A to Z of Expatriate Mortgages

A to Z of Expatriate Mortgages
July 2017


When International Mortgage Plans (IMP) established their advisory service in Hong Kong twenty nine years ago, the market was dominated by a handful of international banks offering decidedly lacklustre terms to a captive market. Loans were often conditional on a banking relationship and the borrower’s willingness to submit to mediocre terms, and equally mediocre conditional in-house insurance deals.

IMP broke that mould by introducing expatriates to mutual building societies and persuading the reluctant mutuals that expats offered high quality lending without risk. Whilst Town & Country, St Pancras and Britannia’s flirtation with the market were short lived, Portman Building Society in taking over the St Pancras were to offer market leading products, exclusively via IMP for over 10 years. Regrettably they too are history following their Nationwide merger to whom expat lending is anathema. Recently several UK building societies have decided that lending to expatriates might be a good idea provided they can make extra profit from them. Hence the ‘new boys on the block’, the Bath, Kent Reliance, National Counties, now known as Family Building Society and Saffron Building Societies have dipped their toes in the water with pretty mediocre terms expecting to charge expatriates arrangement fees of 2-2½%. They are pricing for greed, and little wonder that so far, their products have been largely ignored by expatriates familiar with the more reliable established lending sources.

So, who are the main players in this market place and what of their strengths and weaknesses. Here is an A-Z which whilst not exhaustive gives a good overview of the market.

A. Abbey – aka Santander

Still unkindly but deservedly referred to as “The Shabby”. Now under the parentage of Spanish bank Santander. Once Abbey were bold enough to open offices aimed at expats in Hong Kong and Dubai but these were closed during one of their frequent reorganisations. They are of little help to expat borrowers and are particularly obstructive to existing borrowers looking to extend their terms, or borrowing levels.
……. and Australia!!
Not a lender, but there are problems with obtaining facilities for British expatriates resident in Australia. This is as a result of the Australian Corporate Governance Act which initiated particularly vicious banking regulatory restrictions which have put a stop to our mainstream lenders, Lloyds (now withdrawn from expatriate lending), Nat West/RBS, Bank of Scotland etc. advancing funds to British expatriates living in Australia for UK property financing. Attempts to find an explanation for this Australian protectionism have failed. Fortunately, the directive does not extend to all building societies, and hence our limited facilities for building society lending are not impaired.


B. B M Solutions

Part of Lloyds Group and expatriate terms withdrawn 9/11/12.

Buy to Let

Expatriates have purchased investment property to keep a foothold in the Uk and as part of pension planning. New rules now in force mean enquirers and clients should seek professional advice on their UK tax
situation.

Brexit

In June 2016 the British people voted to leave the European Union.

The subsequent reduction in sterling against the US dollar has made purchasing property in the UK cheaper for many expats. However, this has been offset to some extent by the impending tax changes and the uncertainty as to what terms will be applied to the UK on leaving Europe.

C. Cheltenham & Gloucester

 As a building society they were helpful to expatriates although their service standards were abysmal. Since acquisition by Lloyds/TSB they have not shown any interest in expatriate lending. Nowadays they do not accept applications from intermediaries.

D. Derbyshire Building Society

Made a brief foray into expat lending and deposit taking. Involvement with the Icelandic banks enforced a run for cover under Nationwide’s ample umbrella.

………Dudley Building Society

Will consider expatriates up to 60% loan to value. Must own property in the UK.

E. Exhibitions – Property

Currently the London property market is being inflated with the influx of investment purchasers from the Far East, Gulf and Russia. In 2013 72% of all London new property sales went to overseas property investors, many of whom will be hoping to ‘flip’ their contracts before completion date. This was the problem with the Docklands ‘developments’ in the late ‘80’s. History may well repeat itself!

There are reports that Britain’s biggest housing development, Nine Elms in London, is seeing a rave of ‘flat flipping’ as investors try to sell unbuilt properties amid fears the Capital faces a glut of expensive homes. Nearly 20,000 units are under construction at Nine Elms on the South Bank of the Thames facing Chelsea. You have been warned! For those that want an up to date view on what is happening in the London property market we can thoroughly recommend the website hugh.obbard@obbard.co.uk.

