For expats, buying a home in London is an exciting time. However, it can also seem quite challenging as the process might well be very different to getting a mortgage in your own country. In addition to all the usual concerns, there might be other considerations to take into account as well. These can include a lack of credit history in the UK and the fact that you have Foreign National status.
Add into the mix that despite the recent double-dip recession in the UK, property in London has continued to increase in price on an annual basis, the fact that buying a home in the UK typically requires a large deposit – often up to 20% of the purchase price – and the whole process can seem a huge obstacle to overcome.
But actually, purchasing a property in London is not quite as daunting as it might first seem. Most nationalities are eligible for mortgages and investment loans in the UK, and there are a number of lenders who provide mortgages specifically in this market. These lenders are well versed in helping expats get over the hurdles they need to in order to successfully gain a mortgage.
The first thing you need to do is work out your budget. Various different lenders provide simple tools that show you exactly how much you can realistically borrow. These include the mortgage calculators from independent advisors, Money Saving Expert or the Money Advice Service.
What do lenders look for when assessing the amount I can borrow?
In 2014, the Financial Conduct Authority (FCA) carried out a Mortgage Market Review and introduced new rules that changed the way mortgage lenders and authorities decide how much they will lend. The new rules include that the amount loaned to be capped at no more than four and a half times your income. In addition to this, the lender must assess what level of monthly payments you can afford after taking into account your individual living and personal expenses. This is called an affordability assessment.
What are my options when choosing a mortgage?
By law, a mortgage lender or broker must only recommend the most suitable mortgage for you. In the UK, there are two different ways that you can pay back a mortgage: a repayment mortgage, and an interest-only mortgage.
A repayment mortgage (also known as a capital and interest mortgage), means that you gradually pay off the amount borrowed over the complete term of the loan (generally 25 years).
With an interest-only mortgage, your payments only go towards paying the interest charged on the loan. You must therefore make other arrangements for paying back the original capital of the loan. This could include regular saving plans, investment bonds, shares etc. It is also possible to get a combination mortgage, whereby you combine your loan between an interest-only and a repayment mortgage.
Interest only mortgages are now becoming much more difficult to secure. This is because both regulators and lenders are worried about homeowners getting to the end of the term and having no way to repay the original capital lent to them.
The other consideration you need to understand is whether you want a fixed rate mortgage or a variable rate mortgage. In general, a fixed rate means that the interest you’re charged on money borrowed stays the same for a fixed number of years (typically 2-5 years). With a variable rate the interest you pay can change throughout the term of the loan. The type you choose will depend on your individual circumstances, and there are various advantages and disadvantages to each.
What lenders can I approach for a mortgage?
There are many banks and building societies that provide mortgages in the UK. Over the years it has proved challenging for expats to secure a mortgage, but this is now becoming far easier with certain lenders specialising in doing so. Some of the larger providers of mortgages to expats are:
Government ‘Help to Buy’ schemes
Over the last few years the UK Government has introduced many different schemes that offer help for home buyers. This has been done to both help out buyers and to revive the housing market after the financial difficulties of the last few years. And the great thing is that in many cases, expats living in the UK can also take advantage of these schemes.
One of these is the NewBuy Scheme that came into force in March 2012. Essentially this means that you can purchase a new build home with only a 5% deposit, as the government underwrites the amount of the loan. This was introduced to help the many people who have been unable to purchase a home or move house because of the large deposits (up to 20%) required to secure a mortgage. Many homebuilders participate in the NewBuy Scheme, but you can only get your mortgage through lenders that participate in the scheme. Currently these are:
Other Government funded schemes
Other ways that the government helps people purchase property in London and the UK include:
- The Equity Loan Scheme – whereby the government provides a loan of up to 20% of the value of a new build home, interest free for the first 5 years. You need to provide a deposit of at least 5%, and then obtain a mortgage of up to 75% to cover the rest of the cost. The loan must be paid back after 25 years or whenever you sell your home (whichever is the earliest).
- The Mortgage Guarantee Scheme – helps people purchase a new or existing property with a value of up to £600,000 with a deposit of only 5%. There are various lenders participating in this scheme, including RBS, the Post Office and Virgin Money.
- Shared Ownership Schemes – for social tenants and first time buyers to purchase an initial share of a home and pay rent on the remainder.
Once you’ve secured your mortgage, you can commence your property search in earnest. Good places to start are the websites Zoopla and Right Move, where you can see lists of property for sale in all regions of London and around the UK. You can also check out the prices that houses have recently sold for, a great tool for working out your budget at the beginning of your house search.