A guide on what housing applicants need to do in Britain
Analysts say now is a good time for foreign buyers, including those based in Hong Kong, to buy property in Britain. Here is what potential buyers should know about mortgage requirements, the buying process and the types of loans available.
What is the step-by-step process of applying for a mortgage loan in Britain?
The process begins with a mortgage fact-find document from the mortgage broker, which is sent to the applicant to collect information, says Kallem Brooks, associate director at Bond Finance, a mortgage broker regulated by Britain’s Financial Conduct Authority that helps buyers from Hong Kong, Singapore, mainland China and Europe.
After that, the broker researches the best mortgage options for that particular client’s strategy and reviews the asset the client is buying or remortgaging.
A research advice is emailed with the broker’s choice of the best lender and finance structure, followed by a client call to discuss in detail. The advice given depends on whether the client is buying in their personal name or that of a British limited company.
After this, the broker prepares a presentation paper for the approved terms of the loan. An agreement or a decision in principle follows this.
The process next moves forward to the stage of formal lending underwriting, which requires a series of documents from the borrower.
What documents are typically required from those seeking mortgage loans?
A buyer must prepare four documents when applying for a mortgage loan in Britain, according to Brooks. The first document is a copy of an official ID, such as a passport. A lawyer in the domicile country must certify the validity of the ID using the exact words, “certified to be a true copy of the original seen by me”. The lawyer also must have a presence on the internet to help establish their identity.
The other necessary documents are a proof of address, which also must be certified by a lawyer from the applicant’s country; bank statements showing income; and property portfolio, if any, whether in the UK or elsewhere.
Lenders will require a review of bank statements showing the full transaction history of the deposit funds from the domicile country to the UK and the accumulation of those funds.
What are the mortgage loans available to foreign buyers in Britain?
“Lending options are based on lending amounts, property, letting structure and location,” Brooks said.
There are various mortgage options for those seeking a loan under their own name or that of a limited company.
Loans can range between £150,000 (HK$1.46 million) and £1 million, with a tenor of between two years and five years for fixed-rate loans. Interest rates currently range from 5 per cent to above 6 per cent.
Loan amounts can be as high as 75 per cent of the value of the asset, which could be a single letting, a block of flats, a serviced apartment or social housing, among others.
What other tips do applicants need?
Brooks advises dealing with a broker who specialises in working with foreign nationals to “understand the administration requirements in detail”.
“Understand that the UK lending environment is very different to anywhere in the world, in that the applicant covers all costs of the process: application fees, valuation fees and lawyer fees, including the lenders’,” he added.
It is also crucial for buyers to consider their British inheritance tax (IHT) position.
Clients should consider mitigating potential IHT liability by taking out life insurance, which an independent broker can also advise on, says Toby Downes, a London specialist at property agency Haringtons. For non-UK domiciled clients, there many life insurance options available both onshore and offshore.
“IHT is payable at 40 per cent on the value of UK assets above £325,000 on the owner’s death,” Downes said.
“Owning the property in a company or a trust no longer protects against IHT.”