But tax, residency and currency considerations keep many institutions from dealing with U.S. expats...
Americans living in London are no different from other Londoners in one important way, which soon becomes obvious if you spend time in their company: It doesn’t take a gathering of them long to start talking about property, and their experiences of buying, selling and owning it.
The similarity pretty much ends there, however.
Because the complications for U.S. expats looking to buy property in the U.K. are so significant – (as these transplanted Americans are normally quick to tell you) – few financial institutions involved in the business of selling U.K. residential properties, providing mortgages and otherwise helping individuals to wend their way to the final exchange of U.K. house sale contracts are keen to have any Americans at all as clients.
Even Citibank, the giant American institution which has offices in the U.K. and elsewhere internationally, doesn’t offer mortgages to Americans looking to buy U.K. property.
That the U.S. dollar has recently been at or near its highest level against the pound for at least 12 months – making U.K. property more attractive, at a time when the U.K. property market is softer than it has been recently, and prices even falling in certain key areas – has yet to trigger a noticeable rush by mortgage providers to go after the U.K.-resident American market.
Those U.K.-based institutions that do welcome American expats, such as Investec Private Bank and Coutts, often tend to be entities that cater to a high-net-worth clientele, typically U.S. bankers who are being posted to London to oversee the company’s European operations, and have done so for years.
(Investec, for example, looks for a minimum income of £300,000 and net assets of more than £3m on the part of those Americans and other foreign nationals with whom it provides U.K. mortgages).
One of a number of exceptions to this rule is Metro Bank, a “challenger bank” launched in the U.K. in 2010. The now-FTSE 250-listed institution has been willing to take American expatriates as clients since it began offering mortgages in 2011, according to the bank’s director of mortgage distribution, Charles Morley.
Metro Bank will provide American expatriates with mortgages for UK properties if they meet various criteria, such as having a minimum income of £75,000; the right to reside permanently in the UK; and, for non-dual UK/US British citizens, proof of sponsorship, such as by an employer. (See table.)
Metro Bank doesn’t, however, go out of its way to target American expats interested in U.K .mortgages, nor does it find a “huge demand” for them, a spokesperson said, but provides them as part of its “core mortgage range”.
Disincentives for foreigners
Some date the beginning of hardships facing foreigners, including Americans, seeking mortgages to buy properties in the UK to 2008, when the UK abolished certain tax incentives that had been available for offshore mortgages.
But the complexities for Americans were then further and significantly compounded, U.K. mortgage experts say, by the introduction of the U.S. Foreign Account Tax Compliance Act, signed into law by President Obama in 2010; and then by the EU’s Mortgage Credit Directive, which came into force in the U.K. in 2016.
The Mortgage Credit Directive, or MCD, was brought in to ensure that cross border mortgage provision was more consistently regulated than it had been. But the result, say those in the business, is that lending to non-British citizens of any nationality who wish to buy U.K. property has now become extremely complicated.
Under the MCD, even mortgages taken out in sterling are considered “foreign currency mortgages” if the individual is paid in, or holds assets in, another currency.
The issue is that such foreign currency mortgages come with a raft of regulatory requirements that need to be met, that ordinary sterling mortgages normally aren’t encumbered with.
“If an individual has indefinite leave to remain [in the UK], most lenders will look to lend to them,” says Nicholas Morrey, product technical manager for John Charcol, the UK mortgage brokerage.
“Foreign nationals without leave to remain but who are paid in sterling, can be considered by some lenders as well.
“But when you’ve got foreign nationals, including American citizens, without indefinite leave to remain and who are paid in a currency other than sterling, it becomes much more difficult.
“In the case of foreign nationals over here on a work permit (including American citizens), it comes down to what the individual lender’s policy is towards such applicants looking to borrow in the UK... and some of them will simply say, ‘we don’t do it at all’.”
Added to these factors are myriad ongoing issues having to do with residency, and concerns that those who take out a mortgage might leave the country and not return before they finish paying it off.
The potential pitfalls of lending to U.K.-resident foreigners – however rich – who don’t possess a U.K. passport were highlighted earlier this year when it was revealed that the billionaire Russian owner of Chelsea Football Club, Roman Abramovich, had run into undisclosed issues having to do with his visa, and apparently would no longer reside in the U.K.
