Islamic FinanceIslamic mortgage

Introduction to Islamic Mortgages for UK Expats | IFG

Being an expat doesn’t exclude you from getting onto the property ladder. There are several ethical and sharia-compliant ways you can do this. Some banks even have dedicated accounts and products for you.

Buying, remortgaging or buy-to-let, there’s no reason why you can’t get your slice of the UK property pie.

In this article, we’ll discuss:

  • What to know before you apply + advantages
  • What are the repayment options?
  • Banks who give expats mortgages
  • Where you can’t get one
  • Why you should consider an Islamic mortgage
  • Other ways to get on the ladder as an expat

What to know before you apply

This is a niche market – so your options of where to go are limited and the rates might not be that great. Lloyds who suspended all expat mortgage lending in 2012 at the time said applications for expat mortgages account for less than 1% of all mortgage applications to Lloyds.

When you are shopping, ensure the product you’re interested in matches your immigration status. Offerings can differ if you are a UK resident, a UK expect, or an international resident.

Brexit is having a huge effect – especially on the British (sorry Brexiters). A weaker pound would be great for expects dealing with foreign currency. However, for UK citizens in the EAA, some British banks have closed expat accounts. They have withdrawn mortgages, savings accounts and credit cards from expats in Europe in anticipation of losing permission to operate on the Continent.

Another worry for expats living in the EU is that some have effectively become ‘Brexit mortgage prisoners’. This is following TSB locking customers into expensive deals paying the bank’s standard variable rate, currently at 4.44%. Compare this to their much cheaper buy-to-let mortgage rate of 1.89%, fixed for two years and available to those with a 40% deposit. Since New Year’s Day, TSB has banned anyone with an overseas address who has a buy-to-let mortgage in the UK from switching to a cheaper deal.

The above Brexit example shows how market conditions can affect your mortgage and currency value. Especially important for expats who might be dealing with foreign currency.

You’ll know to successfully secure a mortgage you must meet the requirements of the bank. From my research, it seems that for expats the requirements can be very stringent and difficult to meet. Unfortunately, there are expats from some countries that will be totally exempt from their offerings. Some requirements for example include your immigration status, having a certain level of income and proof of funds.

Proving your sources of funds can be difficult in the conveyancing process for expats. This is especially apparent if your money is held abroad. Solicitors are very concerned about protecting themselves against the possibility of money laundering. Property is a high-risk area, so the requirements you will have to meet are high. I’d suggest depositing funds in a UK bank account as soon as possible.

Ask yourself, do you have the time to meet all these requirements to secure a mortgage and complete a purchase? In non-COVID times, it could take months for you to complete the purchase of the property. Will the vendor be happy to wait?

When choosing who you’d like to receive funding from, it may not always about the best price. Sometimes it might be about service rather than the lowest rates. Check reviews or ask what other expats have said about them. An example of this is checking which lender will be most practical for you. Will it be an issue if you’re required to go into a bank or a solicitors’ office to sign documents, verify ID, etc?

Finally, two great bonuses for expats:

  1. Some mortgage products exempt you from certain fees (e.g., on electronic transfers of funds) or an exit fee if you repay your mortgage early.
  1. Expats bank accounts in the UK may be held abroad offshore. Some features of this include:
    1. potential tax-efficient savings and investments in different currencies.
    2. hold money, make and receive payments in multiple currencies
    3. manage foreign exchange
    4. access international expertise and investment advice
    5. keep your money in a secure and central location, connected to your local accounts
    6. keep the same bank account every time you move

What are the repayment options?

The non-Islamic banks generally offer two types of repayment options on mortgages for expats:

Non-Islamic banks

1.     Capital repayment

Here monthly payments are higher as you pay the interest and capital on your loan each month. At the end of the term, the loan is paid off if all payments have been made.

2.     Interest only mortgages.

Monthly payments are lower on this type of mortgage because you’ll just pay the interest on the loan each month, not the capital. When you apply, you may have to show you have the means to pay back the loan at the end of the term. For example, you could have an endowment policy, an investment or a savings plan which matures when the loan ends.

Islamic banks

Home Purchase Plan (HPP)

The Islamic banks offer a product called the HPP. We have a full article on this here.

Problem: Interest-bearing loans are prohibited under sharia. Conventional mortgages are interest-bearing loans.

Solution: A way to get around this is through the HPP.

There are three types of HPP – the most common is the Diminishing Musharaka

  • It’s a co-ownership agreement.
  • The bank will own most of the house (e.g. 80% of it) and you’ll continue to pay ‘rent’, buying further equity, until you have 100% ownership. Your share of ownership grows and theirs will shrink.
  • What makes this halal? The bank shares the risk of ownership with you. In other words, the bank is holding 80% of a property on its accounts, rather than an £80k debt.

Banks who give expats mortgages

There are various Islamic and non-Islamic banks that provide expats mortgages.

Note: this isn’t an exhaustive list, merely a selection to show you what’s on offer. Speak to your broker or do your own research for your specific circumstances. 

HSBC

Obviously not an Islamic bank, however, HSBC offer a dedicated expats account (HSBC Expats) and offers a range of mortgage products for expats.

The HSBC Expat Bank Account is held offshore in Jersey, Channel Islands.

They have a specific buy-to-let mortgage product. I believe you must sign up to their HSBC Expat Premier account if you want to buy or refinance a BTL property. This account itself has certain requirements.

