Expat Mortgages for the UK 1

#15

Do you have trouble getting an expat mortgage loan? This two-episode special contains all the information you need as a remote investor looking to invest in UK property.

In this first episode, expat mortgage expert Simon Allen from Searchlight Finance explains when to use and when not to use a broker, what to look out for when making an application and how to deal with your solicitor.   

Back in 2018, the Expat Property Guy and his wife find someone to source, refurbish and manage a student HMO in Nottingham.

Rate, review, follow and give your ideas for the show at www.expatpropertystory.com  

Chapters:

• Student HMOs in Nottingham (0’45”)
• My mortgage broker (4’30”)
• Joke (5’50”)
• You don’t always need a broker (6’10”)
• Expats & foreign nationals (9’30”)
• Importance of where you live (10’57”)
• Choosing the right broker (14’42”)
• Preparing for a mortgage application (16’44”)
• UK correspondence address (19’02”)
• Conveyancing tips (21’09”)
• Personal guarantees (23’28”)
• Working with your solicitor  (23’51”)
• Mortgage broker discount (28’13”)
• Highlights (28’47”)

Keywords expat mortgage broker, client's best interests, property investment, student HMO properties, Nottingham rental demand, financial returns, property evaluation, bridging finance, international banking, expat mortgages, foreign nationals, Brexit impact, buy-to-let market, buy-to-let lenders, expat documentation, UK correspondence address, expat solicitor, limited company borrowing, completion date, communication efficiency, technology, discount code, solicitor relationship, regular contact, listener location, Tokyo, feedback, expatpropertystory.com, mortgage special.

Transcript

Trailer  00:00

It's always what's right for the client. It's not what's right for me or the broker is what is right for the client. And a lot of the time the broker is the right place to go to, but not always.

Narrator  00:13

You're listening to Expat Property Story, a podcast in which I share my story to smooth the way for you to have your own Expat Property Story. 

Expat Property Guy  00:24

Hello there, and welcome to Episode 15. That was Simon Allen of Searchlight Finance, who is not just a mortgage broker. He's MY mortgage broker, and we'll be hearing from Simon later in the show. A warm welcome to new listeners. You might want to go back to Episode One to get the full version of my Expat Property Story. But just to sum up very briefly, we've got to January 2018. We've ditched our financial advisor, cashed in our pension, remortgaged our original London flat, and we've got a pot of around 250,000 pounds to invest. We've decided on a strategy of student HMOs and picked Nottingham as our location. Mike Stenhouse, the host of the Inside Property Investing podcast has kindly put us in touch with a guy in Nottingham, who sources, refurbishes and manages student HMOs. So after doing our due diligence on him and the case studies he presented, we set up a couple of Skype calls with him, and he explained why he felt that student HMOs were the most lucrative investment if you can get it right. There are two universities in Nottingham, giving the city a population of 60,000 students, so rental demand is still quite high, although there has been an increase of purpose built student accommodation, not just in Nottingham, but all over the UK. However, there is still demand for high end properties, which are usually a little bit cheaper than the purpose built blocks. The blocks often have smaller rooms, and only very basic cooking facilities, if at all. Many of them also have a lower proportion of facilities such as washing machines in relation to the number of students they serve. But perhaps the biggest advantage of houses is that students like to live with their friends. Many investors are put off student HMOs because they think that students are not the best tenant types, but you never really know how any tenant is going to treat your property until they actually move in. And there's an argument that the better your accommodation is, the better it's likely to be treated. Another sticking point for investors is that students don't require accommodation for 52 weeks. However, with HMOs for professionals, after you've factored in recurring voids, the annual rental income is pretty much the same. And once you've let your property on a single AST, you're set up for the year, which makes your cash flow much more reliable and pretty much guaranteed. Also, the kinds of students attracted to high end properties are happy to sign up for 50 week tenancies to secure these properties as they are in relatively short supply. So we decided to go ahead and ask our guy in Nottingham for contact details of another client. Last week's guest Bronwen Vearncombe recommends that you should collect a few names to act as referees and then choose one or two at random. If I was doing this today, that's what I would do. But back then we just took one name and contacted him. He was also based in Hong Kong, and his feedback was all positive. So we decided to go ahead and asked our guy in Nottingham to look for a suitable property to turn into a five or six bed student HMO. The case study he had given us was for a purchase price of £150,000 refurb costs of £80,000 and stamp duty legal fees and other costs of around 10,000. So £240,000 in total. The estimated end value after the refurb was £320,000. So using this model, if we refinanced at a 75% LTV of the end value, we would get all of the £240,000 we had spent, back to fund the next project. So ideally, we would leave no money in the deal. He did point out however, that house prices had gone up since the case study he had shown us, and that we should now expect to pay anywhere from £140,000 to £185,000 for a house to convert. Everything looked good in theory. So we asked him to go ahead and find us a house. We would buy the property using bridging finance so that we would have enough funds to pay for the refurb. Tune in next week to find out what happened next. Now can you imagine going into a shop picking up a miles bar and taking it to the counter only for the shopkeeper to say whoa, you better not buy that it'll rot your teeth make you fat and give you a dodgy heart. It just wouldn't happen. Right? But if you were buying a property, wouldn't you appreciate it? If someone told you it's probably not the best investment you could make? Especially if it was someone who understood the power of property. Well, that's what my mortgage broker told me last year when I wanted to find out my mortgage options on a house I'd been offered that I was considering running as serviced accommodation. Now if he was a greedy broker, he could have just taken my money and left me to find out for myself that it was a poor purchase. So that was when I knew for sure that I had a good broker, one that you'd want beside you in the trenches, one that fights your corner to the lenders. So when several people messaged me at expatpropertystory.com, asking for an episode on mortgages (and please do keep telling me your ideas for future episodes), I asked my broker to come on here and share his mortgage knowledge and expertise. His name is Simon Allen from Searchlight Finance. And there's so much value in what he had to say about expat mortgages, that I'm splitting this interview across two episodes. We started as I often do, with a joke 

