Mutuals continue to shame banks
Bob Young is managing director of CHL Mortgages
As the buy-to-let market continues to perform strongly, interest in the private rented sector is no longer limited to domestic property investors.
It’s no secret that overseas investors see the many upsides to owning UK property – and this trend has strengthened as the uncertain global economic climate persists – but what is more interesting is the percentage of this investment accounted for by expats.
A recent article in The Telegraph suggested that as much as 60% of London’s new property builds are snapped up by former residents, with much of this interest coming from Hong Kong and Singapore.
It’s not just prime areas of central London that are receiving this interest either, with areas such as Stratford (because of the Olympic regeneration) and Hayes (set to be part of the Crossrail development) also high up on the list.
It makes perfect sense as to why expats would want to share in the success of the UK buy-to-let market and their previous geographical knowledge may give them an advantage over other overseas investors, but despite this demand a number of lenders have stepped back from the expat market.
Lloyds TSB was the most recent high profile bank to withdraw its expat mortgages in November last year and its departure left just a handful of mainstream lenders – predominantly building societies – still standing in the sector.
Kent Reliance recently bucked this trend by launching a mortgage aimed at expats temporarily living or working overseas who want to add to their UK investment property portfolio, but it definitely finds itself in the minority at present.
A number of international private banks offer mortgages to expats, but this obviously precludes all but the wealthiest of clients.
Perhaps the most noteworthy aspect of the whole situation is that it is building societies who are servicing the demand.
The fact that mutuals continue to adopt flexible approaches and provide innovative solutions when such demand arises often puts their larger banking counterparts to shame.
This could be said not just of the expat example, but in the wider buy-to-let market and indeed, the mortgage market at large.
One only has to glance at the best buy tables to see building societies punching above their weight when it comes to products and rates and it is mutuals who have some of the most successful exponents of the Funding for Lending scheme, passing on drawn down funds to borrowers rather than using them to satisfy capital adequacy requirements.
While the buy-to-let market is enjoying the positive spell it currently is, the availability of more niche products such as expat mortgages won’t register on many radars, but is important that such offerings aren’t completely ignored when it comes to the long-term health of the sector.
There are obviously different safeguards and procedures to be put into place when lending to expats and overseas investors, but it seems somewhat short-sighted to dismiss this demand purely because the applications require a bit of additional underwriting and administration.
It’s not so long ago that the UK buy-to-let market wasn’t attracting investors domestic or otherwise, so it’s worth bearing this in mind before lenders turn their back on the expat market.