Tim Parkes, CEO of RAW Capital Partners, reflects on the demand mortgage brokers are seeing from international clients, and offers his views on what needs to be done to allow them to tap into that demand…
With all the talk of interest rates and loan terms, mortgage lenders can sometimes overlook that the brokers they work with are running a business, and that, for the most part, they are always looking for ways of expanding their client base.
Certainly, the challenges posed in recent years have made this a more difficult task. The pandemic was followed by a cost-of-living crisis, which led to a sharp rise in borrowing costs – factors that have profoundly impacted homebuyers and property investors alike. Additionally, the past 12 months have brought substantial regulatory and tax reforms, including changes to Stamp Duty Land Tax (SDLT) rates and revisions to non-dom tax rules.
The result of these shifts has been more complexity and red tape for the majority of borrowers – and none more so than international property investors. However, in spite of these challenges, demand for UK from overseas buyers has remained strong. In fact, an estimated 200,000 properties in the UK are now owned by foreign nationals.
All of this poses some important questions: How many UK mortgage brokers are tapping into that demand for international buyers? Which regions is that demand coming from? And what challenges do brokers face in securing mortgage products for non-UK residents?
RAW Capital Partners commissioned an independent survey of 300 UK mortgage brokers to find the answers.
International investors present an avenue for growth
First and foremost, our survey showed that international clients represent a major growth opportunity for UK mortgage brokers.
Indeed, many brokers are already seizing this opportunity – 83% of respondents say they “occasionally” or “frequently” find mortgages for non-UK residents. Moreover, 62% report that their brokerage is actively investing in marketing, advertising and sales activities to attract international clients.
Why? Primarily, they have seen demand climbing, with 60% noticing an increase in international buyers using their services over the past five years, and 63% expecting this demand to remain strong in the five years to come.
When you look at the broader economic and geopolitical climate, this demand for UK property makes sense. For instance, following the Brexit vote, the depreciation of the pound led investors holding other currencies to take advantage of favourable exchange rates, effectively securing properties at a discount. Similar patterns emerged in the wake of the mini-Budget and recent Bank of England rate cuts.
At present, American investors are purportedly increasingly looking across the Atlantic for greater economic stability amid the uncertainty of the second Trump administration. Meanwhile, geopolitical instability and conflict continues to influence investment decisions for European and Middle Eastern buyers. In combination, these factors suggest that demand from these regions will remain strong.
Demand coming from a broad range of regions
To understand where demand will originate from, it’s useful to examine the regions that have historically contributed to brokers’ overseas client base. So, we quizzed those brokers who have worked within international clients since 2020 to see where those clients were based. The most common were Europe and the Middle East and UAE – in both instances, 30% of brokers said they have found mortgages for clients from this region over the past five years. This was followed by North America (25%), while 23% have had clients from Far East Asia.
However, while investor demand for UK property coming from the Middle East, Far East and US often attracts the headlines, RAW Capital Partners’ research found there was still significant demand coming from less-talked-about regions. For example, 24% of brokers said they have had clients from Central America and the Caribbean since 2020, while 16% said the same about Africa.
The problem is that investors coming from places like Africa or even Eastern Europe are poorly served by the mortgage and specialist finance markets, with many lenders choosing to focus primarily on high-net-worth (HNW) investors from the traditionally dominant markets. This creates problems for brokers.
Brokers are struggling to find lenders who are willing to work with overseas clients
According to our research, 61% of UK mortgage brokers feel there are too few lenders that are willing to work with international clients. Additionally, 36% admitted that they do not have enough knowledge or experience to identify suitable lenders for non-UK borrowers.
This is clearly a significant issue for any brokerage firm wanting to achieve growth by serving more international clients. The aforementioned complexity around evolving regulations and taxes is another chalenge.
For example, 66% of brokers said that, since the Labour government took power, they have found that international clients are requiring greater support in navigating policies relating to the property market.
Such figures indicate that lenders need to do more to keep pace with the changing nature of the global investment landscape. Indeed, the inability or reluctance of mainstream mortgage providers to lend to non-UK residents, typically because of the extra due diligence required or perceived extra risk, has left brokers and international buyers in a difficult position.
How can lenders help?
For the market to keep pace with the changing nature of the global investment landscape, lenders must broaden their offerings and develop mortgage products that accommodate a wider range of borrowers.
Indeed, a tick box approach to considering applications is of little to no value to brokers working with overseas clients, who tend to have more complex financial backgrounds than UK-based investors and buyers. Instead, lenders must treat individual applications on a case-by-case basis and carry out extra due diligence and Know Your Client (KYC) checks to take a borrower’s entire financial situation into account. In doing so, they can allow a much wider range of investors to enter the UK market, simultaneously ensuring that brokers can secure more meaningful growth.
It’s clear that the UK is continuing to attract international investors, creating the potential for significant growth for the market, brokers, and lenders alike. However, unlocking this potential will require lenders and brokers to work more closely together to meet the needs of the international property investor community – ultimately driving growth across the UK property market.
Tim Parkes is the CEO of RAW Capital Partners. RAW Capital Partners is a Guernsey-based specialist investment manager primarily responsible for managing the RAW Mortgage Fund, a Guernsey open-ended collective investment scheme.