F. Fortis BNP Paribas

Their offices, in London and Hong Kong, offered a second-to-none service to expatriates and foreign nationals for many years. Their rates were slightly better than many of their bank competitors and they were extremely helpful when borrowing was required via special purchase vehicles, off-shore trusts and companies. They were very competitive for multi-currency loans. After a brief return to the market place under the new BNP Paribas ownership this lender has withdrawn from the expat market place entirely.
G. Gazumping Has made an unwelcome return to the property market. Unscrupulous estate agents and greedy vendors have been taking advantage of strong demand and reneging on agreed sales

H. Halifax

Also part of the Lloyds Grouping. There seems to be some sort of movement towards helping expatriates where the loans are residential, but this is on a very discretionary basis. Complaints from applicants and personal experience indicate that the Halifax are now exhibiting all the worst aspects of their Lloyds parentage. Applicants applying for a £500K mortgage on £1m. plus properties are being asked to give details of their expenditure on Sky, groceries etc. – crass stupidity! May consider expatriates for residential mortgages where all salary is paid in sterling. A rare occurrence.

……. Heritable Bank

Unfortunately, another victim of the Icelandic bank failures – part of Landsbanki. This is a shame - rather like Fortis they were a true “niche lender”, with first rate service, sensible underwriting and personnel who actually knew what they were doing. Whilst not having the sharpest rates in town, they were not far off the pace and there was plenty of add-on value to be had with this lender.
Existing borrowers are often offered ‘discounts’ to move their accounts. This is an area IMP can advise on.

……. Holiday Lets

Whilst the purchase of a property for holiday lets has many positive aspects, unfortunately that view is not shared by our myopic lenders. We have access to one lender who will consider these. Maximum loan to value is 70% and 65% for flats and apartments outside the London area.

…….. Holmesdale Building Society

Another newcomer to expat lending via a limited panel of introducers which includes IMP. They offer terms for expat buy to let and expat residential, and are competitive in both areas of lending. Currently withdrawn from the sector but may return at a later date.

…….. Homes of Multiple Occupation (HMOs)

These too are shunned by expatriate lenders and indeed by 95% of UK lender where UK residents are concerned. IMP has access to a lender with a maximum loan to value of 50%. Applicants must currently own property in the UK. Ex local authority flats and flats over commercial premises also considered unacceptable security.

……. HSBC

Considering their high profile as “the world’s local bank” HSBC are remarkably feeble in helping customers with UK financing or refinancing. Whilst rates are competitive the bank seems so intent on selling every other service they have to offer that mortgage help takes a back seat. All sorts of restrictions impede the intending borrower and tales abound of initial agreement being subsequently reneged on. Mortgages only available to HSBC Premier customers and lending policy changes with the phases of the moon.

I. Ipswich Building Society

An old established UK building society and the only one making loans of any significance to British expatriates overseas. Now in their tenth year of expatriate lending via an exclusive IMP deal. Rates, terms and service are consistently ‘best buys’. This probably reflects Ipswich’s mutuality existing as they do for the benefit of their members. At the present time, Ipswich have temporarily withdrawn from residential lending due to the Mortgage Credit Directive on currency earnings. Currently offering buy to let lending to expatriates on purchases and remortgages to 75% loan to value. Funds are limited to monthly allocations. It is hoped that Ipswich will return to the residential expatriate sector when the impact of the new directive has been assimilated and new monitoring systems put in place.

J. Joint Mortgage

The majority of our lending partners will accept an application for a mortgage in joint names although one partner may not be earning.

K. Kent Reliance Building Society

This Society is now owned by J C Flowers the international conglomerate, and it is unlikely that we will see much mutual building society paternalism from this lender. Applicants must already own a UK property and facilities will be restricted to London and the South East. An eye watering 2% arrangement fee will be required, and apart from the ability to lend on new builds which are shunned by some other lenders, we don’t see a great deal of future in using this lender’s terms.

….Know your customer.

Applicants, lenders and mortgage brokers are burdened under the weight of money laundering regulations. Fully completed forms, the correct certified (where required) supporting documents make for less stressful and efficient processing.

L. Lloyds/TSB

Lloyds once had the expatriate mortgage market by the throat and were by far the largest supplier of funds. They were particularly strong in the Far East where their Hong Kong and Singapore offices were very aggressive in their marketing.
In withdrawing from expatriate lending, they have created a very large gap in the amount of funding available. Hence other lenders are under more pressure than they feel comfortable with. It now seems obvious that Lloyds were far too generous in their terms and this has been reflected in the impact made on the profitability of their ‘lending book’.

