London has long been one of the most desirable locations in the world to purchase property.
With easy access to the rest of Europe and its importance as a leading Financial Centre, opportunities to invest in London property have always been welcome for many foreign nationals.
These days, London property is looking better than ever, with the UK increasingly seen as a safe haven away from the turmoil in Europe and the Middle East, plus an increasingly diverse and welcoming population eager for good quality accommodation.
It may seem that cash is king in this environment, especially as reports that funding is not freely available hit the media both at home and abroad. The reality, however, is somewhat different and for many foreign nationals looking to buy to live or invest, there are lenders willing to help buyers take advantage of historically low levels of interest.
As a professional London mortgage brokerage, Coreco is well versed in this type of transaction and we thought it would be useful to put together a brief, plain-speaking guide of the things to watch out for when looking at this type of funding.
Choose who to work with
The key to a successful and quick transaction is to work with professionals who are experienced in this field. Engaging with a recognised local estate agent or property search consultant, together with a good Solicitor makes all the difference. It is also imperative to speak to a suitably experienced mortgage broker who can not only provide you with professional advice – something many lenders do not provide directly – but who also knows and understands the London property market.
The broker needs to be aware of the unique issues that face a foreign buyer and have access to not only High Street lenders, but offshore lenders, Private Banks and specialist lending institutions. In the London market property transactions are often time sensitive and a decent broker will help you package an application correctly first time with the most appropriate lender in order to expedite the process.
Secure an Agreement in Principle
To make sure you have the best chance of securing any property you make an offer on, we suggest that you obtain a mortgage ‘Agreement in Principle’ (AIP). This will confirm in writing how much a lender will be prepared to lend you, subject to a full mortgage application and underwriting. This AIP can then be used to confirm to the vendor your creditworthiness and that you are a serious buyer.
Get your documentation in order
Preparing for a mortgage starts early so make sure your documentation is in order. Lenders like to see your last three years address history (no gaps), your last three months payslips and last P60 or three years accounts, your last three months bank statements and full details of any loans or credit cards you have. They will also want to see evidence of any Visa’s and a full Asset & Liability Statement. Providing this information day one can speed up the process no end.
For those with an EU Passport, it is generally accepted by lenders that you have the right to live and work within the UK without having to overcome significant difficulty. However, some lenders might want to see evidence that you have resided in the UK for at least 2 years and it may be more difficult to pass a lender’s credit scoring requirements. This could be easily overcome. Interest rates may be better for those with a track record in the UK, but do not assume that your existing bank will be able to assist just because you have an account with them. There may still be competitive lenders out there happy to lend to you.
Beyond The EU and Visa Requirements
For foreign nationals from outside of the EU looking for a mortgage, some high street lenders will insist on a visa or work permit and sufficient permission to live in the UK. Indefinite Leave to Remain (ILR) is often a requirement of many of the major lenders, however some lenders will accept those on Tier 1 or 2 Visas with a track record in the UK. Other lenders do not have such onerous requirements and can offer terms to those on, say a 3 or 5 year working visa with little time left. There are also a number of international lenders who will not have such issues.
High street lenders
In general, for those with a track record of at least 2 years in the UK and an appropriate Visa, some – though by no means all – High Street lenders are able to offer their standard products. These tend to be available to those working for larger institutions and borrowing up to around the £750,000 level. There are lenders who have bespoke products available above this level, but a more specialist lending institution may be better suited to your requirements.
Private banks and large loans
For those with more complex requirements or wishing to borrow at £500,000 and beyond, a Private Banking relationship may be better value. This can be arranged either onshore in the UK or through a bank’s offshore lending arm and we would recommend that each client take independent tax advice to ensure the correct structure is put into place. At this level, lenders operate on a “blank sheet of paper” approach, offering bespoke products for the right type of customer, which are often better than those that can be obtained on the high street. Overseas income and assets can be taken into account when deciding on the level of borrowing acceptable and flexibility can be built in.
Bringing money into the UK
For some foreign buyers, bringing cash into the UK may be problematic for various reasons. Private Banking institutions cannot only provide the mortgage offshore, but may also be able to lend against offshore assets, such as cash or shares held elsewhere. This process, known as “back-to-back” lending could enable wealthy buyers to effectively borrow 100% of the value of the property. For others who are bringing cash into the UK, denominated in another currency, we can refer you to specialist foreign exchange providers to ensure the best exchange rates are obtained.
Many of the properties purchased in London will be on a leasehold basis. The length of these leases varies dramatically, with some properties in the most prime areas of London owned by large estates such as Grosvenor, Crown or Wellcome Trusts on shorter leases around 20 – 25 years. Most high street lenders need the lease to run at least 30–40 years after the date your loan reaches maturity, whilst other lenders may not even look at any property with a lease shorter than 70 years at all. However, after a growth in popularity of short-lease purchases, especially in key areas of London, some Private Banks have stepped into this market and we can obtain loans on properties with leases even below 20 years. Purchasing a short-lease property enables buyers to purchase in a Prime area at a more affordable level initially as well as offering some excellent rental yields, but it is important to take advice from an agent, solicitor and professional broker well versed in this area.
Application to Mortgage Offer times do vary dependent on how busy the lender is and the complexity of the deal, but as a rough guide at least 3 – 4 weeks should be allowed. Dependent on the work required by the solicitor after this point a whole transaction from beginning to end averages around 4 to 6 weeks.
Some lenders do move slower than others, especially if they have the very lowest rates and are busy. Timings should be taken into account when deciding on which lender to proceed with. Sometimes taking a slightly higher rate to meet the required deadlines will make all the difference in securing your dream home.