Simon Alen  05:49

A property investor is being shown around a property by an estate agent, looking to buy it for a buy to let. Once he's seen it, the investor says to the agent, "Have you got anything that's more expensive than this? "And the estate agent turns around and says, "Yes, I have come back. And we'll view this property tomorrow!"

Expat Property Guy  06:06

Ha ha! And it's more expensive the next day! So a few expats have said to me, you know, I want to get into property, what should I do? And I usually say to them, speak to a mortgage broker. But is that the right thing for me to say?

Simon Alen  06:20

It's that the right thing to say, from my perspective, I would obviously love people to use a mortgage broker, however, you don't always need one, if it's a straightforward transaction, it's single, let you bang it in your personal name, there's no rush to complete it. And it's your first second or third property, then traditionally, the international banks, they're very capable of doing buy to let mortgages, the issues that I come across, some people who've tried that, and then come to me are quite often it might take two months to speak to somebody where with a broker, that process can normally take between one and two days maximum. If you're going down the limited company route, then the vast majority of the lenders will not deal with the client direct, you've got go through a broker. So it's really speed and the availability. For example, somebody might be with HSBC. But how do you know that rate with HSBC is good for your circumstances? And also a broker should add value, he should talk to you about what you're buying, why you're buying what your strategies, etc, where with an international bank, they're more concerned about ticking their boxes to make sure that they've asked the right questions to choose the right product, rather than what your strategy is, and why you bank A flat rather than a house while you're buying in Liverpool rather than Newcastle or Birmingham where your family are. So I've got brokers should have a decent conversation with you, but you don't have to. A good broker is someone who is kind of representing you to the lender to a certain extent is that fair to say?  It is... I always say to people, you've got to convince me. And then I've got to convince the lender and a good broker will be your advocate, they will get to know your finances, they'll get to know your strategy. Do you want just one property? Do you want 10 properties do you want 20, etc. So it's choosing the right lender, and also looking at the products as well and highlighting some of the potential issues. 

Expat Property Guy  08:17

So to sum up what you've said so far, if you are not buying four or more, which would classify you as a portfolio landlord...

Simon Alen  08:24

Correct, 

Expat Property Guy  08:24

then you should consider going down the international banking route, which would be HSBC jersey, I think this NatWest International, is it? 

