British expatriate landlords with larger deposits are facing higher mortgage rates than borrowers with less equity, following a sharp reversal in expat buy-to-let pricing during September.
Research from FORTO Finance found that the average expat buy-to-let rate at 60% loan-to-value (LTV) reached 5.89% on 28 September, compared with 5.70% at 80% LTV. Borrowers at 70% LTV faced an even higher rate of 5.99%.
The findings, published in the mortgage broker’s first quarterly expat mortgage monitor, show how pricing in the specialist market can diverge from the conventional relationship between deposit size and mortgage rates.
The change was particularly pronounced during the week of 14 to 21 September, when the 60% LTV rate increased by 82 basis points and the 70% LTV rate rose by 80 basis points. By contrast, the 80% LTV rate increased by just one basis point.
Earlier in the quarter, 60% LTV had generally offered the lowest buy-to-let rates, reaching 4.96% in late August.
The repricing coincided with swap rates climbing above 4.70% and major high street lenders increasing fixed mortgage rates amid renewed inflation concerns linked to the conflict between the US and Iran.
The Bank of England held Bank Rate at 3.75% on 17 September, although three members of the Monetary Policy Committee voted for an increase.
Across the third quarter, average expat buy-to-let rates stood at 5.24% for 60% LTV, 5.36% for 70% LTV and 5.70% for 80% LTV. The equivalent residential averages were 5.06%, 5.16% and 5.44% respectively.
Anthony Curtis, director at FORTO Finance, said: “Expat pricing is set by a small number of active lenders, so a single repricing can move a whole band. That is what happened in the third week of September.
“Anyone assuming that a bigger deposit guarantees a better rate should check with a broker before committing. This is actually a weird quirk of a very specialised market; the large fees involved with some of these products mean the low headline rates don’t tell the whole story.”
LIMITED NUMBER OF ACTIVE LENDERS
FORTO Finance identified 46 lenders offering mortgages to expatriates, although it found that fewer than 20 were actively developing their propositions.
Esmé Rook, operations manager and paraplanner at FORTO Finance, said: “The expat market is wider than it is deep. While there are 46 lenders in the market, there are fewer than 20 that are actively developing their proposition, and many of them are mutuals using manual underwriting.
“A good broker, specialising in this corner of the mortgage market, will know which lenders are genuinely engaged in any given month.”
The research also identified increased activity in specialist property finance, particularly products for limited company landlords, houses in multiple occupation (HMOs) and holiday lets.
Skipton International introduced limited company buy-to-let mortgages for non-UK resident directors in August. The range offers borrowing up to 65% LTV, subject to a minimum loan of £200,000 and an application fee of £4,999.
In September, Saffron Building Society expanded its expat lending range to include HMO products, including finance for larger HMOs.
Another building society increased the maximum LTV on its three-year fixed-rate expat residential mortgage from 80% to 90%.
Curtis said: “The new products are aimed at limited companies, HMOs and holiday lets. That reflects how demand has shifted and influenced the wider expat property investor landscape.
“Expats landlords are more likely to want to hold property through a company and more likely to be looking for yield. Lenders are creating products for those borrowers.
“The move to 90% LTV on residential lending is the exception, and a welcome one.”
COUNTRY CRITERIA CONTINUE TO CHANGE
The report also highlighted changes to geographical lending restrictions, with regulatory considerations increasingly influencing which overseas borrowers lenders can accept.
Marsden Building Society removed its list of excluded countries in September, replacing it with assessments based on live Financial Action Task Force (FATF) information.
Under the revised criteria, it will not lend to borrowers living in, or with financial connections to, countries on the FATF black and grey lists.
Residents of the EU and European Economic Area remain excluded because the society does not have the necessary service agreements. Australian residents are also ineligible because of legislative restrictions.
Skipton International stopped accepting new applications from EU residents on 31 March, citing the EU’s revised Capital Requirements Directive.
Other lenders retain broader geographical criteria. Suffolk Building Society considers applicants living in most countries, excluding those subject to United Nations sanctions, while GB Bank accepts borrowers resident worldwide, subject to exclusions.
Rook said: “Where an expat can borrow is increasingly decided by regulators rather than by lenders’ credit committees. Linking criteria to the FATF lists makes the rules transparent, but it also means they can change overnight.
“Expats need to ensure their broker is checking country criteria on the day they submit an application, not the day they take the enquiry.”
FORTO Finance intends to publish its expat mortgage monitor quarterly, with the next edition also including figures on the number of dedicated expat mortgage products available.
