Common pitfalls - expat & overseas worker mortgage applications
Applying for a mortgage while living or working overseas isn't necessarily more difficult than applying from the UK.
However, lenders often need to build a more detailed picture of your circumstances before they can make a lending decision. That means they rely heavily on your documentation, financial history and the consistency of the information you provide.
Most applications that encounter problems do so because of issues that could have been anticipated and addressed earlier.
The following are some of the most common pitfalls we encounter.
Maintaining your UK financial presence
Closing your UK bank accounts
Many expats simplify their finances after moving abroad by closing their UK current accounts.
While this may seem logical, almost all UK lenders require their mortgage direct debits to be paid from a UK bank mainland bank account and won’t even accept an application without one.
Not maintaining an active UK credit file
Leaving the UK doesn't mean your UK credit history stops being important.
Many lenders will want to assess your UK credit profile and applicants who close every UK credit facility may find they have very little recent UK credit history for lenders to assess.
Maintaining a sensible, well-managed UK credit profile is usually very beneficial.
Missing payments on UK credit facilities
One of the most avoidable problems we see is applicants accidentally damaging an otherwise excellent credit record by becoming complacent about their UK finances while abroad.
Direct debits are forgotten.
Credit cards are left unused but annual fees become payable.
Statements are no longer received because correspondence has moved overseas.
Even one missed payment can remain visible on a credit file for several years.
Allowing UK accounts to become dormant
Some banks review inactive accounts and may eventually close them.
Applicants often only discover this when they need those accounts to support a mortgage application.
Registering UK accounts to an overseas address
Many expats update all of their UK banking correspondence to their overseas address.
While this often makes your life easier or your finances more manageable, many lenders require an applicant to have a bank account registered to a UK address.
Not having a UK correspondence ("service") address
Many expats benefit from having a trusted UK correspondence address, often the home of a close family member.
This can assist with banking correspondence, credit records and important documentation while living overseas.
Many lenders insist on an applicant having a UK correspondence address and are perfectly happy with that being a mere “service” address.
Returning to the UK without rebuilding your credit profile
If you're planning to return to the UK before purchasing, simple steps such as registering on the electoral roll and ensuring your financial records are up to date and registered at a UK address can help rebuild your UK credit profile.
Income & employment
Employment contracts that don't demonstrate continuity
Many overseas workers are employed on fixed-term contracts. That's rarely a problem in itself. The issue arises when the paperwork gives the impression that employment simply ends on a particular date.
If contracts are routinely renewed or long-term employment is expected, employer letters or contract wording that demonstrates this can provide valuable reassurance to lenders.
Changing jobs immediately before applying
Even where the new role offers higher income, changing employer shortly before a mortgage application can reduce lender choice.
Some lenders are perfectly comfortable with this. Others prefer applicants to have completed probation or received a certain number of months’ pay slips.
Some require a specific period of time to have passed before they will accept an uplift in salary from a new job.
Assuming every type of income will be accepted
Many overseas remuneration packages include:
Bonuses
Commission
Housing allowances
Schooling allowances
Location allowances (danger pay)
Per diems
Terminal bonuses
Every lender assesses these differently.
Understanding which elements are acceptable before choosing a lender can make a significant difference to affordability.
Not demonstrating bonus history
Where bonuses form an important part of income, lenders will often want to see that they are regular and sustainable.
Maintaining a clear record over several years makes assessment considerably easier.
Assuming that foreign currency is treated the same as sterling
Being paid in US dollars, euros or another currency does not automatically make borrowing more difficult.
Many lenders actively welcome foreign currency applicants. The key is understanding which lenders are comfortable with the currency you earn and how they assess exchange rate risk.
Many lenders apply a “haircut” to foreign currency to hedge against future downward fluctuations in exchange rate. They often either reduce it to a lower percentage of its converted value – often 75% or 80% - or take it at its lowest exchange rate in the last 3 or 5 years.
Not explaining overseas tax arrangements
Tax-free income or unfamiliar overseas tax systems can sometimes prompt questions from underwriters.
Simple supporting documentation or employer confirmation can often avoid unnecessary delays.
Documentation
Not building strong overseas proof of address
Lenders need to verify where you live. If utilities, tenancy agreements and local banking arrangements are all in an employer or landlord's name, proving your residential address may become more difficult.
Building a clear paper trail can make underwriting much simpler.
Not Keeping Historic Documents
Applicants often assume employers or overseas banks can easily reproduce historic payslips, contracts or statements. Unfortunately, that isn't always the case.
Keeping copies of important financial documents can be the difference between a successful and an unsuccessful application.
Documents That Don't Match
Small inconsistencies can generate surprisingly large numbers of questions. Examples include:
Different spellings of names
Different addresses
Expired passports
Different signatures
Different employment dates
When there are inconsistencies across a type of document – like your proofs of address – it can render those documents unacceptable.
It can also create a need for enhanced due diligence, which can cause both logistical problems and delays.
Documents in another language
Some lenders require certified translations of overseas documentation.
Finding this out late in the application process can introduce unnecessary delays.
Deposits & Source of Funds
Not keeping a complete audit trail
Deposit verification has become one of the most important parts of mortgage underwriting.
If your deposit has originated overseas, lenders will want to understand exactly how those funds were built up and will often want to see evidence of its original source. If your savings have accumulated over time, they may ask you to evidence how they have built up.
Keeping statements that demonstrate the complete journey of your savings, bonuses or liquidity events can save considerable time later.
Moving money through multiple accounts
International banking often means holding accounts in several countries. That's perfectly normal. However, repeatedly moving salary and savings between those accounts creates additional work for both you and the underwriter.
Remember that lenders will often ask for statements from every account through which your income or deposit has passed.
Keeping your financial trail as straightforward as possible can significantly simplify the application process and reduce the time it takes to complete.
Overseas Gifts That Aren't Properly Documented
Where family members overseas are helping with a deposit, lenders will usually require evidence of both the gift itself and the original source of the donor's funds.
Preparing this early helps avoid delays.
And explaining to those family members that a UK lender may want to carry out checks may avoid awkwardness.
Existing Property
Letting Out Your Former UK Home Without Consent to Let
Many expats retain their previous UK home after moving overseas. If the property is let to tenants, don't assume your existing residential mortgage automatically allows this.
Many lenders require formal Consent to Let or a switch onto a buy-to-let mortgage.
Being unclear about your intentions
One of the biggest causes of confusion is uncertainty about how the mortgaged property will be used. Will you:
Live in it immediately?
Return to it in the future?
Let it to tenants?
Allow family members to occupy it?
Split your time between countries?
Very few lenders are comfortable where intentions are unclear or appear to change during the application. Being open, consistent and decisive from the outset is essential.
Preparation
Waiting until you've found a property
Many expats only begin gathering documentation after they've had an offer accepted. Unfortunately, this is often when time is at its shortest.
Preparing employment documents, identification, proof of address, deposit evidence and financial records before you begin your property search usually results in a far smoother application.
Speaking to someone who rarely deals with expat mortgages
Expat mortgages are a specialist area of lending. Policies differ significantly between lenders, particularly when overseas income, foreign currency, complex remuneration packages and international employment or residence are involved.
Choosing a mortgage adviser who understands your circumstances is every bit as important as meeting a lender’s published criteria.
A little preparation goes a long way
Most expat mortgage applications don't become difficult because the applicant is unsuitable. They become difficult because lenders need information that wasn't anticipated or documentation that could have been prepared much earlier.
With good preparation, a clear financial trail, expert handling and the right lender, overseas applications can progress through to completion without encountering too many hurdles.
The key is understanding what lenders are looking for before you submit your application.