Simon Alen  08:33

Yeah, there's quite a few of the banks and also some of the larger dental societies, we'll do it, I'm not saying it's going to be the best rate because nothing in this discussion is classed as advice. It's just a suggestion, especially with sort of time differences and things it can be quite difficult to get hold of the bank banks are quite busy. If you've got one property and you want to remortgage it, and there's no rush, then by all means, find out what your bank can do for you. And there's nothing to start with then approaching your broker and saying, Well, I've got this rate with HSBC. What's your view of it? I mean, I had one recently, but they're doing exactly the same thing. And that was property number one, and they didn't want any more. And it was a real mortgage, there was no rush. So essentially, take the rate, it's a good rate. 

Expat Property Guy  09:15

So you didn't take their money off them. You pointed them in the right direction. That's the sign of a good broker.

Simon Alen  09:19

I think. Yeah, I mean, it's always what's right for the client. It's not what's right for me, or the broker, it's what is right for the client. And a lot of the time the broker is the right place to go to, but not always. 

Expat Property Guy  09:30

So how difficult is it for foreign nationals or expats to get a mortgage? 

Simon Alen  09:35

Okay, lenders class them very differently. So an expat is somebody with a UK passport who no longer lives in the UK, they could be working for a multinational company abroad, like a big insurance company or an oil company or they could be working for a substantial local business. So lenders like that type of business, not all lenders well but there's plenty that do. And a foreign national is somebody who has got an overseas passport who also lives abroad, that is much more difficult. There's less brokers in the market for foreign nationals, we ourselves don't do foreign nationals unless they've got rights to reside in the UK. So our focus is predominantly on UK and overseas based investors and developers, I would say UK I mean  expats. What you need from a lender's point of view is a UK bank account, you need a UK credit file, ideally with at least three items on so you might have a mortgage on the house that you used to live in which you now rents out, you might have a credit card with your bank. And you'll also have a bank account, that's three items straightaway, a lot of lenders want you to have a buy to let already. And that could be your old residence, which is now on a consent to let or it's been turned into a buy to let property. And then the biggest hurdle, obstacle, is where you are. And this gets a little bit complex, because all the lenders are very, very different. One lender will go up a delightful index called the Corruption Perception Index. That is, that is a list of countries and if you are in the top 60, where you live and work they will lend to you. If you're number 61, they won't others will lend in the European Economic Area, others will lens in an area that is governed by an abbreviation FATF, which is the Financial Action Task Force, some lenders will only lend if it's in your personal name, you won't do you're limited, some will only lend if it's in a limited company name and not personal and some will do both. But if you stick to UK bank account, credit footprint of banks letter already and one of the most important ones is declaring your UK income to property income to HMRC. For foreign nationals, it is difficult, there are lenders that will do it, they tend to charge more, some lenders will have minimum values of £200,000, One even has a minimum value of about £340,000. They tend to be ones with decent rates, but they're more expensive than expats. And there are lenders who will do lower amounts, but their rates of interest tend to be in the fives and sixes. So from a foreign national perspective, it is quite difficult.

Expat Property Guy  12:32

So I am a UK national but my wife is not. So how does that work, and she hasn't lived there for five years now. So since Brexit, her status has probably changed. 

Simon Alen  12:43

It's easier if it's the limited company quite often lenders will require all shareholders to be on the mortgage application, if you're indirect. So you definitely will go on the mortgage application. So in your situation and similar, what I would suggest is that when there's a couple of ones a foreign national is that person is not a director, and they are a shareholder. And some lenders are quite comfortable to ignore shareholders, if they're in less than 20% of the shares, what I would probably do is if you've got a structure in place already, then speak to the broker about that structure. When you've got property identified. If you haven't set up yet, then speak to your accountant, find out the options that they suggest and then run that through a broker to see the number of lenders that would lend to you under each option. If you've got plenty that will suit each option, then that's great. If one of the suggestions rules most of the lenders out then maybe that's not something to go down. 

Expat Property Guy  13:46

So it's likely to nudge up the rates, all these tiny little things are going to nudge up the rate a little bit each time. Right?

Simon Alen  13:52

Not always I have this discussion and sometimes it gets quite heated with the lenders on a regular basis because most lenders will charge extra if you're expats. Now my argument is that the shouldn't because it's managed professionally, all the little bits and pieces that need fixing get done rather than being left and quite often with somebody who is an expat, they earn more than the equivalent in the UK. And obviously there's the tax savings as well. So to me an expat's a better risk potentially than somewhere in the UK but they  do charge extra, most lenders Some don't. If you go down the foreign national side, then definitely there will be extra or if you're an expat I regularly deal with lenders who don't differentiate between somebody in Hong Kong or Denmark than somebody who's in Bolton or Birmingham. 

