Why the issue?
Firstly, you may ask, why the issue? If you are a seafarer wishing to buy in the UK and have good income, low outgoings and an adequate deposit, why won’t banks consider you for a mortgage?
The answer is a simple one: regulation. Since the Mortgage Market Review in 2014, the Mortgage Credit Directive in 2016 and ongoing intervention from the Prudential Regulation Authority (PRA), a division of the Bank of England, set up in 2013 to prevent a recurrence of the credit crunch of 2008 – mortgage regulations have restricted the lending practices of many banks. This has not only affected seafarers but all borrowers.
In short, banks have become more accountable and sometimes withdraw from market segments which pose risks to them, require more detailed underwriting and account management or just don’t fit with their business models.
Residential and buy-to-let deposit requirements
If you are buying a home for your family to live in whilst you are offshore or overseas, then you may be able to borrow up to 95% of the purchase price of the property you wish to buy. This will be dependent on you being paid in £ Sterling and working with a very visible UK employer.
If you will only use the property for yourself when onshore, or are paid in a foreign currency and/ or your employer is based outside the UK or may be more difficult to identify, you will be restricted to a maximum of 80% of the property value. However, there are only one or two lenders willing to consider this.
If you’re seeking to buy an investment (buy-to-let), you will need at least a 25% deposit or even more with some lenders.
The type of property you are buying is also key to a lender’s assessment of your application.
For example, new build properties frequently come with a requirement to put down a higher deposit.
Ex-council properties too, with some lenders not willing to lend on ex-council flats at all.
Properties that will be used as a holiday let or for multiple occupation, and may fall into the category of ‘House in Multiple Occupation’ (HMO), will prompt any prospective lender to question how you will be able to manage this when you are offshore and, generally speaking, will only be deemed feasible for experienced investors.
The location of your potential purchase also plays a part as many lenders focus on England and Wales (some only on London and the South East), with borrowing options in Scotland remaining limited. We do not currently know of any lenders willing to provide mortgages to seafarers for property purchases in Northern Ireland.
Some lenders providing mortgages to offshore workers prefer to deal with you if you work for a multinational employer and have an income paid in £ Sterling. So what if you don’t?
Smaller employers are certainly acceptable to a couple of lenders, and foreign currency income is also acceptable, particularly if you are still submitting a UK tax return.
Affordability models vary from lender to lender.
For residential mortgages, you can generally borrow up to 4.5 times your income, reduced by various factors including exchange rate calculations and existing debts.
With regards to buy-to-let mortgages, many lenders require the rent to cover the mortgage by at least 125% of a mortgage payment at a typical rate of 5.5% (i.e. not the pay rate).
However, there are some notable exceptions to this, including some lenders that use a holistic affordability assessment which uses your personal income along with the expected property rental before confirming how much you will be able to borrow.
The Mortgage Credit Directive set out specific rules for lending to consumers where they are paid in, or have their deposit coming from, a foreign currency.
In addition to this, Brexit has seen some increased volatility in foreign currency exchange rates.
So, if you are being paid in Euros or US$ (for exmaple), your application will be the subject of strict affordability checks when you apply for a mortgage.
Lenders adopt different approaches to underwriting but, most commonly, they will use an average (or the worst) exchange rate seen over the last few years (rather than the current rate) or use a typical exchange rate and then discount the relative income calculation by a set percentage.
Financial status in the UK
All lenders will need you to have or open a UK bank account for your monthly mortgage payments, but you do not need to have an existing mortgage.
With very few exceptions, lenders that provide mortgages for seafarers generally operate paper-based application processes so you will be required to complete an application form and supply documents to confirm your identity, income and proof of deposit. Be prepared to prove everything.
Lenders will frequently request additional documents from you to assist them with underwriting your mortgage, such as your employment contract, copy of your CV, existing mortgage statement(s) and evidence of savings.
The quality of your documentation is something that will be assessed by the lender so you must send original documents wherever possible.
You will not be expected to send your passport but you’ll be able to send a copy which has been certified by a UK solicitor, for example.
Additionally, if you only receive online documents (bank statements and utility bills, for example) you should supply these documents in an appropriate format, as these will need to be assessed by the lender’s underwriter upon submission of your application.
All in all, there are many options for seafarers to buy property in the UK; however, the market can appear rather complex at first glance – many lenders have criteria quirks that can take some time to be understood – and the application process can certainly feel somewhat protracted.
It is important to fully engage with all parties involved in your property buying process, including your solicitor, your mortgage broker and the estate agent. Communication is key in ensuring your purchase goes through as efficiently as possible.
If you’re a seafarer and want to buy property in the UK, speak to our advisors today.
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