Expat borrowing

Will a surge of expat borrowers mitigate BTL tax change impact?

Last year, investors watched in shock as the value of the pound tumbled following news that the UK had voted to leave the European Union.

After such a dramatic change in exchange rates, Kate Faulkner, managing director of Property Checklists and a regular BBC commentator, said that anyone buying UK property with foreign currency would see it as a “bargain”.

Indeed, a recent survey from specialist lender Together found that 68% of brokers had seen an upsurge in enquiries from Brits abroad about loans for UK property following the referendum.

“Enquiry levels have certainly increased post-referendum,” stated Paul Elliott, head of specialist lending at John Charcol.

“There is, of course, a difference between an increase in enquiries and successful applications – many expats explore the opportunity, but [do] not necessarily commit to an investment right away.”

However, Ian Ward, managing director of the Mortgage Partnership, suggested this demand may not have been driven by the promise of a cheap deal.

“The logical conclusion is the concerns that expats living in Europe will be having over their status in their adopted countries of residence after Brexit,” said Ian.

“In the wider world, the same ripples will have concentrated minds on the need to ensure that, as expats, they have secured a place to come home to if required.”

Whatever the reason for expat investors to flock to the UK, some have questioned whether this spike could mitigate the impact of recent tax changes in the BTL market. 

These include an increase to stamp duty in April 2016, stricter underwriting for BTL finance at the start of this year and changes to mortgage tax relief last month.

‘Criteria can still be stringent’

Lucian Cook, director of residential research at Savills, believed expats may represent too small a proportion of the market to have any significant effect.

“…It isn’t likely to prevent lower levels of buy-to-let lending in the future, but it may act as a fillip for lenders servicing this particular type of buyer.”

Likewise, Paul remained unconvinced that expat investment would have a long-term role to play in the BTL sector due to concerns over the availability of credit. 

“While there is appetite from a handful of lenders, criteria can still be stringent when compared to UK-based investors looking to access mortgage finance.”

Expats could find it more difficult to access mortgage finance in the UK

Meanwhile, Chris Treadwell, head of Enness Commercial, believed the impact of the tax changes would likely outweigh any boom in expat investors.

“With some of the best five-year fixed products currently on the market, it’ll largely be those who can afford to invest with a long-term view of capital appreciation who will be continuing to buy property, rather than landlords who rely on rental income.”

Alternate reality

While the sector remained largely sceptical of expats’ ability to spark a resurgence in the BTL market, Paul felt this could change if alternative funding sources, such as peer-to-peer lending, gain traction in the coming years.

“Expats could use these platforms either to lend to UK-based landlords and take a return, borrow from such funding lines or pool resources with larger investment firms.”

“Demand, if sustained from abroad, will help keep property prices stable or even go higher,” added Ian.

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