According to HM Revenue & Customs data, overseas buyers accounted for 1.4% of UK property transactions in the year ending March 2023. While this may seem a small amount, it’s a 20% increase from the previous year.
The UK continues to suffer from a housing shortage, leading to high rental demand and attractive rental yields. The country’s established legal system and transparent property market attract overseas buy-to-let (BTL) investors seeking stability compared to volatile markets elsewhere.
A weaker pound can also make UK property more affordable for overseas investors if their home currency is stronger.
I suggest getting to grips with expats first
It’s perhaps no surprise, then, that more lenders are entering this market, including Molo and UTB.
An ‘expat’ holds UK citizenship or is a recognised British national but resides or works abroad, essentially living or being employed somewhere other than in their home nation.
Molo has launched an offering for non-resident (foreign national) applicants. A foreign national does not hold UK citizenship and is a citizen of another country. BTL for either of these types of applicant is often classed as ‘complex’, and the distribution of the available products by some lenders may be restricted to certain advisers or firms with the knowledge and experience to provide the advice.
Many lenders have stricter requirements about the solicitor who can be used for the transaction
For example, advisers need to have a deeper understanding of the sanctions regime because they could face significant legal ramifications by providing advice to individuals or companies subject to sanctions.
Ensuring adherence to money-laundering regulations can also prove more complex when your customer is not located in the UK.
Purchasing a BTL via a limited company is pretty commonplace for UK property investors, and these companies are usually UK based. Overseas investors, particularly foreign nationals rather than expats, will wish to purchase the property via an offshore company or have an offshore company own the UK company.
Start simple
For advisers looking to venture into this type of BTL, I suggest getting to grips with expats first as there are fewer complications around areas such as language and identification.
Some additional points to be aware of are:
– Understand any advice restrictions or regulations for the country your client resides in. Just because BTL is not regulated in the UK, that does not mean the country the client resides in does not have any regulation around the advice given.
– Ensure the firm or network you belong to does not restrict you from offering this type of mortgage.
– Use additional identity verification tools and hold virtual meetings rather than phone meetings.
– Scrutinise income sources and stability, and consider exchange-rate fluctuations and potential tax implications when discussing ongoing affordability.
– Evaluate credit history in the UK and in the client’s home country, if possible.
– Put together your panel of providers, remembering you may not be able to access all of them directly until you have built up some experience.
Advisers need to have a deeper understanding of the sanctions regime
In addition, invest some time in understanding the differences in criteria. The offerings may not be the same as the lender’s standard BTL product. The deposit requirements may be higher, there may be restrictions around income or credit, and the rates may be different.
For expats, there may be requirements such as owning an existing BTL in the UK, having a UK bank account, or around the amount of time since they left the UK.
Many lenders also have stricter requirements about the solicitor who can be used for the transaction.
Skipton International is a popular expat lender, with loans up to 75% LTV and competitive five-year fixed interest rates. Molo’s new rates are slightly higher but with a range of offerings, including shorter-term fixed rates and trackers. It also has a lower minimum loan compared to Skipton.
UTB’s new offering is very competitive on rate, suiting clients earning over £50,000 and with a UK property already.
The UK’s established legal system and transparent property market attract overseas buy-to-let investors seeking stability
More specialist lenders, like Hampshire Trust and Shawbrook, have expat offerings for complex property types such as mixed use.
There is no doubt that this type of advice can be lucrative for advisers who take the time to understand the complexities.
As an alternative, consider partnering with advisers or packagers you can refer any clients to, so you can still benefit from helping them.
Liz Syms is chief executive of Connect for Intermediaries
This article featured in the March 2024 edition of MS.
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