Expat Property Guy  14:42

What about choosing the right broker? 

Simon Alen  14:44

I would look to see how much buy to let they do. We, as a business purely focus on the investor and the developer so buy to let, bridging finance refurbishment finances all we do each day, so if somebody came to us for residential mortgage we would redirect them back to their international bank or a broker that specialises in the residential market. So make sure the broker fully understands the buy to let market, preferably does the majority of their business in buy to let and also deals with expats as well. Something as simple as the paperwork that's needed to satisfy your identification and your address. Some brokers may insist that you do that through an overseas solicitor, which can cost money, some banks insist on that as well. So if they insist on it, there's no way around it. But there's also some lenders who will say, well, as long as the broker has seen the client, then we're happy, we'll accept less documentation. So a simple Zoom call to a broker who understands the market will suffice where others may push you down an expensive solicitor's route. So there's lots of little things about a broker and their experience. There's an expression that's used a lot called Whole of Market. I dislike it immensely. Because to you, if you hear that you think that broker has access to every single lender in the market, that's literally impossible. Nobody can do that. Because it might be a small building society that only deals in a certain area, it might be a lender that requires a certain amount of volume of business, or a lot of brokers who are appointed representatives, and you'll normally see that at the bottom of the website or the bottom of their email, they are told which lenders that they can use. So not all the expat lenders they will be able to use. So it's what experience you have in the buy to let  market. And do you do with all the main buy to let lenders that are out there? 

Expat Property Guy  16:43

So what's the best way to prepare for a mortgage application as an expat? 

Simon Alen  16:47

One, if you're employed, you need to be aware that quite often your employer may have to produce some documentation for you. So make sure that you're happy to ask your employer that and your employer can supply that information. Normally, it's confirmation of income, how long you've been in that employment or contract. And if you're in tied accommodation, how long have you been there. It's called an Employer Certificate? In the days of technology, a lot of lenders still want paper, you need evidence of where you live, and you need evidence of a UK correspondence address. So that evidence is something that has been posted, so downloading the document from the internet won't do and lenders can spot them all. So you need a credit card statement, you need a bank statement going to both your correspondence address and to your overseas address as well. If you're in private accommodation, then a copy of your lease may be required. Get to know a local solicitor who can certify documentation if needed. And as most lenders require you to have a bike so that property already make sure that your rental income goes through HMRC. And the documentation that HMRC issue which is attached here calculation, a tax return and a tax year overview, you have those The hardest thing is finding the property. It will have to be managed over here. So it's finding the location where you want to buy and finding a letting agent who will look after you. The anti money laundering, the identification your address, that's the kind of thing that will hold up an application Most brokers will have an online system, if you don't, they'll send you a paper based form to complete is the passport is the proof of address it's proof of income. That's downloadable bank statements where your deposit has come from ideally have a solicitor in the UK that you've met, that certainly helps further on in the process. And again, choose a solicitor who is used to the expat market and you know, doesn't want you to travel from Dubai to sign some documents for a lender when another solicitor is quite happy to accept them by post. 

Expat Property Guy  19:01

Okay, there's one thing that always gives me a lot of stress. And I've spoken to other expats as well. It's that correspondence address in the UK. If you use post office redirection that actually shows up on your credit file, 

Simon Alen  19:16

It shows up on the credit file that the lenders view which is very different to the one that you see. And what will happen is a lender will just ask why. Now if it's expats, then it's pretty obvious why but quite often you might have somebody in the UK, who is directing it to another address in the UK, which can be slightly unusual. So they just asked the reason why normally what I say is a member of your family have some documentation that goes there because if a lender wants an item that's been posted and they want to see proof, then that member of the family can then post it to the broker or you have a redirect from your old family home to a member of your family or an accountant etc. I think we've time that will improve. Technology, as lenders become more comfortable with it. But at the moment, a lot of them still want paper based information. 

Expat Property Guy  20:06

What about if that member of your family has a different name than you, maybe it's your sister and she's got a married name that's different from your name, 

Simon Alen  20:12

That's fine. Because what they're asking for is your documentation going into there, so they're just collecting it on your behalf. If you've got a UK bank account or a UK credit card, then just have a credit card statement that goes once a month to your member of your family. So you'll always have something up to date with the address some 

Expat Property Guy  20:33

Why do they want that UK correspondence address is it so that if you go AWOL, they've got a starting point to look for you. 

