Expat buy-to-let borrowers with a 40% deposit are now paying more for their mortgage than those putting down 20%, according to mortgage broker FORTO Finance.
The first edition of the broker’s expat mortgage monitor found the expat buy-to-let rate at 60% loan-to-value (LTV) stood at 5.89% on 28 September, against 5.70% at 80% LTV. The 70% LTV rate was higher still, at 5.99%.
The reversal happened in a single week. Between 14 and 21 September, the 60% LTV buy-to-let rate rose by 82 basis points and the 70% LTV rate by 80 basis points, while the 80% LTV rate rose by one basis point. The 60% LTV band had been the cheapest buy-to-let reading on the index for most of the quarter, falling as low as 4.96% in late August.
The jump came as swap rates climbed above 4.70% and the major high street lenders repriced their fixed-rate ranges twice in September amid renewed inflation fears over the conflict between the US and Iran. The Bank of England held Bank Rate at 3.75% on 17 September, with three of the nine Monetary Policy Committee members voting for an increase.
Across the quarter, average expat buy-to-let rates were 5.24% at 60% LTV, 5.36% at 70% and 5.70% at 80%. Average residential rates were 5.06%, 5.16% and 5.44% respectively.
“Expat pricing is set by a small number of active lenders, so a single repricing can move a whole band,” said Anthony Curtis, director at FORTO Finance.
“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.”
The index also tracks the number of lenders in the expat market, and FORTO identified 46 offering mortgages to expats.
“The expat market is wider than it is deep,” said Esmé Rook, operations manager and paraplanner at FORTO Finance (pictured).
“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.”
New product launches in the quarter focused on specialist property types and borrowing structures. Skipton International launched limited company buy-to-let lending for non-UK resident directors in August, available at up to 65% LTV with a minimum loan of £200,000 and a £4,999 application fee.
Saffron Building Society added expat HMO products in September, including for large HMOs, and another building society raised the maximum LTV on its three-year fixed expat residential mortgage from 80% to 90%.
“The new products are aimed at limited companies, HMOs and holiday lets,” Curtis explained. “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.”
The quarter also brought changes to the countries lenders will accept. Marsden Building Society scrapped its country exclusions list in September and now assesses applications against live data from the Financial Action Task Force (FATF).
It will not lend to applicants living in, or with financial links to, countries on the FATF black and grey lists. Residents of the EU and EEA remain outside its criteria because of the absence of service agreements, and Australian residents are excluded because of legislative restrictions.
Skipton International has not accepted new applications from EU residents since 31 March, citing the EU’s revised Capital Requirements Directive. Other lenders continue to use broader criteria. Suffolk Building Society considers most countries of residence except those subject to UN sanctions, while GB Bank lends to residents worldwide, subject to exclusions.
“Where an expat can borrow is increasingly decided by regulators rather than by lenders’ credit committees,” Rook said. “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.”