M. Mortgage Brokers

They should be able to access the entire, albeit limited, expatriate marketplace. They will almost certainly be remunerated by the lender, via a procuration fee and this could determine the arrangement fee they will usually charge. This could be anywhere between £500 and 1% of the loan but a good broker should be able to save an applicant serious money. By handling the processing of the loan proposal they can help avoid much of the heartache in dealing with lenders who seem intent on employing sales prevention forces.

……. Mortgage Credit Directive.

New regulations effective March 2016 require lenders to install expensive monitoring systems for residential mortgages, where borrowers are paid in a foreign currency. Many lenders have decided to withdraw from this area of lending.

N. Nationwide Building Society

Nationwide are the UK’s largest building society by far - an unhealthy six times the size of their nearest competitor. They behave like the worst of the banks and are absolutely no help at all with expatriates wanting to raise money for property finance, although they are extremely happy to accept expatriates offshore deposits. In taking over the borrowers of the Portman and Lambeth Building Societies they took on the loan books of societies that had actually been helpful to expatriates - in Portman’s case for many years. Whilst they have said that they will stand by commitments to those societies existing borrowers (as they should and must) they refuse to allow any further borrowing for them and will not assist with changes of property if the new property is to be let. They have recently sought increases in interest rate from original Portman borrowers they acquired. This has been successfully contested and their demands withdrawn.

……….. Nat West Offshore – aka Royal Bank of Scotland

RBS were a major victim of the banking crisis but they continue to offer competitive terms to expatriates. Whilst their proposed major hub in Dubai did not materialize, and their Singapore operation been curtailed, thankfully their Guernsey office provides an excellent service. In shades of ‘dropping the dead donkey’, RBS have now rebranded as Nat West Offshore
Loans are available on a capital repayment basis to 75% of valuation for properties valued at less than £1 million. Loans of 70% are available interest only at a rate .5% lower than larger loans. This lender is particularly generous when it comes to follow-on products for borrowers coming out of their initial deals. Currently they offer a 4% standard variable rate with no early redemption penalties.
NatWest International Isle of Man will consider residential lending to expatriates but are restricted depending on the applicants’ country of residence.
Onshore/Offshore
Lenders who consider expatriates may be located on the UK mainland, the Channel Islands or Isle of Man. Each office will take a different approach to expatriates.

P. Portman Building Society

Portman were probably the most competitive provider of expatriate mortgage funds via exclusive IMP arrangements for over 10 years. Whilst the relationship wasn’t perfect it was better than most. Regrettably Portman borrowers now have to suffer the indignities of dealing with the Nationwide. At least the many hundreds, who by default came out of their Portman discounts and fixes, are enjoying the benefits of Nationwide’s tracker rates which must be causing them considerable pain – 1.75% - 2.5% are common deals in place with no end date, and with the ability to carry on letting. However, no additional funding will be provided and neither will a change of property if letting is to continue. Nationwide were seeking to increase rates by 1½% where borrowers had let for over 3 years. They have had to retreat from this as a result of IMP and ex Portman borrowers pointing out that they should not be disadvantaged by the Nationwide ‘merger’.

Q. Qualified Accounts

Not many expatriate lenders accept the self employed. Those that do invariably require accounts to be prepared by a UK qualified accountant. IMP can provide a list on request.

R. Regional Building Societies.

With limited resources to compete with the large lenders they seek niche markets to operate in. Thankfully the expatriate sector is one of them.

Rental Calculator

New rules implemented by the regulators have had an impact on borrowing capacity for buy to let mortgages. A general rule is that for every £1000.00 borrowed, rental has to be assessed at £6.64 per month.
Returning Expatriates
A couple of the regional building societies will accept applications from repatriates without long periods of qualifying residency in the UK

S. Scotland

Unfortunately, expatriates wishing to purchase or refinance property in Scotland have a particularly difficult time. Odd bearing in mind the huge numbers of Scots who inhabit all expatriate centres. Some lenders are unwilling or unable to cope with the difficulties presented by the differing Scottish legal and purchasing systems – daft! What an opportunity for a lender – we continue to seek one!


....... Saffron Building Society

Saffron were active in the expatriate market place via IMP pre the 2008 crisis. Whilst their return to the market place is most welcome, they too seem to see expatriate lending as a way of boosting profits via an arrangement fee of 2.5%. They say they have no early redemption charges – perhaps they don’t, they just take it up front! An unattractive standard variable rate of 5.39% will not see expats rushing to access their terms.