Simon Alen  20:39

That is a starting point. And most lenders will also want original documentation because it's amazing what you can create with a little bit of software. So almost every day and getting bank statements and utility bills, etc posted to me, I will then go through the to make sure that we're not forgeries, etc. The broker will do that on behalf of the lender, and sometimes the lender, the originals as well in extreme circumstances but you're quite right, it's the start point of where to find you.

Expat Property Guy  21:09

Let's move on to conveyancing you mentioned just a minute ago there that it's always good if you've actually physically met your solicitor face to face that will help what other tips can you give for choosing the right conveyancing solicitor, 

Simon Alen  21:21

If you're buying something don't automatically give your solicitor's details to the estate agent because, depending on the choice of lender, that solicitor may have to change. What I mean by that is if you bind in your personal name, then 99% of lenders will allow your solicitor if they're big enough to act for both you and to act for the lender. So he just wants to listen to involved in the transaction. 

Expat Property Guy  21:47

That's called dual representation. Right? 

Simon Alen  21:49

It is, although dual will actually means different things to different people, but I use the same word, dual or joint. What you've then got with some lenders, and this is especially in the limited company market, because more things can go wrong. They will have a panel of solicitors and this one lender I'm thinking of that's got about 12 on there. So what you have to do is either use that solicitor to do your own conveyancing, so they're actually for both parties. Or if you've got your own solicitor, they do the conveyancing, but then report to the lender solicitor. So then there's two solicitors involved. And surprisingly, you will pay for both sets of fees. So what I would say to somebody is find the property, or if it's a real mortgage, let's decide on who the lender is going to be. And then the broker should be able to talk to you about the legal process and which solicitors you will have access to and what options you have also something extra to consider. But the beauty of the internet is certainly assisting that nowadays is that if you're borrowing within a limited company, most lenders will require you to have independent legal advice because you will be saying a personal guarantee to link you to the limited company so you're equally as liable. More often than not the limited company solicitor if you bind within that entity won't give you the I L A, as it shortened to because they class it as a conflict of interest because they are dealing with the limited company. So you have to find another solicitor to give you the legal advice. But there's plenty of people who will do video calls online now which lenders are happy with. 

Expat Property Guy  23:28

And you have to do it for each separate purchase. You can't say I've already had advice on that?

Simon Alen  23:31

That's a good question from the expat lenders that I know they will always want to you want however, some of the UK lenders if you've done it in the past with them, and they don't need it in the future, as long as you sign a document. I mean, I've got clients who do 15, 20 mortgages a year, maybe a husband and wife:  two lots of advice per application. That's a lot of money. 

Expat Property Guy  23:52

Ivan from Episode Three, he is a solicitor and I asked him how to nudge your solicitor along to keep the process moving. And he sort of basically said the wheel that squeaks gets the oil. 

Simon Alen  24:05

I would agree to some extent to that. However, I recently saw an email not to me but to another broker from a solicitor, who basically told the broker and the client stop hassling them because they couldn't do any work. I think the important thing to do, and most people don't is to give your solicitor a date to aim for. So if it's a purchase a completion date, if it's a re mortgage when you need the money, because most people don't do that. So the solicitor will work on the more urgent cases first, and that list of more urgent cases just increases increases because you've said your solicitor or there's no rush or a don't mind so you get put to the back of the queue. There's certain stages one, if you're speaking to a solicitor before the transaction, just ask them what information will be needed if it's a remortgage... You know it's things like insurance policy, most lenders want the name added to it. Is the insurance policy, the right amount to cover the rebuilding cost? Do you have a copy of the tenancy agreement? Is it signed? Do you have a copy of an EPC? Is it valid, the rights to rent that you're letting agent have done? Do you have copies of all those? So if you've got all those documents already, when your solicitor asks for those documents or remortgage, just send them all at once, don't drip feed, solicitors don't like that. And it can go very quickly. I mean, we've done re mortgages for expats, within six, seven weeks, we've done them within two, three weeks. Well, that's a lender who's got slightly different process. And it's slightly more expensive, but have everything, ready and tell your solicitor a date to aim for. If you don't give them a date, it's not going to happen. 

