My Off-Plan Mortgage Nightmare & How I Solved It During the COVID Crisis
An open and honest review of how even the most experienced of property investors can land in hot water with off-plan property mortgage – and how he solved the problems he encountered.
To say my most recent property purchase has been a nightmare would be an understatement, and I sold it to myself.
That’s right! I work in the overseas property industry, and even I was caught off guard by some of the issues I encountered.
Allow me to explain, around 2016 (yes, that long ago) I was the Regional Director for a medium-sized, property investment company headquartered in Shanghai, China. A new development came to the market in Liverpool city center. Everything looked good. Planning permission was in place; the location was excellent, it was reasonably priced, and I got a decent discount. It ticked all the boxes, happy days! Hmm, not so fast… ☹
Fast forward to April 2020, and the development is still not complete. That’s a whole other story which I will cover in my next post about buying a property off-plan. For now, I want to address the mortgage madness I have just resolved. Basically, everything was fine, I had an offer in place, and I was ready to complete. The problem, the development I invested in was delayed, again! My mortgage offer expired, Covid-19 struck, and I got notified of completion without financing in place and a massive deposit at risk.
That inspired me to list out the process of getting a mortgage clearly, highlighting some of the things you need to know. It’s true, getting a mortgage as an expat or foreign investor in the UK can be a challenging, frustrating, and time-consuming process. Don’t worry; you will soon have a solid understanding of how to prepare for the common pain points.
The demand to capitalise on the UK rental market has exploded in recent years, yet, one of the biggest challenges that expat and foreign investors still face is securing a mortgage. It can be challenging as some lenders view you as a higher risk. However, some providers specialise in tailoring options for those living overseas.
If you are well-prepped, you can avoid some of the more common challenges. These can range from time differences, difficult lenders, or getting documentation prepared and certified.
Most lenders prefer borrowers that work for large multinational companies, with a minimum income of at least £50,000, this can make it even harder for entrepreneurs and the self-employed. There are options available; however, interest rates and the deposit requirements can be high. In 2016, the European Mortgage Credit Directive was introduced, which means applicants paid in foreign currency come under more scrutiny. Lenders will take possible fluctuations in exchange-rates into account during the underwriting process, in addition to the borrower’s overall financial position.
Why the challenges?
There are a few reasons why some lenders are more reluctant to lend to a non-resident, it is usually more mainstream banks; and commonly, these are an investor’s first point of call, giving the impression that funding is not available. The reason they are less willing is centered around the challenges in ascertaining the financial stability of the borrower as they may have never lived in the UK or could have been living overseas for many years. The banks that will lend and the offer you receive can vary depending on your nationality, the company you work with, and your financial position.
Working with competent people that understand financing for overseas investors is essential. Whether you’re looking for a regular buy-to-let or a commercial mortgage for a holiday rental, you should always seek impartial advice from a qualified mortgage broker to make sure there are options available to you, and you’re getting the best product possible.
British National (like me)
In most cases, it’s relatively straight forward to get a mortgage if you’re a British national living outside the UK. Lenders have more rigorous information requirements regarding evidence of earnings, anti-money laundering, and your country of residence. Additionally, they may charge higher interest rates to counter the risk of tracking down and recouping from a borrower who defaulted while living in another country.
The application process is slightly different than applying in the UK, but that doesn’t mean it is difficult or impossible. The key to making it streamlined and stressfree is preparation and working with the right people.
What if you’re not a British national?
Even if you don’t live in the UK, you can buy as a foreigner. There are mortgages available, and a lot of the documentation and paperwork will be similar to those required for a non-resident British applicant. Eligibility can depend on your nationality as some countries are considered higher risk than others. There are banks in Asia and the Middle East that will lend on UK property. They generally prefer to fund purchases in London, and the amount you must borrow to qualify is usually quite high.
The country where you reside and your visa status play a role, and higher deposits of 35–40% are not uncommon as your circumstances or income could result in you being viewed as a higher risk. The process can be more challenging, and as with any advice, you need to seek out the help of a qualified mortgage broker to get a clear understanding of the products that are available to you before committing to an investment.
Important Points For Consideration
Understanding overseas income & currency fluctuations
Foreign earned income can presents problems for lenders on a few different levels. Their ability to verify your actual income and it’s size due to fluctuating currency exchange rates can be challenging. Therefore, they will view different countries in different ways. The more stable the country, the better. If a mortgage applicant is based and paid in a country with a volatile currency, getting financing will be difficult.
You must keep the tax office informed if you buy a property. Those that live outside the country for six months or more each year and own residential property will be classed as “non-resident landlords” by HMRC for tax purposes. Regardless of where you are resident, the rental income from your property will be taxed. There are tax advantages to non-residents, and it’s essential to have a competent tax advisor who can help you maximise your investment to its full potential.
So, why was it so hard for me?
Haha, good question. I work in the industry, and I understand this stuff. I dread to think of the hundreds, if not thousands of other investors impacted by the hassle I’ve been through, that’s why I wrote this piece. I followed all the above steps and still ran into issues like:
Rental Guarantee offered on the project
Cladding on the building
Lender pulling out the market because of COVID-19
Loan amount reduced at the last minute
Surveyor denied access to the site for a valuation
Ah.. the joys of off-plan overseas property investing. What a nightmare, right? So, what did I do?
Firstly, I work with an excellent mortgage broker (I switched during this process), and if you’re thinking of investing in the UK, you need a good one too! If I didn’t have him, I reckon I would lose my deposit.
Unfortunately, I haven’t been able to get a regular buy to let option. I should be able to in 6-months time. I have managed to secure a term mortgage with a 60% loan to value, and an interest rate of 5.49% and the lender will do a desktop valuation (that means they don’t physically visit my property) Is that ideal, no! However, it’s a lot better than losing my deposit.
If you are going to invest in off-plan or new build UK property, make sure you understand what you are getting into. It’s true, there are loads of great opportunities in the market, but unfortunately, there are lots of slick sales guys that don’t highlight what can happen in a worst-case scenario. I’m finding out the hard way. I need to pay a much higher interest rate, come up with a larger deposit, and incur extra fees when arranging a better option in 6-months. Thankfully, I researched the market thoroughly before investing, and the value has gone up quite a bit.
What would I have done differently? Lots! and I’ll be sharing that with you and the issues I ran into on my next blog, buying a property off-plan…what you need to know!
If you are struggling with a UK mortgage or want to understand your options more thoroughly, drop me an email at email@example.com, I’d be happy to help.
If you like our ideas and would like to learn more about how we implement and manage them, say hello!
Contact us here.
Article by: Rory van den Berg