Mortgages in the UK

Briefly about the main thing

To begin with, you can get a mortgage in the UK for the purchase of both residential and commercial real estate; applications are considered from residents and non-residents, and you can make a deal for both an individual and a legal entity.

Residents of the country can choose from several mortgage lending options: get a housing loan, an investment loan (buy-to-let, for renting out housing) and a commercial loan (for buying commercial properties), as well as apply for a short-term a loan. Non-residents are deprived of such diversity: the requirements imposed on them are tougher, the initial payment is larger, and mortgage rates are higher. In addition, it is almost impossible for a non-resident to obtain a bank loan for the purchase of real estate under construction (off-plan), as well as for the purchase of an object in an apartment hotel.

In the eyes of British banks, Russia is a country of increased risks, which means that the criteria for approving loans for our compatriots are much more stringent than, say, for citizens of the European Union moving away from Britain. But, perhaps, the main specific feature of mortgage lending in England is the threshold amount, below which it is simply unprofitable for banks to issue loans to non-residents. The established practice is such that the minimum amount considered by the bank is considered to be £1 million. Latvian banks have started to actively work with Russians and CIS citizens on the British market - they give a loan for 500,000, but at a rate of 5.5%-6%. The advantage is that banks are familiar with Russian forms of personal income tax and income, so they make decisions much faster than European institutions.

Bank requirements and mortgage loan conditions

Of course, the requirements of various UK banks differ slightly from each other, but not every British bank will work with Russian applicants. The largest financial conglomerate HSBC, publishing official requirements for non-resident borrowers, honestly warns that mortgages in their bank may not be available to citizens of all countries.

The initial payment for non-residents is about 50%, while residents can pay only 5-10% of housing with their own funds. For foreigners, British banks are ready to finance no more than half of the cost of the object, but the larger the initial payment, the lower the interest rate and the more profitable the loan, and the higher the chances that the mortgage will be approved at all. The paradox for foreigners is that it is easier to get a large loan from a UK bank than a small loan.

The amount that the bank will approve is determined individually in each case, but for guidance, we can proceed from four times the annual income remaining after taxes. Let's say the monthly income of a Russian citizen after taxes is 50,000 rubles, which roughly corresponds to 715 pounds. In this case, the annual income will be $8580, which means that with a high probability the bank will approve the amount of £34 320 – this is hardly enough for a garage in London. In order for a credit institution to be interested and profitable to deal with a borrower, he must earn about 250,000 per year, a condition, let's say, that is not suitable for the average Russian. But the same Latvian banks will accept income in £125,000, however, it is necessary that it be 100% legal: it goes through all tax authorities and has the appropriate personal income tax certificates. Accounting for annual income can include not only wages, but also interest on deposits in banks, alimony received, dividends on securities, income from renting out real estate, other sources of passive income - everything that can be documented. Spouses or partners can get a mortgage calculated on the amounts of their total income. Even people who are not related, for example, friends, can buy a house with a mortgage loan, only in this case their income will be calculated not by simple summation, but by a special formula.

Most major British banks (HSBC, Barclays, EFG, Lombard Odier, Credit Swiss, etc.) value their reputation, so they introduce an unspoken qualification to become their client, you need to have assets in the amount of $5 million. Banks are ready to give such clients a loan, for example, secured by the investment portfolio itself or secured by real estate, if it costs over $1 million, is located in central London and meets some other parameters. Otherwise, you can turn to financial brokers. They work with different structures that are more flexible, since they are not regulated by the FCA (Financial Regulation and Control Authority). They can give a little less than a million, and for a shorter period (Bridge loan) and lend a little informal real estate.

The procedure for repayment of a mortgage loan can be any: either only interest, or the payment of interest and the body of the loan. In the first case, the loan is issued for a period of up to five years, and the loan itself is extinguished at a time, as a rule, after the sale of an apartment purchased with a mortgage (in some cases, the loan can be repaid throughout the validity period, in a convenient mode for the client). If the borrower is ready to pay the loan and interest on it during the entire term, then the loan term can be any (up to 25-35 years) until the borrower reaches the age of 65. However, it is worth remembering the penalties that come into force in case of early repayment of payments: depending on the credit institution and the term of the loan, the penalty will be 1-3% of the amount.