(Abramovich is not known to have a UK mortgage and if he did, his moving his main residence to Israel would not in itself be a cause for concern.)
Aaron Strutt, a spokesman for the Trinity Financial brokerage, says American expats on visas can find themselves with a narrow window of opportunity for getting a mortgage with relative ease in the U.K.: They need to have been here long enough to have a track record lenders will find acceptable, but not so long that their visa is about to run out.
On top of all this, there can be inheritance tax issues that, U.K. mortgage experts say, are yet another reason any American looking to buy a U.K. property must plan on getting early and regular advice from a tax expert specialising in American expat tax matters, in addition to consulting an American expat-friendly (and experienced) mortgage broker.
“Do many UK banks and financial institutions steer clear of Americans more now than in the past? It certainly seems that way,” says Trevor Egan, a partner with Buzzacott, a London-based chartered accountancy which is among a number of American expat specialists on this side of the pond.
“There are far fewer companies offering these services than there were. FATCA rules don’t actually apply to mortgages, but they introduce a whole raft of obligations on institutions dealing with Americans, to the extent that the market is seen to not be worth the bother.”
Size of U.K.'s expat U.S. mortgage market: unknown
The number of U.K.-resident Americans taking out mortgages on U.K. properties each year is unknown, just as is the number of mortgages currently held by such individuals is also a mystery. The U.S. is well known in expat American circles for not saying how many Americans it officially believes to be in any individual countries.
Earlier this year the U.K.’s Office for National Statistics estimated the number of “American citizens” (as opposed to “U.S.-born” individuals) resident in the U.K. in the year ending in June 2017 as being “in the range of 121,000 to 157,000.”
Another ONS estimate put the number of US-born immigrants resident in the U.K. in 2013 at 197,000.
As with all such data, an unknown number of these individuals would be children and young people unlikely to yet be in the market for a home.
Also unknown is the number of so-called “accidental Americans” resident in Britain. These are individuals who don’t consider themselves to be American because they have lived here, or elsewhere other than the U.S., for most of their lives, but who are nevertheless regarded by the US as being citizens because they were born there.
It doesn’t matter that these individuals never renewed the passports they were given as babies or children to emigrate, or otherwise did anything else to maintain their citizenship, and that they may never have returned to the States since leaving as long as fifty years or more ago.
The fact remains that today, the U.S. regards such individuals as still having significant potential U.S. tax obligations – for example, in the event that they make a sizeable profit on the sale of a main residence in the U.K. (See ‘Get professional advice to avoid the risk of a ‘Boris’, U.S. expats warned.)
It also means they may experience more difficulty in obtaining a U.K. mortgage than they had expected to, or even than they did in the past, when there was less regulation and those that there were weren’t so strictly enforced.
Complexity ‘a private bank speciality’
Investec Private Bank business development manager Peter Izard says that the reason private banks like Investec PB and Coutts tend to do a fair number of American expat mortgages relative to their total business (as well as to the American expat mortgage business of traditional high street banks) is because they “are able to deal with these [complex] issues that Americans face, because that’s what we specialise in – whereas most retail lenders can’t."
Investec PB has been providing mortgages to foreign nationals resident in the U.K. since the mid-1990s.
In addition to the problems of foreign currency mortgages, clients “can have issues having to do with the requirement by some private banks in the U.K. – not Investec, though – that their mortgage clients also entrust their investment portfolios with them, even if, for example, they’re a senior executive with a company like JP Morgan or Merrill Lynch,” Izard says.
“Then you’ve got FATCA; and then, if they’re not dual citizens, you’ve got the matter of the individual’s visa status.
“Here we take a pragmatic approach, which is to say that we query an individual’s determination to invest in a London or U.K. property if they’re not absolutely confident that they’ll be getting their Tier 1 or Tier 2 visa, with five years or less to run, renewed.”
Andrew Grimes, head of Americas clients at Coutts, says FATCA in particular saw many traditional high street banks walk away from the American expat market simply because they didn’t have enough American clients to justify the added work and expense involved in looking after them.
