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BTL mortgage drought hits UK expats

A growing number of UK homeowners working overseas are finding themselves grappling with skyrocketing mortgage rates when renting out their properties, the Financial Times reports.

The newspaper says that these individuals are often required by lenders to switch from standard residential loans to ‘consumer buy-to-let mortgages’ – usually at higher interest rates.

In recent months, these rates have experienced a sharp increase, fuelled by the expectation that the Bank of England will push up rates to tackle inflation.

The situation is further complicated by the falling number of products in the expat mortgage sector.

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Banks discontinued expat mortgages in early 2020

The FT says that many major banks discontinued expat mortgages in early 2020, as the UK’s exit from the EU imposed fresh regulatory challenges for British banks providing financial services throughout the bloc.

When expat borrowers reach the end of their fixed-rate agreements and seek refinancing, they may encounter interest rates as steep as 8% or 9%, according to lenders and mortgage brokers.

Some banks have even started rejecting expat remortgage applications or requests for larger mortgages.

And while some banks continue offering mortgage transfers – where borrowers receive a new rate offer from the same lender – the rates are significantly higher than before.

BTL mortgage market for non-UK residents

Lorraine McLean, head of BTL mortgages at Skipton International, which is based in Guernsey, said the bank had seen strong demand from expats who had been offered ‘a ludicrous rate’ when renewing – or nothing at all.

The bank said it had seen a 40% rise in completions in the first quarter of this year, compared with last year.

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UK-based lenders lost the so-called ‘passporting’ rights

The FT article says that when the UK left the single market for financial services, UK-based lenders lost the ‘passporting’ rights that saw them to do business in any EU country with minimal extra authorisation.

One director at a major lender told the newspaper that before Brexit, lenders in the UK lending to EU or UK citizens across the EU had to show they were following lending rules in the UK.

Now they must follow the regulations in the borrower’s country of residence – and lenders don’t have the appetite or capacity to do this.

The lender was offering transfers on expat buy-to-let mortgages, the director said, but no longer offered loans to new expat customers and did not allow expanded mortgage borrowing for current customers.

Source: Property 118

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Time to buy – UK house prices & lower expat mortgage rates

Volumes are up and interest rates stable in the UK housing market

UK-based buy-to-let mortgage broker Offshoreonline has reported its best figures for expat mortgage enquiries in March 2023 since before the pandemic. In fact, volumes are now equalling pre-pandemic levels.

“In a very short space of time, the main structural issue with the UK housing market, a lack of supply, seems to have been turned around,” says Guy Stephenson from Offshoreonline.org. “If anything, we’re now seeing an excess of supply over demand. This makes UK house prices attractive for expat home buyers. They have more choice, and sellers will be more likely to take a good offer, given the shortage of UK buyers as a result of a rise in UK mortgage rates.”

Property portals such as Zoopla and Rightmove are reporting the supply of houses put on the market is increasing month on month. The trend started in January 2023, when listings rose by 5.9%. It then continued in February with the figures rising 28%. Now, in March, the listings recorded by estate agents are up a further 17%, according to Rightmove.

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Decline and recovery

Highlighting the sometimes contradictory picture in the UK housing market, Guy says, “The Bank of England began pushing the UK base rate sharply higher, mainly from August 2022. Therefore, UK mortgage rates inevitably rose steeply too. This caused a market shock, and housing demand declined rapidly in late 2022.

“Despite the headlines suggesting a demand collapse, the UK house price reports such as those produced by Halifax, Nationwide and the UK government reveal that, over time, UK house prices in the better quality areas have stood up, mainly because supply has been so limited. With strong demand chasing a very limited supply, house prices in the UK have remained firm in these areas.”

If you’re someone who held off on a buying decision, now could be a very good time to make a move. The supply of houses for sale has shown a rapid recovery, increasing choice and making the UK housing market very attractive for buyers. At the same time, major mortgage lenders have released lower expat mortgages rates in the UK.

The Birmingham Bounce

Offshoreonline quotes the example of a client based in Singapore who, having spent months searching for an investment apartment, finally reluctantly put an offer on one in Birmingham at just over £200,000. The flat came with a tenant in situ, but when the service and ground rent costs were factored in, eventually they concluded it didn’t make financial sense.

Having spent most of 2022 house hunting, they therefore withdrew from the purchase in March this year. Within one week, they found a larger, more suitable terraced house at just below £200,000 with no service charges, which transformed the financial case for investing. The whole deal, from search through to offer and acceptance, was completed in under eight days.

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What do Singapore-based expat buyers need to get a UK mortgage?

According to Offshoreonline, there’s not only a wide choice of expat mortgage lender, but the application process is also simple. Buyers will need a deposit of at least 25% of the sale price. They’ll also need to confirm their employment status and where they live in Singapore, perhaps with a local utility bill. Apart from that, the property’s rental potential will be a key factor. Houses need to generate a minimum of £510 monthly rent for every £100,000 borrowed.

Are UK mortgage rates going up or down?

After the chaos of the mini budget in late 2022, happily, markets have settled. The UK economy is still performing well. It has avoided recession and retail sales are still stronger than most people expected. So, Offshoreonline expects the UK base rate to stay at current levels for a while.