……. Skipton International

Skipton International are a welcome addition to the increasingly meagre supply of expatriate mortgage funding. They are very competitive on interest rate, and unusually offer a variety of fixed rate deals. However, they prescribe the residents of no less than 97 countries, require a declaration that the borrower will never live in the subject property and their stress testing for affordability is fierce. Loans are subject to the law of Guernsey. A notional 6% interest rate used in the buy to let calculator can make the desired level of lending difficult to achieve.

……. Stroud & Swindon Building Society

Britain’s 13th largest building society spent two years building up a £20m. expatriate book via exclusive deals through IMP. Their rates were ‘best buys’ with a 2.3% three year discount from their standard UK buy to let terms. Obviously, they found servicing expatriates too difficult, as lending terms have been withdrawn, and they are now watching their £20m. book walk away as the exclusive deal had no early repayment penalties. IMP have special remortgage arrangements in place, some with free or discounted valuation and legal fee offers. Stroud & Swindon have recently been taken over by the Coventry Building Society who have shown little help in assisting the expatriate borrowers they have taken on board. Disappointing!

T. The Mortgage Works

Previously a subsidiary of Portman B S, now Nationwide. Their propositions were focused on buy to let lending, including loans for expats. Whilst their rates were not the keenest, they did have a whole range of products and at one time were able to provide an excellent service. They no longer lend to expatriates and are particularly unhelpful with existing expatriate borrowers in line with Nationwide’s stance.

Taxation.

The previous Chancellor George Osborne in successive budgets has implemented changes in the tax treatment of buy to let investors which will be phased in gradually until 2020. Buy to let investors are advised to seek expert advice in this sector so that they are not landed with unexpected tax bills. W T Fry have always looked after expatriates

U. Underwriters

Key to the application process. Fully completed and packaged applications are the best way of seeking a quick and efficient mortgage offer

V. Variable Rate

Expatriates lead busy nomadic life styles. They should always ensure that when the initial product matures they are not disadvantaged by being placed on a standard variable rate.

W. Websites

The expatriate homeowner buyer and borrower are newly empowered! They no longer have to rely on the sales pitch of the far away agent or developer and can consult specific websites, which will tell them the comparable sale prices of properties adjacent to that of their interest and environmental information, including the likelihood of flooding in the area of their interest.

X. X-Rated Lending Policy

The proliferation of confusing, bewildering and conflicting policy that different lenders apply when accepting expatriate business. For example, one lender will accept residents of Australia but not an application where parents will occupy. The next lender will lend where parents occupy but not lend to residents of Australia. Policies have often been in force for many years and the lenders show a great unwillingness to adapt and meet changing needs.


Y. Yield

The return on investment... Important when expatriates are searching for investment property. Factors to take into account the, possible rental voids, taxation and general upkeep and maintenance.

Z Zones.

A tool used by many offshore lenders when considering applications for property in the London area. Many use the Transport for London zone areas in deciding where to lend. For example, restricting lending to zones 1-4 and not all 9.



In summary expatriate borrowers are treated as second class citizens who may as well be from Mars as Dubai or Hong Kong. It’s a frustrating business dealing with UK financial institutions from the UK – from overseas it’s a nightmare.
Most lenders flimsy defence to inability to lend to expatriates or the need to impose unfavourable terms rests on their unwillingness to pursue debt overseas. This totally ignores the fact that loans are only offered to a lower percentage than in the UK, and in the unlikely event of repossession the lender would probably take over an income producing asset. IMP has demonstrated for many years that the persistency of expatriate loan books is superior to that of domestic books.



The main banking groups, Barclays, HSBC, Lloyds (now withdrawn from expatriate lending) Nat West/RBS and Santander, account for over two thirds of lending in the UK. An unhealthy situation. Unsurprisingly this grouping also accounts for more than 90% of customer complaints! More competition amongst lenders is required which in turn could open up the expatriate market.
A further factor is that lenders’ underwriting procedures are now so geared to box ticking that dealing with expatriates with more complicated lifestyles than UK residents is just beyond the competence of most UK lenders. Looking back at the lending conditions prevalent twenty years ago there has been absolutely zero progress in this field of lending operations – pathetic really, and what an opportunity for a lender with foresight seeking to build a risk free, high quality loan book.

Adrian WRIGHT
International Mortgage Plans

Website: www.International-mortgage-plans.com
Email: info@international-mortgage-plans.com

Tel: 01932 830660
Fax: 01932 829603 July 2017