Mortgages in the UK

There are no restrictions on internationals getting mortgages to buy a property in the UK, but the system of applying for and receiving a home loan can be complex. To help you get on the property ladder, we explain how the UK mortgage system works, including affordability considerations, rates, and taxes.

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Mortgages in the UK

The UK has one of the biggest mortgage markets in the UK, with 13.5 million mortgages worth around £1.7 trillion. Homeownership is more popular in the UK than in many countries across Europe.

Although it has declined among younger age groups in recent years, buying a home in the UK and getting a mortgage remains something that many young families plan for. There are different types of mortgages in the UK available through banks and building societies. Most run for around 25 years, although they can be longer or shorter.

Should you buy property in the UK?

There has been uncertainty regarding the UK housing market since the country left the European Union on 31 January 2020. Housing prices took a big knock in 2021, but have relaxed in 2023. Keep in mind that the growth rate of prices fluctuates around the country, with some places rising more than others.

The average house price across the UK has remained fairly high and is around £285,861 as of May 2023.

There are pros and cons if you decide to buy a house in the UK. Your decision depends on your personal preferences and circumstances. Renting offers greater flexibility but less stability. It also carries high costs, especially in the bigger cities. That being said: it is often a more viable move in the early period before you have decided where you want to settle.

To help you weigh out your decision, read more about renting versus buying in the UK for some of the key considerations.

Who can get a mortgage in the UK?

There are no legal restrictions on any adults getting a mortgage in the UK. Internationals can take out mortgages in the UK whether resident or non-resident, although exact terms will vary depending on individual lenders.

Each bank or building society will have its own set of requirements, but in general, the main factors are:

Age

As mortgages are essentially home loans that you pay off over a long period, it’s more difficult for older age groups to take out a mortgage in the UK.

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Most banks and building societies won’t flat-out refuse older applicants, but they will probably ask for a bigger initial deposit and limit the amount of time given to repay the mortgage.

Income and job security

Lenders will need to be confident that mortgage payments will be met and must calculate the risks when offering mortgages. This can put self-employed workers and freelancers in the UK at a disadvantage.

You’ll need to show proof of earnings and the amount you can borrow will depend on the amount the mortgage lender feels you can pay back.

Credit score

As with loans and other forms of credit in the UK, your credit history will be checked to determine whether you are eligible for a mortgage.

If you have bad credit or a low credit score, lenders may be reluctant to grant you a mortgage. The best thing to do in these situations is to spend a few months trying to boost your score (e.g., paying off any outstanding debts, making sure you’re listed on the electoral register).

Can you get a mortgage as an international in the UK?

Expats, both resident and non-resident, can legally buy property and obtain a mortgage in the UK. However, for non-residents and non-EU/EFTA nationals, the process for mortgages in the UK can be a bit more complicated. It’s a lot easier to get a mortgage in the UK if you:

• Have been a UK resident for at least two years
• Are in a permanent job in the UK
• Have a UK bank account

These requirements are generally in place to ensure that the applicant has built up a good credit history in the UK. Non-residents and those who don’t meet these requirements still have the option of taking out a non-status mortgage (also referred to as a self-certification mortgage) where you have to pay a deposit of at least 25%.

What types of UK mortgages are available?

With its wide variety of options, first-time buyers may be overwhelmed with all the mortgage products available in the UK. The main two types of mortgages in the UK are fixed-rate and variable mortgages. There are also a few specialist types for different circumstances. Here is a brief overview of the UK’s most popular mortgages.

Fixed-rate mortgage

These mortgages come at fixed-rate interest for periods of normally two or five years. The interest rate will usually then move onto the lender’s standard variable rate at the end of the fixed-rate period. Fixed-rate mortgages are popular with UK home-buyers, with around 75% of mortgages in the UK granted as fixed-rate.

The standard variable rate can be much more expensive, so homeowners often remortgage their property at the end of the fixed-rate period.