The average mortgage rate in a British bank varies between 2-5% per annum for non-residents, and about 1.5-2% for the Queen's subjects.

Mortgage lending process

1. Obtaining preliminary approval of the loan by the bank. The consideration of documents and the provision of a mortgage loan may take more than one month, and during this time the dream house may go into the hands of another owner. Therefore, simultaneously with the start of the search, it is necessary to provide an initial package of documents to the bank to obtain preliminary approval, without specifying a specific amount for a specific object. At this stage, it is important to obtain the bank's agreement in principle to finance the transaction (mortgage in principle).

2. After the bank confirms its readiness and terms of lending(mortgage in principle), the borrower must decide on the property and submit a full package of documents for the allocation of a certain amount. To make a purchase, a lawyer is always involved, he can also prepare a real estate report for the bank and provide a package of documents to the bank.

3. After receiving the documents, the specialists of the credit institution start the process of checking the potential borrower. At the same time, the real estate is evaluated for compliance with the value of the object with the requested amount.

4. Completion of the transaction the bank transfers the required amount to the real estate seller's account.

The whole process of obtaining a mortgage loan in Britain – from the first call and before receiving money to the lawyer's account to complete the transaction– takes up to three to four months, depending on the bank and the terms of the transaction itself.

Standard package of documents for obtaining a mortgage

The package of documents requested by banks in England, Scotland, Wales and Northern Ireland may vary, but the standard set consists of:

• Passport or identity document;
• Personal income tax certificates (from the employer) and cash flow statements on the bank account for the last six months. If the applicant is the owner of the business, then an auditor's report will be required as proof of profitability - company balance sheets, annual financial statements;
• Additional documents confirming the ability to repay monthly payments;
• Application forms for obtaining a mortgage loan;

• In addition to the standard package of documents, banks can request supporting information - this is not a whim of employees, but data that will help determine the solvency and reliability of the borrower with greater certainty. For example, utility bills may be required (to confirm the address of actual residence), tax returns, data on existing financial obligations, a summary and a summary of information about the source of funds, etc.

Additional costs for mortgagelending in the UK

The additional costs that fall on the shoulders of the buyer of real estate with the help of borrowed funds include the following cost items:

• The assessment of the acquired property (not to be confused with the technical expertise of the object, which is carried out at the personal request of the buyer) is carried out in order for the bank to make sure that the value of the property is sufficient for collateral. Depending on the object, the assessment will cost £500 — £3000. The choice of the appraiser remains with the bank, and they prefer to work with their own, not the cheapest specialists.
• Real estate insurance is, unlike life insurance of the borrower, a prerequisite for British banks. This item of expenditure depends on the object, the amount of coverage, insurance claims and a number of other factors.
• The bank's administrative fee for reviewing the application and providing a mortgage loan is about 1-1.5% of the amount.
• Legal services – on average from £850.
• Mortgage broker services will cost 0.5-1% of the amount.

Expert recommendations to those who plan to take out a mortgage in the UK

• Before applying for a mortgage to British banks, make sure that you have a crystal clear and maximally transparent credit history.
• Prepare the entire package of documents and get the maximum number of references about all sources of income. Here, as nowhere else, the principle of "The more, the better" works. 
• Carefully choose the object for which you take a mortgage. It will be difficult to sell an unformatted object, which can become a big problem with a one-time payment of the loan body - you simply will not have the funds to repay a large part of the debt. And no bank will procredit an illiquid object - strict requirements do not allow financing such objects, because in case of non-payment of the loan by the borrower, the bank will be forced to sell the object on its own to get the money back.
• Do not try to figure out the intricacies of the mortgage lending process of another country on your own. An attempt to save 1% on specialist services can result in a refusal to provide a loan, and the lack of borrowed funds often puts an end to the realization of the British dream.