Note: to secure a mortgage check you are from an HSBC approved country.

HSBC does not charge a completion fee for the electronic transfers of funds or an exit fee if you repay your mortgage early.

Repayment – they offer two ways to repay your mortgage.  You can choose to either pay off the loan and interest each month (capital repayment mortgage) or just the interest (interest-only mortgage).

Barclays

Another non-Islamic bank, Barclays have a number of international mortgage offerings for expats.

You can use Barclays if you want to:

  1. Own and occupy the property; or
  2. Buy as an investment (e.g. to then let out).

They have three types of mortgages:

  1. Fixed-rate
  2. Tracker rate
  3. Part and part

Repayment – Like HSBC, you choose to either pay off the loan and interest each month (capital repayment mortgage) or just the interest (interest only mortgage).

Gatehouse

An Islamic bank, and a bank we have personally used at IFG.

They offer BTL Products for UK Expats and International residents up to 80% FTV. This is higher than HSBC and Al Rayan whose max LTV is 75%.

Gatehouse offers various financing options. This includes simple single residential investment finance, to more complex structures including property portfolios.

They provide finance to:

  • individuals,
  • sole proprietors/partnerships,
  • limited companies; and
  • on and offshore SPV structures.

They do not require Assets Under Management.

To talk about expat mortgages with a qualified and FCA-approved mortgage broker who has experience of Islamic mortgages, simply drop a line to ifg@preceptfinance.co.uk and you will be in touch with our partner mortgage broker who can assist you.

Al Rayan

Another Islamic Bank. Al Rayan Bank said they identified the expat market as an underserved sector in 2013.

According to their 2016 press release, Al Rayan said they finance property for people living and working in any country, excluding those on the sanctioned list. Therefore their pool is much wider than other banks.

Al Ryan offers shariah-compliant Buy To Let Purchase Plans (BTLPPs) to British expats living abroad. This is where the expat customer purchases a property in the UK as an investment. Al Rayan Bank will provide 75% finance to value (FTV), lower than Gatehouses 80%.

Like with the other options there are no early settlement fees.

Al Rayans rates for their expat BTL offer

Check their website for updated figures.

 

To talk about expat mortgages with a qualified and FCA-approved mortgage broker who has experience of Islamic mortgages, simply drop a line to ifg@preceptfinance.co.uk and you will be in touch with our partner mortgage broker who can assist you.

Paragon Bank

Not one of the big banks, so their list of available countries is smaller.

The max loan to value per property for purchases and remortgages are:

  • Up to 65% LTV – max loan up to £1,000,000
  • Up to 70% LTV – max loan up to £750,000

The max loan value is much smaller than the big banks – e.g. Gatehouse offers 80%.

You can check out their offerings here.

Other lenders

There are some other places that are worth checking out:

Where you can’t get one

As far as I’m aware, Lloyds suspended all expat mortgage lending in 2012.

Because of Brexit, many banks are closing British expats accounts. Lloyds Banking Group, which includes Halifax and Bank of Scotland, have closed current accounts and credit card accounts of those who live in the EEA. Barclays have also closed all savings & investment products and current accounts for British expats living in Italy, Estonia, Slovakia and Belgium.

Why you should consider an Islamic mortgage

Muslim or non-Muslim expats should consider Islamic mortgages.

A big one is that there are no penalty points for paying your mortgage off early. For example, if you expect to come into a windfall or for your salary to increase dramatically, you will quite like the idea of being able to pay the full loan off without any penalty fees or payments. An HPP is perfect for this as Islamic law does not allow penalty fees like this.

Secondly, you’ll be using Shariah-compliant financing – so it’s also the halal option.

The main providers of Islamic mortgages are Gatehouse and Al Ryan. These Islamic banks may offer better services to expects as they specialise in dealing with expats.

If you’re not eligible for a mortgage from the other banks, Al Rayan finance property for people living and working in any country, excluding those on the sanctioned list.

If you want to read more on Islamic mortgages in general, we have plenty, like this article on HPP.

To talk about expat mortgages with a qualified and FCA-approved mortgage broker who has experience of Islamic mortgages, simply drop a line to ifg@preceptfinance.co.uk and you will be in touch with our partner mortgage broker who can assist you.

Other ways to get on the ladder as an expat

Our handy Halal Property Investing 101 Guide has all the answers. You’ll have to click to find the amazing insights ;).

Conclusion

Clearly, there are options out there for expats of all sorts UK, international, etc. To summarise:

  • Research independently before you apply, check the market conditions, your eligibility, etc.
  • Check which banks will offer you 1) best service 2) best deal.
  • Consider an Islamic mortgage to have a shariah-compliant one and secure possibly a better offer/service.
  • Read up on the other ways to get on the ladder as an expat by checking out our Halal Property Investing 101 Guide.

To talk about expat mortgages with a qualified and FCA-approved mortgage broker who has experience of Islamic mortgages, simply drop a line to ifg@preceptfinance.co.uk and you will be in touch with our partner mortgage broker who can assist you.

If you enjoyed this article, you can follow me on Twitter or LinkedIn.

Sources:

https://www.expat.hsbc.com/international-banking/what-is-offshore-banking/

https://www.ftadviser.com/2012/11/07/ifa-industry/companies-and-people/lloyds-suspends-all-expat-mortgage-lending-kQJpyii5wtixZHnMpZczMJ/article.html

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