London is one of the most exciting cities in the world, where a plethora of culture, creativity and business amalgamate to offer unrivalled opportunity and experience. It’s not surprising, therefore, that the UK capital has remained a popular destination for foreign nationals and international investors looking to buy property in the wake of Brexit.
Political uncertainty and tax changes have indeed impacted activity in London’s ultra-prime market over the past few years, but there’s no doubt activity has bounced back. The draw for foreign nationals to have a home in London after Brexit is as strong as ever.
The cosmopolitan capital is a powerhouse for business and the arts, while quality homes in renowned neighbourhoods, such as Mayfair, Chelsea and Knightsbridge, are considered international safe-haven assets. Property in these top postcodes has weathered many financial storms proving to be a stable long-term investment.
The current backdrop of global economic uncertainty has further solidified London’s status as a secure market, and a home in the capital remains the jewel of international property portfolios. Record low-interest rates mean it is an attractive time to borrow and secure cheap funding costs.
Foreign nationals who take a mortgage in a currency outside of their main residence also have the potential to benefit from changing exchange rates, which can spread investment risk and effectively reduce the debt over the long term.
There is a wide range of mortgage options available for foreign nationals in London.
High street lenders cap loan sizes or have limited appetite for international borrowers. However, private, niche and investment banks will all comfortably work with complex global clients who are not UK citizens.
Lenders sometimes prefer borrowers to be resident and having received an income in a UK bank account for a minimum of two years in order to have built up a credit record.
Borrowers who have permanent residency or indefinite leave to remain may be looked upon more favourably for a mortgage. Tier 1 or tier 2 work visas, a family visa or a residence card could also help foreign nationals obtain a mortgage, but there may need to be at least six months or a year remaining.
However, high net worth individuals don’t always need permanent residency or visas for a mortgage in cases where they are sufficiently affluent.
Borrowers with high levels of income or wealth are viewed as a safer lending risk, and banks will offer loans with terms and conditions tailored to the individual circumstances of a client.
In all mortgages for foreign nationals, lenders will carefully consider the financial profile of a prospective borrower; they want to understand where funds are coming from and the risk associated with it. The nationality of a borrower and the source of wealth is taken into account by a lender, with some jurisdictions considered more stable and secure than others.
High net worth borrowers may be asset rich with low levels of liquidity or have income that comes from a number of different sources – both national and international.
There are lenders specialising in all different niche areas of the market for wealthy foreign national borrowers. For the most complex of borrowers, little known private boutique banks will take the time to understand all aspects of the case. In some cases, borrowers may need to be recommended or introduced to the bank through a trusted source.
Very large loans are usually facilitated by global international banks, with lenders that have a high level of understanding of borrowers who are foreign nationals. The firms usually have branches across the world meaning they are familiar with local customs in a number of different countries – often making it the ideal option for a borrower with various income streams from abroad.
Most private banks will lend in the region of 60-65% loan to value (LTV) on high-value property in London, but in certain cases, up to 85%, LTV can be secured.
Low borrowing costs mean mortgage rates can be secured at sub 2%.
There may be arrangement or lender fees to be taken into account, these can range from 0.25% or be as high as 2%.
Foreign nationals can sometimes help qualify for better interest rates by keeping assets under management (AUM) with the lender in question.
Banks may also ask for AUM in cases where borrowers have a particularly complex financial profile.
This may be a flat £500,000 kept with the lender or around 30% of the loan amount.
However, AUM is not always required and lenders do offer so-called dry lending without AUM.
In some cases, boutique lenders may want an agreement that the borrower in question will conduct future business through the bank.
Interest-only mortgages are an option for many foreign nationals buying a property in London and can help free up cash flow for the borrower.
Criteria may also have some restrictions around age, but strong wealth profiles allow for these to be bypassed.
International property investors looking to add to their portfolio in London have an array of mortgage options.
Private and investment banks are again willing to provide buy to let mortgages to affluent foreign nationals.
As with the residential lending, banks will want an in-depth understanding of the borrower’s financial profile.
Residents who have earned an income in the UK for the past two years will generally have more options than those who have not.
Lenders will also prefer borrower to have some understanding of the market in which they are operating.
Buy to let mortgage lending is typically based on the rental income generated by the property and available at 65-75% LTV.
The rental income will need to cover 100-150% of the monthly mortgage payments.
However, rental coverage is less important in cases where clients have satisfactory levels of income or wealth.
There are also specialist mortgages available to investors who want to improve the value of a property through a refurbishment – these loans will provide some of the funding costs for development.
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