Understanding the Process of Getting a UK Mortgage for International Residents
17. September. 2023
Photo by Samuel Regan Asante｜Unsplash
When you decide to purchase a property, the first thing to plan is your cash flow, including whether you need a mortgage or foreign exchange. The annual foreign exchange limit for Chinese citizens is typically US$50,000 per person. If you do not rely on relatives or friends to assist with money transfers, the preparation time for the down payment will generally be extended. Additionally, if a mortgage is required, it will also take time to prepare the necessary documents and await disbursement. Therefore, it is advisable that once you decide to buy a house, the first thing you should do is prepare your funds.
Can non-British residents get a mortgage to buy a house in the UK?
The answer is Yes. However, the loan conditions and review process for non-locals will be relatively stringent. The following will introduce you to the mortgage process for overseas residents in the UK:
- Determine Your Loan Eligibility: Before you begin the process, you should be aware that eligibility criteria may vary from lender to lender. Generally speaking, non-residents may include expatriates holding visas, foreigners, or British citizens living abroad. You will need to assess your eligibility based on your individual circumstances.
- Choose a Mortgage Broker or Lender: It is often recommended that you work with a mortgage broker who specialises in assisting non-UK residents in obtaining a mortgage in the UK. They have more experience with loans and can also address any questions you may have during the process. Your mortgage broker will provide you with the best interest rate options currently available and help you connect with lenders more likely to approve your non-resident application. In the local market, 85% of applications are completed through mortgage brokers, representing a significant majority.
- Proof of Income: You will need to provide evidence of stable and legitimate income to demonstrate your ability to repay the mortgage loan. This typically includes pay stubs, bank statements, and tax returns. Lenders may have specific income requirements or proof of funds, so check with a potential lender or broker to understand their specific requirements.
- Credit History: Your credit history is crucial during the mortgage loan application process. Lenders will want to see a good credit history, which can be a challenge for non-residents with no UK credit history. You can start building a UK credit history by opening a UK bank account and using it responsibly.
- Loan-to-Deposit-to-Value (LTV) Ratio: LTV (Loan-to-Value) stands for Loan-to-Value and is a financial term commonly used in mortgages and real estate transactions. The LTV ratio is a percentage that expresses the relationship between the loan amount you borrow and the appraised value or purchase price of the property you intend to purchase. It is often used to assess the risks associated with a mortgage loan.
Loan-to-value ratio = (loan amount / appraised value or purchase price) x 100%
- For example, if you are purchasing a house for £200,000 and applying for a mortgage of £160,000, the LTV ratio would be calculated as follows:
LTV ratio = (£160,000 / £200,000) x 100% = 80%
In this example, the LTV ratio is 80%, which means you are borrowing 80% of the property’s appraised value or purchase price, and you are required to provide a 20% deposit or down payment.
- 6. Loan Limit Confirmation:
For residential homes, you can typically borrow 4-5 times your pre-tax annual income. British citizens and permanent residents can apply for a maximum LTV of 80%. However, if you have a Tier 2 visa, the bank will consider the lower of 5 times your annual income and 70% of the house price. For example, if the house price is £600,000 and your annual income is £60,000, with an LTV of 70%, the bank will approve a loan amount of £300,000 instead of 70% of the LTV.
- On the other hand, for investment properties (Buy-to-Let), the loan amount depends on the property’s price and its rental return. The bank will require a minimum income guarantee from you (generally, an annual income of £25,000 is sufficient). A stress test will then be conducted based on the interest rate of the loan product, the monthly repayment amount, and the rental return of the property. Typically, the rental return should be at least 1.25 times the monthly loan amount, but most banks use a base figure (ICR) of 1.45 times for calculations. The bank will also assess whether the borrower can afford it if interest rates rise after five years. Banks generally use the current interest rate plus a stress rate of 3% for stress testing. If you have local income in the UK and the house price is relatively moderate (not too expensive), the LTV can typically be around 70%.
- 7. Mortgage Application, Approval and Completion:
Once your mortgage application is approved, you can proceed with the purchase of the property. Subsequent processes will be managed by the lawyer, including the exchange of contracts, payment, and property rights registration.
With over ten years of experience in London, Lux Living Ltd is dedicated to offering our customers only the finest service providers.
The mortgage loan process is inevitably complex and can be challenging for one person to navigate, often requiring additional financial resources. Collaborating with a mortgage broker experienced in non-resident mortgages can significantly simplify the process and enhance your chances of success. It is essential to seek professional advice regarding the legal and financial aspects of purchasing property in the UK as an overseas resident.
Lux Living Ltd partners with trusted loan brokers to offer you loan options from various banks, credit companies, and other financial institutions. Furthermore, our loan brokers not only assist you in finding the most suitable loan solution but also negotiate the interest rate and loan amount with the lender. If you require a remortgage in the future, our mortgage brokers are also at your service.
