-let purposes, as a means of securing rental income or ensuring long-term capital growth.
For investors whose permanent address is overseas, the mortgage application process can be a lot more difficult to navigate.
In terms of investment locations, BTL purchases tend to be in the UK’s major towns and cities where demand for rentals tend to be higher, and where property values typically experience more stable, predictable growth.
That said, some investors will target smaller urban or rural locations, which can provide a balance between investment potential, and cheaper prices, but still having a decent proximity to urban centres.
What challenges do expats face?
One of the key attractions of investing in the UK property market is the relative ease with which property transactions can be completed. This is supported by a transparent and well-established legal system.
However, for investors whose permanent address is overseas, the mortgage application process can be a lot more difficult to navigate.
In recent years, these issues have come into sharp focus. Indeed, rising costs, stricter lending criteria, and the introduction of new regulations have significantly affected how expat property owners manage their investments.
Just last year, for example, it was reported that nearly a quarter (23 per cent) of British expats were planning to sell their properties as a result of the cost of living crisis in the UK.
That said, the issues that expats face go a lot deeper than temporary financial challenges, especially for those seeking a mortgage from a mainstream lender on the high street.
A primary challenge is the lack of a UK address, which complicates the process of opening a bank account – a necessary step for securing a mortgage or loan for mainstream lenders.
Building a UK credit history is another significant challenge. Expats’ financial activities are primarily based abroad, leaving them without a UK credit history to demonstrate creditworthiness. This absence can hinder their ability to secure favourable mortgage terms or other financial products necessary for property investment.
At the heart of working with expat investors is having the expertise and experience to accurately and holistically assess a client’s financial situation.
Additionally, expats often encounter difficulties related to income assessment. Whether relying on private pensions, cash savings, or investment returns, many lenders struggle to evaluate foreign income accurately.
This is particularly problematic when income is in a different currency or involves complex financial arrangements, making it hard for lenders to apply their standard criteria.
That is why specialist lenders and brokers, many of whom have in-depth knowledge of the difficulties that expats face, have such an important role to play.
How the specialist finance sector can help
At the heart of working with expat investors is having the expertise and experience to accurately and holistically assess a client’s financial situation.
For example, while a high street lender might turn away an expat for having an irregular stream of income, specialist lenders would be able to take into account a borrower’s savings, investments and assets to determine their overall financial situation. In turn, this allows them to take a more nuanced approach to assessing a borrower’s creditworthiness.
This means that expats – and brokers finding mortgages for them – should be seeking out lenders who manage their applications on a case-by-case basis, and who do not stick to a rigid, tick-box approach to lending.
Furthermore, expat borrowers will also require a broker and lender with expertise in expat regulations.
Indeed, from stamp duty land tax surcharges to capital gains tax, specialist lenders tend to have a deeper understanding of the tax and regulatory implications that expat investors are impacted by.
This can help expats avoid common pitfalls and ensure that they are aware of the full financial and legal implications that a property purchase might entail.
Clearly, expat buyers face numerous challenges in today’s property investment landscape. However, with the support of a lender or broker with expertise in working with expat borrowers, they can navigate these obstacles effectively and capitalise on the opportunities that are emerging as the UK property market continues its recovery.
Ben Nichols is managing director of RAW Capital Partners