“We’re not going to get back to the unnaturally low UK base levels seen over the last 10 years as ultimately these were due to the Bank of England intervening to offset the dramatic impact firstly of the financial crash in 2008 and subsequently the pandemic.

Whilst forecasting interest rates is virtually impossible, our view is that the long-term average for the UK now is probably a UK base rate in a range somewhere between 2.5% to 4%, or perhaps a little more, with mortgage rates around 1% above these figures. We currently have a range of lenders offering expat mortgages from 4.99% to 5.40%. So there’s a good amount of choice,” says Guy.

By Kaur Harsharan

Source: Expat Living

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The buy-to-let locations landlords can invest in for as little as £25,000

Landlords enjoyed record-breaking rental growth last year, boosting yields and putting the property market on the radar of investors looking to diversify their portfolio. But investing in the buy-to-let sector has become increasingly fraught with regulatory pitfalls and higher borrowing costs thanks to inflated interest rates.

The sector has been losing more investors than it has attracted since 2016, when a three percentage point stamp duty surcharge was introduced for additional properties. The tapering of mortgage interest tax relief on buy-to-lets followed soon afterwards.

For those willing to navigate the complex rules, buy-to-let is a familiar option which if done properly gives investors two sets of returns; rental income and capital growth of their underlying asset.

Where to start? Here, we take a look at the best places to invest with a cash budget of £25,000, enough to cover a 25pc deposit and stamp duty, using data from Hamptons estate agency.

In the three locations below, an initial £25,000 investment would produce an average gross yield of more than 9pc – significantly more than the target 4pc rate of income from a typical pension pot in drawdown.

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Where £25k will earn you the highest returns

Hartlepool and County Durham

The highest yielding location for landlords with £25,000 to spend in England and Wales is Hartlepool in north east England. Yields are generally highest where house prices are lowest. Cheaper property prices and high tenant demand in the North have boosted rental returns, making it a popular region with investors.

The port of Hartlepool is a rental hotspot for modest budgets, with an average gross yield of 9.7pc. A typical flat in the area costs £68,130, meaning landlords will need £17,030 for a 25pc deposit and a further £2,044 to pay stamp duty. They can expect an average yield of 11pc on their investment, one of the highest on this property type in the country.

Recent house price growth means an average terraced house in Hartlepool no longer falls within a £25,000 investment, but is still within reach for those who can afford to stretch their budget a little further. A typical terraced house in the area costs £95,100, requiring a £23,780 deposit and £2,853 for the stamp duty bill. It equals an upfront investment of £26,630 and would yield an average gross yield of 9.2pc.

Paul Gough of We Love Renters, a property management company in Hartlepool, said there were three main tenant demographics that landlords had targeted in the town in recent years.

Two or three-bedroom houses for families were very popular among investors, said Mr Gough, who owns a portfolio of properties in the area.

He added: “Old Victorian houses which can be developed into one-bed apartments have also become increasingly popular, as they are perfect for single male tenants. Short-term lets for contractors have also taken off in a big way.

“There has been a lot of government money directed towards the wider Teesside region over the past year and there are thousands of contractors in the area.

“These workers often live elsewhere in the country but are staying in Hartlepool for weeks at a time. They don’t want to be paying hotel prices, so short-term bedsits for anywhere from a few nights to six months are in high demand.”

Investors can expect rental income before expenses of £7,494 a year from an average flat in the town and £8,794 from a terraced house, according to Hamptons.

Next door in County Durham investors can find the second highest yields for a budget of £25,000 in the country. Landlords with a modest investment can achieve an average gross yield of 9.2pc, or higher if they invest in a cheaper property type.

The average flat here costs £76,020 according to Hamptons, more expensive than nearby Hartlepool. Landlords would need a combined £21,290 to cover a deposit and stamp duty and could expect a typical double-digit yield of 10.3pc.

A terraced house in County Durham is also out of reach to a landlord with £25,000, although possible if they have a few thousands pounds more to invest.

A property of this size costs an average of £100,880 in the area, requiring a £25,220 deposit and £3,026 stamp duty bill – £28,250 in total. Landlords renting out a typical house here can expect an average yield of 8.7pc.

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Blaenau Gwent

The borough of Blaenau Gwent has the highest rental yield in Wales for investors with a £25,000 budget, at an average gross rate of 9.1pc.

A £25,000 budget would be enough to cover the £17,660 deposit on an average flat in the area, plus £2,119 in stamp duty. Landlords can expect an average yield of 10.3pc on a flat and £7,239 in annual rental income, before any costs are deducted.

Investors would need more than 60pc more to invest in a terraced house in Blaenau Gwent, where property values have risen in recent years. At a typical price of £117,060, the upfront cost of investing in a terraced house is £32,780 to cover a 25pc deposit and stamp duty bill, according to Hamptons.

Landlords can expect higher rental income from a terraced house, an average of £10,088 a year – but yields will be lower because of the bigger initial investment, at an average of 8.6pc.