Expat Property Guy  25:52

You gave me a very handy tip a couple of years ago, asked to be copied in to all correspondence between the two solicitors and I thought, wow, that's brilliant. And I asked them to do it and then no one's ever done it. 

Simon Alen  26:03

I mean with technology, unfortunately, COVID has exposed a lot of issues with with big businesses, both lenders and also solicitors some have very good from working from home remote working on his arms has got some solicitors have a really good technology. I've recently completed on a sale of a property and it was given up by the solicitor which didn't work, it was extremely difficult to get hold of the solicitor and everything had to go through the app, eventually, I found their email address and found their direct number. And after that things started moving. If you're talking, if there's two solicitors involved in a transaction, they should be able to do that, certainly the lenders solicitor will be advising the broker. So I will always send copies of that. And you can send some the replies how the transaction is going. But I would just say to your solicitor, I want to see copies of it all because it's easy to set up and just keep pestering them to do and if they refuse to do it. Maybe that's not the right solicitor for you. So those are the kinds of questions you want to sort from the beginning, you know, before you actually engage your solicitor you can bring all those things up, and then then everything's gonna go smoother. Yeah, I mean, some solicitors back slightly reluctant to do it, because some emails are quite detailed and sort of need a bit of legal understanding, not all of them. So you might look at something start to panic when it's a straightforward transaction, and then you'll be on the phone, what does all this mean, etc, when it's your standard, so I can possibly see some reluctance for everything. But it's much easier to get all emails and just selectively emails, but a lot depends on your relationship. I mean, if you've had a long standing relationship, and it's always worked well, then you might not need it, but certainly check in at least once a week. You know, can the broker assist in any way? Quite often, the broker may go to ring the lender and say no, is this really needed or done this for you in the past with all the clients can we have this as an alternative?

28:05

So that was Simon Allen from Searchlight Finance, and he'll be back on next week's show with more advice around mortgages for expats, Simon has very generously offered a 20% discount on his fee if you use the code EPS1 that E for expat, P for property S for story one, EPS1 So just to repeat that, if you're looking for a mortgage broker, I would highly recommend Simon and if you use the code EPS1 you'll get a 20% discount on the broker fee. I get no commission or finder's fee for anyone that uses that code. Although in the interest of full disclosure, Simon will not be charging me the next time I use his services. As usual, I'd like to highlight three points from today's interview. The first is that if you're not in a hurry, and you have the patience required to deal with your international bank, or even getting through to them in the first place, then it might be worth going direct to your bank, rather than finding a broker as you might get a better rate. So if it's a real mortgage, and you've got plenty of time approach an international bank, if you don't want the hassle, or you expect your portfolio to expand to four or more properties, then you'd be well advised to get a broker. The second thing to highlight was Simon's tip to give your solicitor a desired completion date from the outset, and then to keep in touch with him or her about once a week to keep things moving. And finally, to keep on the good side of both your broker and solicitor, try and send them everything in one go rather than drip feeding all your documents. No one likes ploughing through emails looking for a particular file. This week's featured exotic listener location is Tokyo in Japan. I picked this one because I used to work for a company that was based in Shinjuku, which is a very trendy part of Tokyo, although I myself was in London. Unfortunately, I didn't get to go to Japan at that time. But years later, just after we moved to Hong Kong, my wife was invited there for work and I tagged along. I really liked Tokyo, especially the food. And if you ever go I'd recommend you get up before dawn like I did one morning and go to Tsujiki fish market and find somewhere to eat the freshest sashimi or sushi you'll ever eat in your life. Definitely worth getting up for. So anyway, if you're one of our listeners from Tokyo, why not leave a message at expatpropertystory.com And tell us how you ended up there, where your Expat Property Story is at and what you'd like more of in the podcast. Thank you for listening to the end, reviews and follows help more expats to find us. So if you haven't already done so, please rate review and subscribe. Join me next week for the second part of our mortgage special with Simon Allen. And if you know anyone who would benefit from the information on today's show, stop what you're doing...if you're driving, pull over to the side of the road. If you're in the gym, get off that exercise machine or if you're in the shower (apparently some people do listen to podcasts in the shower), grab a towel and message another expat and share the show to spread the word. You've been listening to Expat Property Story