Summary:
British expats living in EU countries are struggling to find affordable options for mortgaging their homes in the UK because big lenders have pulled out of the market. Expat borrowers who wish to refinance their existing mortgage at the end of a fixed-rate deal may face interest rates as high as 8 or 9%. After the UK’s exit from the EU, UK-based lenders lost their ‘passporting’ rights, which allowed them to do business in any EU country with minimal additional authorisation. As a result, many large banks stopped offering expat mortgages from early 2020, as the new regulatory hurdles for UK banks offering financial services in the whole block made it challenging to lend to expat borrowers.
Many UK homeowners sent abroad on business assignments often rent out their homes while overseas. When they wish to continue owning and renting their home in the UK while abroad, having first lived there on a residential mortgage, they are offered a “consumer buy-to-let mortgage after a period of grace of about 12 months from the moment of departure. However, unlike loans initially taken out as buy-to-lets, consumer buy-to-let mortgages are typically regulated by the Financial Conduct Authority and come with higher interest rates.
As an additional obstacle for taking a mortgage loan with a new lender, most lenders require expats to pass a mortgage stress test that determines their ability to repay at higher interest rates than the deal they are being offered, minimizing the risk of future defaults. However, stress tests are not required when opting for a product transfer with an existing lender, even though product transfers often come with higher interest rates.
Engaging Piece:
The uncertainty and regulatory hurdles brought about by Brexit have left many UK expats living in EU countries struggling to find affordable options for mortgaging their homes in the UK. Many expats feel aggrieved, given that they have already relocated abroad on business assignments, uprooted their families, and are empty-handed as they face sky-high interest rates that exceed 8% or 9%.
Many expats send their homes abroad while they work overseas, but when they want to return, they face high-interest mortgage rates.
Expat borrowers looking to refinance their mortgage face new challenges, given that large banks have stopped offering expat mortgages since Brexit took effect. These lenders have lost their passporting rights, which previously allowed them to do business in any EU country; thus, a new regulatory landscape had emerged, deterring many banks from lending to expat borrowers.
As a result, expat borrowers are left with a few choices, including lenders still offering product transfers, requiring no mortgage stress tests. This approach means that they have to accept higher interest rates rather than negotiating a lower rate, which ultimately reduces their mortgage’s value.
To increase their lending opportunities, UK banks could restructure their lending policies to create a conducive environment to attract expat borrowers. For instance, they could create special packages available exclusively to expats, which come with reduced interest rates or concessions on mortgage stress tests to ensure that expat borrowers afford to pay back their loans.
In conclusion, despite the challenges and uncertainties, British expats need not despair. Many banks are still offering their product transfers, with Skipton International reporting a 40% increase in their completions in the first three months of 2023. Therefore, it comes as no surprise that many UK expats are finding relief from improved lending conditions. Finally, expats should be perseverant and creative in their mortgage search, as opportunities may arise from unexpected leads.
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British expats in EU countries are struggling to find affordable options for mortgaging their homes in the UK due to high interest rates, as big lenders have pulled out of the market segment in the wake of Brexit.
Many UK homeowners sent on business assignments abroad often rent out their homes whilst abroad. Lenders will insist that their standard residential loans be converted to “consumer buy-to-let mortgages,” which typically come with higher interest rates. These have risen sharply in recent months as expectations have risen that the Bank of England will need to hold its higher policy rate longer to fight inflation.
However, competition in the sector has diminished after many large banks stopped offering expat mortgages from early 2020, as the UK’s exit from the EU imposed new regulatory hurdles for UK banks offering financial services in the whole block.
When expat borrowers reach the end of a fixed-rate deal and look to refinance, they face interest rates as high as 8 or 9%, according to lenders and mortgage brokers. Some banks are turning away expat applicants or applications for a larger mortgage. Others, but not all, still offer product transfers, where a borrower is offered a new rate offer with the same lender, but at much higher rates than before, they said.
Lorraine McLean, head of buy-to-let mortgages at Guernsey-based bank Skipton International, which remains active in the buy-to-let mortgage market for non-UK residents, said the bank has seen an influx of demand from borrowers whose existing lender had offered them “a ridiculous rate” on renewal or not at all.
The bank said it saw a 40% increase in completions in the first three months of 2023, compared to the same period last year. Completions in the year to date have surpassed the total for 2022, he said.
He gave the example of a recent expatriate claimant with a £475,000 family home in north-west England who said he had been with a lender for five years as an expatriate with a buy-to-let rate of 4, 5%. When it came time to refinance, the best rate he was offered was 8.5%. “And that was a floating rate. With base rates having risen again a couple of times since we spoke, it could now approach 10%,” he said.
When the UK left the single market for financial services, UK-based lenders lost their so-called ‘passporting’ rights which allowed them to do business in any EU country with minimal additional authorisation.
A director of a major lender, who asked not to be named, said: “Before Brexit, UK lenders to people based in the EU, whether they were UK or EU nationals, had to just make sure you follow the UK lending rules. Now they have to prove that they have also followed the regulations of the borrower’s country of residence, even if they are UK citizens. There is no capacity or appetite for it.
The lender continued to offer product transfers on buy-to-let mortgages for expatriates, it said, but stopped lending to new expatriate customers or allowed existing customers to expand their mortgage lending.
Research by Hamptons International, a property broker and parent company of Skipton International, has suggested that international demand for UK buy-to-lets is declining. It found that the proportion of internationally based individuals among rental property owners fell to 4.1% in the year to date, down from 6.5% last year and 8% in 2012.
Excluding non-British nationals from these figures, such as Australian or Hong Kong landowners with property in the UK, British expats have made up 1.1% of landowners so far this year, up from 4.2% in 2012.
Most expats who wish to continue to own and rent their home in the UK while abroad, having first lived there on a residential mortgage, are offered a consumer buy-to-let mortgage after a period of grace of about 12 months from the moment of departure. Unlike loans originally taken out as buy-to-lets, this type of mortgage is regulated by the Financial Conduct Authority.
Those who own a mortgage borrower through a limited liability company are not affected by the regulatory changes, although even these commercial borrowers will face higher mortgage interest rates when refinancing.
For the average expat, an additional obstacle to taking a mortgage loan with a new lender is the requirement to pass a mortgage stress test that assesses their ability to repay at higher interest rates than the deal they are being offered, to reduce the risk of future defaults. However, stress tests are not required when opting for a product transfer with their existing lender.
Ray Boulger, chief technical officer at mortgage broker John Charcol, said the reason some lenders were no longer offering product transfers was because of the high cost of updating their systems or a belief that they would be violating regulations.
“For a lot of people a product transfer would actually work better,” he said. “If you took out a mortgage three or four years ago when rates were lower, you could have passed the stress test easily enough. You may now find that you cannot pass the test, so your maximum loan is reduced.
https://www.ft.com/content/1e78fce5-8ad1-4791-8ce0-cd3d3d7c0115
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