Lenders usually offer mortgages for terms of around 25 years. However, shorter mortgages (e.g., 15 or 20 years) and longer mortgages (e.g., 30 or 35 years) can also be negotiated.

Variable-rate mortgage

Variable-rate mortgages can fluctuate and are dependent on the general interest rate. This makes them riskier than fixed-rate mortgages in the UK, but they can be beneficial if interest rates suddenly drop.

Many variable-rate mortgages are standard variable rate (SVR), which is a rate set by individual lenders that can change at any time (e.g., after a rise or fall in the base rate set by the Bank of England).

Discount mortgage

This is a form of a SVR mortgage, but with a discount applied to the SVR for a limited period (usually for around 2–3 years). When you shop around for mortgages in the UK, you’ll need to calculate the discount as well as the SVR mortgage rate applied by the lender.

Tracker mortgages

These are another form of SVR mortgages that track the interest rate from another source (usually the Bank of England). They can be beneficial in terms of avoiding a sudden hike applied by your lender.

Capped rate mortgages

This means that the interest rate is capped on a variable-rate mortgage and can’t rise above a certain amount. Some capped-rate mortgages are only offered at a higher standard rate than other variable-rate mortgages in the UK.

Offset mortgages

These mortgages are linked to your savings so that the balance on your savings account is used to reduce the amount of interest charged on your mortgage. Offset mortgages can either lower monthly payments or shorten the length of the mortgage term.

Mortgages in the UK for other purposes

Mortgages in the UK are also available for purposes other than buying the home you intend to live in, including the following scenarios:

Buying a second home or holiday home

You can take out a second mortgage using your existing home as security. You can use the equity (the value amount of the existing property that you have paid off) against a new loan.

For example, if your home is worth £250,000 and you have £150,000 left to pay on your mortgage, you have £100,000 in equity which you can borrow for a second mortgage.

Second mortgages are sometimes used by homeowners to raise capital for purposes other than buying a second home, such as home renovation.

Buying a property to rent out

You can take out a buy-to-let mortgage which allows you to buy the property as an investment without needing to provide the full amount to buy it outright. You then cover the mortgage and other costs through rental payments from tenants.

Many buy-to-let mortgages are interest-only, meaning that you only pay off the interest. You then pay off any outstanding balance at the end of the mortgage (e.g., 25 years), perhaps through selling the property. Repayment buy-to-let mortgages are also available but are more expensive; thus, higher rents need to be charged.

Acquiring a business property

You can take out a commercial mortgage if you want to buy a property for business use in the UK. Commercial mortgages are very similar to domestic mortgages in the UK. You’ll usually need to provide a deposit of around 25%.

What are the UK mortgage rates?

Mortgages rates in the UK are affected by a variety of factors, including:

• The Bank of England’s base rate
• Loan-to-value ratio
• Competitiveness of the mortgage market

As of July 2023, mortgage rates have been steadily increasing in the UK – so much so that rates are the highest they have been since August 2008. In tandem, the SVR has also been on the rise.

To get an idea of current interest rates in the UK, check out HSBC’s current mortgage rates.

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Although 100% mortgages are rare in the UK, some no-deposit products are available. These require a parent or family member to act as a guarantor.

If you’re considering investing in a buy-to-let property, you’ll find mortgage rates of around 5–7.5%. You’ll need to familiarize yourself with the various taxation rules around property investment, including the 3% Stamp Duty Land Tax (SDLT) surcharge.

Generally speaking, buy-to-let mortgages involve more stringent affordability testing. As such, you may need a bigger deposit than if you were buying an owner-occupier property.

How much can you borrow?

The UK mortgage system considers each borrower’s circumstances as unique. As a result, you might find some lenders who are willing to offer you a bigger loan than others. There are over 50 mortgage lenders in the UK, so it’s worth shopping around for the best rates.

