MortgagesJul 13 2017

Has appetite for overseas mortgages changed?

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Has appetite for overseas mortgages changed?

Moving overseas has always seemed like a golden opportunity but has the appetite for buying abroad changed in the past decade?

Even with the credit crisis cutting into people's savings and pushing up their borrowings, it seems from data that many Britons still want to, or have to, seek a new life abroad.

Latest Office for National Statistics (ONS) data has put the number of British nationals seeking the life of an expat at an average of 300,000 a year. 

Currently, there are more than 4.2m British citizens living abroad, according to data from Expatica

Some 900,000 of these live in Europe, many of whom go there to work, but the three most popular places to live globally are: 

1. Australia – 1,289,396 expats (perhaps they took advantage of the £10 tickets during the 1960s).

2. USA – 714,999 expats.

3. Canada – 607,377 expats.

When it comes to Europe, there is still a large percentage of UK citizens living on the Continent; there are 1.2m as at the end of 2016, with 900,000 of these being long-term (longer than 12 years resident).

ONS data, compiled from Eurostat, shows:

  • 900,000 UK citizens are long-term residents of other EU countries; the largest age group is aged 30 to 49 years.
  • Spain is host to the largest number of British citizens living in the EU (308,805); just over a third (101,045) of British citizens living in Spain are aged 65 years and over.
  • France, Ireland and Germany are also home to relatively large numbers of British citizens.
  • There is a large difference between numbers of UK born (287,600) and UK citizens (112,090) in Ireland.

People are leaving Britain for various reasons: work, retirement and lifestyle, and many of them end up needing to take out a mortgage to buy a property in their new country of residence.

This could be as a primary or secondary residence, or even as a holiday destination for those quick get-aways.

Daniel Howarth, head of Enness International, comments: “British citizens as a demographic continue to have a huge appetite for second homes and investment properties at favourite holiday locations in France and Spain.”

So certainly there is an appetite still to live, work, retire and holiday in your own home abroad, but has the mood for borrowers and lenders changed?

Appetite

The answer is, it depends. Some respondents to this guide believe the overall appetite, based as it often is on lifestyle decisions and the potential for low interest rate mortgages across many countries currently, will continue to keep the overseas mortgage market buoyant.

Julian Sampson, head of lending for TWM Solicitors, says: “The UK exports homeownership well, and has done for some time.

“The United Nations Department of Economic and Social Affairs published an overlooked report in 2011, which focused on children leaving the family home, but this reinforced the generally-held view that Britons love homes.

“The availability of relatively inexpensive credit, the lack of any useful deposit interest on cash, and the UK media promulgating how cooked the UK mortgage market is, suggests overseas may hold sway.”

However, there is data to prove that, since the credit crunch started in 2007, with a run on Northern Rock in the UK, banks and banking regulators have tightened up lending criteria significantly. 

In the UK alone, statistics from the European Mortgage Federation reveal lending domestically is still below its 2007 lows, despite nearly a decades’ worth of super-low bank base rates, now at 0.25 per cent as of August 2016.

The same trends appear in many other European countries, to varying degrees.

Since the credit crisis, regulatory changes in major economies over how much money banks and building societies must maintain as a capital buffer, as well as more stringent checks imposed on banks when it comes to lending, and it is not unreasonable to suggest there is a tougher environment for all borrowers, not least those looking to move overseas.

Stuart Marshall, managing director of Liquid Expat, says despite the credit crunch and subsequent bank tightening, his firm has seen steady business growth.

He avers: "We have noticed an increase in demand for cross-border mortgages over the past decade. This has led to the introduction of more lenders in the market and ultimately more options available for clients who require cross-border mortgage finance."

Data from his firm suggests Liquid Expat has seen the number of lenders willing to accept a mortgage application rise from 20 up to 35 on the approved panel over the past five years.

Moreover, on a buy-to-let basis for an expat application using a UK property as collateral for a mortgage, Liquid Expat can secure up to 75 per cent Loan to Value and up to 90 per cent for a main residential property for the owner/immediate family.

This is a sign the market has been healthy over the past decade, rather than declining as a result of the credit crisis.

Possible downturn

So the past decade may not have had that much of an impact, but what about the next few years?

Given the uncertainty over Brexit, the volatility of sterling and the concern over what will happen to freedom of movement across Europe, could we start to see an ebb in the tide of trans-continental property purchases?

Mark Posniak, managing director for Octane Capital, is of the view this more restrictive environment is generally not great for mortgage borrowers looking to buy overseas.

He says: “More regulation in the market has resulted in a reduction in lenders willing to offer finance to borrowers purchasing abroad. 

“Even those that do often want assets under management before they will even consider a mortgage.”

This is especially so on the continent, experts believe. Mr Howarth comments: "It has been a volatile time for Europe economically over the past 10 years.

"Bank liquidity became scarce following the 2007 financial crisis for key members of the EU, the exchange rate is volatile, and there are a number of political uncertainties across Europe - including Brexit."

But it is not all gloom, he adds. 

"International property investment has endured, and international non-resident's banks have made painstaking efforts to hold back liquidity to lend to non residents."

Hot pockets

However, not all countries have seen a drop-off in the number of British expats being able to get a mortgage, with certain countries showing a rise in the numbers of Brits snapping up property hotspots in other places globally.

France is still holding up well, says Mr Howarth: "France has seen one of the largest booms in non-residents property investment in Europe in the past 10 years."

According to Nigel Green, chief executive at international advisory firm the deVere Group, there are opportunities even further afield.

He says: “We believe appetite for financing an overseas property purchase with a mortgage has increased.

“Freedom of movement so far in the EU has also helped but we are finding many UK expats purchasing in the Middle East and Thailand, and, increasingly, in China.

“This is often achieved by leveraging from their UK properties to raise capital to buy outright overseas.”

Mr Marshall says many UK expats are looking to maximise leverage and loan-to-values to take the benefit of record low interest rates, including the maximum leverage against a UK purchase or UK mortgage, either to replace an existing mortgage to more competitive rates, or releasing capital to fund purchases in overseas locations, such making an Australian or United Arab Emirates purchase.

simoney.kyriakou@ft.com