British Expats Exit UK Buy-To-Let Market as Mortgage Rates Escalate
For British expats with a buy-to-let mortgage on one or more properties in the UK, climbing interest rates have been driving renewal rates ever higher, whilst increasingly stringent lending criteria and a shrinking pool of providers have made re-mortgaging with an alternative lender ever more challenging.
If you find yourself in this position, what does this mean for you, and what are your options?
Mortgage rates continue to escalate
Rising interest rates have become a pressing concern for all UK mortgage holders, both at home and abroad, with those who are coming to the end of a fixed-term deal facing the prospect of a significant ‘mortgage shock’ as they look to renew their borrowing arrangement.
In May, the Bank of England raised its base rate for the 12th successive time (to 4.50%, the highest level since 2008, from just 0.1% at the end of 2021) but with inflation remaining high (at 7.8% ), it’s expected that the base rate will be hiked again on the 22nd of June and that borrowing costs will continue to increase in the months ahead.
This is a particular issue for expats, with UK mortgage rates for non-UK residents typically priced at a significant premium, and rates as high as 9% being cited in the Financial Times (FT) earlier this month .
The Telegraph this week cited recent and predicted future mortgage rate rise as “The Death Knell of buy-to-let”- reflecting the significant headwinds now facing owners of UK property with a buy-to-let mortgage.
Expat borrowers face even stricter regulations
Expat mortgage applicants are already subject to stricter lending criteria than UK residents, as overseas applicants are perceived by lenders to represent a higher default risk than domestic applicants, irrespective of their credit worthiness.
And Brexit has put even stricter limits on mortgage providers. When the UK left the EU (and with it the single market for financial services) UK-based lenders lost their automatic right to conduct business in any EU country (known as ‘passporting’ rights). This means that as well as following UK lending rules, lenders must now also prove they are adhering to the rules of the borrower’s country of residence.
In addition, international anti-money-laundering (AML) laws mean that there is a requirement to explain how you are financing your mortgage and to provide evidence of your source of funds. Factors including the country where you’re based, the currency you’re using and whether you have retained a UK bank account, can all be crucial. Some lenders will want at least six months UK credit history to carry out the necessary security checks.
And expats looking for a new mortgage deal from an alternative lender can now also face an additional hurdle, with some mortgage providers requiring that applicants pass a ‘stress test’, assessing their ability to maintain repayments in the face of even higher future interest rates.
UK expats are withdrawing from the buy-to-let market
With costs escalating, the criteria for securing a mortgage becoming ever more challenging, and with the prospect of significant changes to Capital Gains Tax also looming, recent research by estate agent Hamptons  shows that ownership of UK buy-to-let properties by UK expats is declining rapidly. It found the proportion of UK expats among buy-to-let landlords was down to 1.1% in the year to date, compared to 2.0% in 2019 and 4.2% in 2012.
How can we help?
If you currently have a UK property with a buy-to-let mortgage, but rate rises are diminishing your rental income margins and adversely affecting your cash flow projections, then it may be time to consider other ways of investing the equity tied up in the property that could potentially deliver enhanced returns. If you’d like to speak with one of our international financial planners, they’d be delighted to discuss what these potential options could look like with you.
To book a free initial consultation contact us today or call us on +44 (0)131 625 6000.