By Rachel Mortimer

Source: msn.com

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Less Affluent Areas Driving Rental Growth for UK Expat and Foreign National Investors

Huge Rise in the Number of Rental Households.
With fewer young people buying a home, the number of privately rented households has grown by 1.12 million or 29% in the last decade. This is compared to only a 6% increase in the number of households generally. Clearly then, there is a disproportionate rise in the number of people renting compared to the general growth of households. ‘This rise in rental demand and consequential growth in the rental sector has led to huge profits for UK expat and foreign national landlords over the years’ says Stuart Marshall of Liquid Expat Mortgages.

‘But recent data from real estate agent, Hamptons International, suggests that understanding the causes of this rise in the number of privately rented households might be key to making a profitable investment in 2023.’

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Less Affluent Areas Seeing Bigger Increases in Rental Households.
Much of the reason for the rise in the number of rental homes is to do with the tighter lending criteria introduced in the aftermath of the global financial crash. These tighter criteria put homeownership out of reach for many people with either low deposits or below average incomes. As a result, home ownership has become most difficult in less affluent areas.

This is supported by Hamptons’ data which shows that the growth in the number of privately rented households between 2011 and 2021 was highest in the most deprived 10% of areas in the country. Accordingly, 23% of households in this poorest 10% now rent their home privately – an increase of 5% from 10 years ago. Expanding the focus further shows that 60% of privately rented homes are in the bottom 50% of affluent areas.

Less Affluent Areas to Drive Rental Growth.
‘But why should this matter for UK expat and foreign national investors? Well, choosing the right area is one of the most important parts of an investment journey and will go a great way to determining the success or failure of the investment venture. With rents rising so much in recent years, choosing an area with high rental demand will be incredibly important and lead to big profits for UK expat and foreign national investors. If less affluent areas are performing better when it comes to rental demand, then UK expat and foreign national investors would be wise to look in these areas when buying a property as they are more likely to make a larger profit.

To put in perspective how profitable these less affluent areas are from an investment standpoint, rents paid in the 10% of most deprived areas have doubled between 2012 and 2022, to 5.4bn. Because of these factors, it’s likely that the less affluent areas of the UK will continue to drive rental growth throughout 2023 and become the ‘investment hotspots’ of the future.’

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Properties in Less Affluent Areas Accessible with UK Expat and Foreign National Mortgage Products.
‘Further, properties in these less affluent areas are far more affordable than in many other areas of the country and are more likely to turn a profit more quickly than properties in other areas’ adds Stuart Marshall. ‘This can prove to be incredibly fruitful for UK expat and foreign national investors and is especially true for UK expat and foreign national investors utilising UK expat and foreign national mortgage products. These products can help investors to spread the cost of their investment and with property prices skewing lower in the less affluent areas, UK expat and foreign national mortgage products can be incredibly powerful, even enabling discerning investors to buy a portfolio of properties.’

‘Less affluent areas are also becoming more popular for buyers as high mortgage rates push people to look to more affordable areas and towards smaller properties. This means that UK expat and foreign national investments made in these areas are also likely to see big capital gains alongside high rental profits. This comes at a great time for UK expat and foreign national investors as buy-to-let mortgage choice is at its highest since before former Chancellor Kwasi Kwarteng’s mini-budget. The market is also commonly seeing improved choice for buyers while sellers are accepting average discounts of 4.5% or £14,100 off their asking prices.’

Source: EIN News

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Suffolk BS enhances expat and buy-to-let criteria

Suffolk Building Society has announced a series of product and criteria changes to help brokers place more complex cases for their landlord and expat clients.

Expats and non-UK nationals

Suffolk Building Society will accept applications from first-time buyer expat landlords who are working and residing abroad and who have not owned a property before but who wish to purchase a rental property in the UK.

The Society will no longer require returning expats to spend a set amount of time in the UK before applying for a mortgage. It’s common for lenders to require anything up to two years on home soil but this change allows expats to apply as soon as they return. This applies to both employed and retired applicants.

Non-UK nationals will also be accepted on a joint application where one applicant is a UK national. This means that the non-UK partner can now be named on the mortgage. However, brokers should be aware that affordability will be based solely on the UK national applicant’s income only and they will be required to meet all relevant criteria.

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Support for UK landlords

As well as accepting first time-buyer expat landlords, Suffolk Building Society will now consider applications for first-time buyer buy-to-let properties in England and Wales. Full buy-to-let criteria will be applied including interest cover ratio (ICR) and minimum income. The Society will also run a background affordability assessment.

Landlords wishing to purchase or remortgage their own residential property will now be considered regardless of how many buy-to-let properties they have in the background, as long as the buy-to-let portfolio is self-financing. Previously, the Society had a limit of 10 buy-to-lets in the background but this criterion has now been removed to help landlords.

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Charlotte Grimshaw, head of intermediary relations at Suffolk Building Society, said: “We know our niches extremely well and have a very good understanding of the issues facing brokers in these markets at the moment. It matters to us that we’re there to support those whose circumstances means they need a specialist lender on their side – particularly as everyone faces the uncertainty of the current economic climate.”

By ROZI JONES

Source: Financial Reporter