In general, there are three primary factors that UK mortgage lenders will weigh up before making you an offer:

• Your total household income: As a rule, you can usually borrow up to 4.5 times your annual household income (sometimes five times for certain professions). This will depend on your credit history. Mortgage lenders factor in all outgoings, including credit cards, loans, memberships, and day-to-day spending costs when calculating the amount they can offer.
• The value of the property: In general, loan-to-value mortgage ratios range from 50% for buy-to-let investors, home movers, and second mortgages to up to 95% for first-time buyers. Generally, the bigger deposit you have, the better rate you can get. The critical issue, though, is what the lender thinks the property is worth. Before you’re offered a mortgage, a full valuation will be carried out.
• The lender’s estimate of what you can afford: This is where your unique circumstances are considered: your records of cash inflow/outflow and your current available assets

UK mortgage calculators

Many online UK mortgage calculators only ask for your income. After calculating the appropriate multiple, they refer visitors to discuss their unique situation with a mortgage lender.

Money Helper’s affordability calculator and HSBC’s mortgage calculator will help align your borrowing expectations with your lender’s capacity to meet your financing needs.

How do you apply for a mortgage in the UK?

You can apply for a mortgage directly from a bank or building society. Alternatively, you can use a mortgage broker or independent financial adviser or mortgage broker who can compare different mortgages in the UK.

Before applying for a UK mortgage, check with the three credit reporting bureaus – TransUnion, Equifax, and Experian – and ask for a free credit report to make sure there are no reporting errors.

It’s a good idea to then speak to a few mortgage advisers to help you choose the right mortgage option. These can include advisers within banks or building societies, or you can speak to an independent financial adviser or mortgage broker.

Then you will need to start gathering the documentation your lender could ask for, including:

• Payslips from the last three months
• Proof of your UK residency status (if applicable)
• A P60 (annual UK tax summary) form from your employer
• Three to six months of bank statements
• Proof of any UK pension or insurance benefits received
• Two to three years of verified accounts if you are self-employed in the UK
• Tax returns (last year and previous year)
• Current UK utility bills
• Passport or other form of identification
• Household cash flow statements

In general, it takes around 14–42 days for a mortgage application to be processed. This can be longer for complex applications.

Expat-friendly mortgage lenders in the UK

Most UK housebuyers get their mortgage from one of the many retail banks operating in the country. There are several UK banks and building societies offering both fixed-rate and variable mortgages. These include:

• Barclays
• Halifax
• NatWest
• Santander

Finding a mortgage adviser in the UK

There are many different mortgage advisers, mortgage brokers, and mortgage advice companies operating in the UK. If you want to use an independent broker, check that they are listed on the Financial Conduct Authority (FCA) register.

To find an adviser, you can use these websites:

• CherryFind
• Unbiased
• VouchedFor

What help is available for getting a UK mortgage?

There are various government schemes to help people to buy a home in the UK. These are:

• Shared Ownership: This is a scheme where you buy part of the property and rent the remaining share at a reduced rate. This is available to those with household incomes under £80,000 (or £90,000 in London). There are special shared ownership schemes to help older people and those with disabilities buy a home. The scheme is available throughout the UK.
• Starter Home scheme: This enables buyers to save between 30–50% of the market value on a new house or a house that was sold by someone who originally benefitted from the same scheme. Only available in England.
• Right to Buy: Allows council tenants to buy their council home at a discounted rate. The size of the discount depends on location and property type. This is available throughout the UK.

In addition to these government-backed schemes, an increasing number of fintech companies can help you get on the UK property ladder. These companies include Proportunity and Habito. These fintech companies use tech-driven innovations to help you get the mortgage you need.

If you have bad credit, it’s harder to get a mortgage in the UK. In this case, your best option is to spend some time improving your credit rating. However, some lenders offer what are known as bad credit mortgages. These are usually offered at sub-prime rates where you have to pay a deposit of at least 25% (sometimes 30–35%).

How much are mortgage costs in the UK?