“Whereas we saw FATCA as something we had to make part of our business going forward,” he says.
Befitting its bespoke approach – which includes banking and tailored investment services for U.K.-resident Americans – Coutts offers mortgages to expat Americans resident in the U.K. as part of a complete wealth structuring service. It is one that Grimes says is designed to accommodate high-net-worth and ultra-high-net-worth individuals “who are seeking mortgage finance of at least £1m.”
Because it is accustomed to dealing with clients and their mortgage needs on a case-by-case basis, and the circumstances can be unique, Grimes says Coutts can be flexible on such details as calculating affordability and the maximum loan-to-value ratio, in part because it has to be, since the price volatility on super prime properties (values over £10m) is greater than those of smaller – even if still substantial – value.
“With larger loans against super prime properties, you tend to be a bit more conservative. But then, most banks lend a bit less for larger properties than they do for smaller ones.”
‘No end to the appetite’
Complex though the business of accommodating American purchasers of U.K. properties may be, those industry experts who are in the business of doing it, Izard says, are seeing “no end to the appetite” of such U.S. expats for British residential properties, even though prices have been falling, particularly in key London markets.
(Izard’s comments and those of his industry colleagues came ahead of the Bank of England’s quarter of a percentage point interest rate rise on 2nd August, to its highest level since March 2009, which, while raising U.K. mortgage rates, also sent the US dollar briefly even higher than its already strong post-Brexit range.)
Izard’s observation is echoed by others, including mortgage brokers specialising in American expats, who say that any impact Brexit is having on the American presence in the U.K. (which, they note, is largely a greater London phenomenon) is being softened by growth in other industry sectors, such as the currently booming and expanding technology/internet sector.
Some also point to what they say is an under-recognised advantage that London, being an English-language jurisdiction, continues to have over rival financial services jurisdictions around the world – including those in Asia and Europe – where English is often merely the dominant second language of the culture.
Banks may be adding outposts in Europe, they say, but that doesn’t mean they’re not keeping a major presence in London.
Coutts, for example, has yet to see a drop-off in the demand of American expats in the UK for mortgages, Grimes says, adding that the number of U.K. mortgages the bank arranges for Americans each year has in fact actually been “steadily increasing” for some years.
“It’s difficult to say whether we’re getting a bigger share of the market or if this particular sub-set of buyers in the market is flourishing; probably it’s a bit of both,” he adds.
And although the UK property market as a whole is, as has been widely documented by the media recently, seeing “less deal flow” than it did two years ago, Grimes says he and his Coutts colleagues “certainly don’t see any indication that there’s going to be a mass exodus any time soon, particularly with the pound at [around] US$1.29, and London remaining an important business centre” that international families are as keen as ever to live in.
Investec PB’s Izard agrees: “London is still the international financial hub of the world, and a lot of American nationals in that finance world are still relocating to London for work purposes.”
Even with the strong dollar, though, American expats won’t just buy anything they’re shown, and are “prepared to walk away” if they sense they’re being asked to pay more than a property is worth, says Andrew Montlake, brand director for Coreco Mortgage Brokers.
“They tend to be hard negotiators, and understand the value of things – including the value of service, so they very rarely question things like brokers’ fees.”
Like others interviewed, Montlake says Coreco stresses that its American clients get qualified and expert tax advice early on in the property-buying process.
Not to mention a good mortgage broker, adds Morrey, of John Charcol mortgage brokers, before relating how a couple came to him after being told by their major U.K. bank that it couldn’t give them a mortgage on a property.
“I ended up placing a mortgage for them with the Isle of Man-based international banking arm of that same major bank,” Morrey says.
“The point is that we have the information; the experience, and we’re not tied to any one lender.
“So the idea of an American citizen looking to get a mortgage over here, as long as they have some time left on their visa and they’re not looking for more than 75% LTV, doesn’t phase us at all.”
To read and download a chart featuring the offerings of some providers of UK mortgages to American expats, click here.
To read about how the word – and practice – of "gazumping" is just one of a number of things about buying a home in Britain that surprise Americans who have had some experience with house-buying back in the States, click here.
A version of this article originally appeared in the September, 2018 issue of Mortgage Strategy magazine.