In addition to interest rates on mortgage payments, there are several other associated fees that can add a few thousand pounds to total costs. These fees include:

Paying UK mortgage fees

The fees listed above need to be paid either upfront or shortly after taking out your UK mortgage. Afterwards, you’ll often have to pay an exit fee after repaying your mortgage. This is regardless of whether you pay the mortgage back early or on time.

Some lenders include this fee with upfront/administrative costs; make sure to check if you’re not sure. Additionally, lenders can also charge an early repayment fee if you pay off your mortgage early. This is typically between 1–5% of the value of the early repayment.

UK taxes and relief on mortgages

The biggest additional expense of buying a home in the UK is Stamp Duty Land Tax. It is also known as land and buildings transaction tax (LBTT) in Scotland and land transaction tax (LTT) in Wales.

All owner-occupiers need to pay stamp duty on any property valued at more than £250,000 in England or Northern Ireland (£145,000 in Scotland or £225,000 in Wales). The tax payable ranges from 2% to 12% depending on the purchase price. It’s usually due within 14 days of finalizing your property purchase.

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Buyers purchasing a second home or buy-to-let property need to pay an additional 3% surcharge on top of the standard rate.

As of October 2021, non-resident buyers in England and Northern Ireland must pay two percentage points more on stamp duty if they purchase residential property. This does not apply to non-residents buying property in Wales and Scotland.

Capital gains tax

If you sell a property that isn’t your main residence, you’ll have to pay capital gains taxes on any profit made within 60 days of finalizing the sale (both for rental and non-rental properties).

Changes to the capital gains policy came into effect in April 2015. Before this, non-residents had no capital gains liability. The good news, however, is that non-residents only need to calculate gains made since April 2015.

Tax considerations on buy-to-let mortgages

As of July 2023, landlords must pay 20% of tax on buy-to-let income between £12,571–50,270. If the income exceeds this amount, they must pay 40% tax.

Property insurance in the UK

Although not a legal requirement, most lenders require building insurance when taking out mortgages in the UK. You’ll need to budget for this. This insurance normally costs around £150–200 a year. If you’re getting a mortgage in the UK from a bank, you might be able to include property insurance in your plan.

If you’re buying a property to let out, building insurance is a legal requirement. Another insurance worth looking into is home contents insurance – compare your options on sites such as Confused.com.

See our article on insurance in the UK for more details on the various forms of insurance available.

UK mortgage repayments

You will have to start making payments on your UK mortgage the month after you buy the property. Your mortgage repayment consists of the amount paid towards the mortgage loan and the amount of interest paid. This applies unless you have an interest-only mortgage, in which case you will pay off the interest-only and then have to settle the amount borrowed for the mortgage at the end of the term.

You can usually renegotiate your UK mortgage with your lender at any point by switching to another mortgage, remortgaging, renegotiating the payment period, or even switching to another lender. Bear in mind, however, that this may involve extra administration fees.

If you run into difficulty with mortgage repayments, contact your lender. You can also get free debt advice at Citizens Advice or the National Debtline. In Scotland and Wales, you might be able to get help through a mortgage rescue scheme or support fund.

Refinancing mortgages in the UK

Refinancing a mortgage is the process of taking out a new mortgage to pay off your existing mortgage. It is different from taking out a second mortgage that you will pay alongside your existing mortgage.

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You might want to refinance your mortgage to shorten your payment period, lower your interest rate, or free up some equity to invest in something else. In the UK, you can usually refinance your mortgage by taking out a new mortgage with the same lender or a different one.

You’ll need to calculate the fees that you will incur, which will include many of the same fees as your existing mortgage plus possible early repayment fees. It’s advisable to speak to a financial expert first to discuss the merits of refinancing your UK mortgage.

Useful resources

• UK Affordable homeownership schemes: government support for first-time buyers and others finding it difficult to buy in the UK
• HSBC UK: current UK mortgage rates