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Hong Kong-based foreign national looking to refinance UK property portfolio

Hong Kong-based foreign national looking to refinance UK property portfolio

Even though Hong Kong is now a special administrative region of the People’s Republic of China, there is still a very strong connection with the United Kingdom. As a consequence, we are regularly approached by Hong Kong nationals looking at UK property and in this instance the refinancing of an existing UK portfolio. This is a trend which is likely to continue for some time to come with many Hong Kong investors looking to diversify away from Asia. As we have seen in recent times, there is huge political friction between the rulers of Hong Kong and China. Despite assurances given to the UK government many in Hong Kong believe that its quasi-independence is under threat.

It is safe to say that the foreign national mortgage market has grown dramatically in recent years. Many private banks/niche lenders are more flexible with regards to foreign nationals looking at UK property, even if they lack a real UK footprint. As an independent mortgage broker we have access to more than 300 lenders across the globe and some extremely close relationships with private banks/niche lenders. This particular case study was challenging for a number of reasons and perfectly illustrates how we regularly overcome complex scenarios by delivering bespoke funding solutions.

Client scenario

In this case study we had a Hong Kong national, living and residing in Hong Kong and working for the Hong Kong government. They already had three properties in the UK worth around £1.5 million – this was their only footprint in the country. Ultimately they were looking to expand their UK property portfolio but this fundraising was a relatively “straightforward” refinancing. It was when we began to dig a little deeper that some of the challenges began to emerge.

We know from experience in the past that some lenders are nervous of providing finance to foreign nationals working for foreign governments. The problem revolves around what is known as a “politically exposed person”, effectively someone holding significant power in a foreign government. This has in the past led to allegations of financial impropriety and indeed we know some prominent government leaders around the world have been found guilty of “misuse of funds”. The person in this case study was not a “politically exposed person” and there were no issues although even the mention of this term shows how nervous mortgage lenders are with this scenario.

Client: Hong Kong national
Residency: Hong Kong
Employment: Hong Kong government
UK property portfolio value: £1,506,800
Funding requirement: Maximum refinancing
Timescale: Immediately

Upon further discussions with the client we learned that they were coming towards the end of their fixed rate mortgage term. Unless action was taken immediately they would revert to the standard variable rate at significant financial expense. This fundraising also occurred at a time of huge political uncertainty across Hong Kong, resulting in civil unrest amid ongoing disputes with the Chinese authorities. While there was a commercial need to refinance these properties immediately the client was also conscious of potential political fallout which may have impacted their ability to release equity in the short to medium term.

We also learned that the client required around £100,000 for home improvements and further property investment expansion plans. The idea was that the refinancing would release property equity to the tune of circa £100,000.

Issues to address

While there is significant appetite for refinancing in the global lending market at the moment this funding requirement had a number of relatively tricky elements. As we touched on above, the client was not only a Hong Kong national living and residing in Hong Kong but they also worked for the Hong Kong government. The only footprint they had in the UK was as a consequence of their three properties worth just over £1.5 million. Historically many mortgage lenders have been nervous of releasing funds to foreign nationals with no real connection to the UK. Thankfully, as the UK continues to be a property magnet for overseas investors, we have seen significant growth in the foreign national mortgage market (and a flexibility not always seen in the past). This is now a relatively competitive market although there is still a need to inject additional competition amongst lenders to achieve the best rates.

We were also up against it with regards to the timescale. The end of the original mortgage fixed rate term was imminent prior to reverting to standard variable rates. There was also the issue of political uncertainty in Hong Kong and the uncommon sight of public unrest. So, the requirements in summary were as follows:-

Client: Hong Kong national
Residency: Hong Kong
Employment: Hong Kong government (not a politically exposed person)
UK property portfolio value: £1,506,800
Required mortgage LTV: 75%
Required funds: £1,130,100
Outstanding property finance: £1,031,396
Equity release: Circa £100,000

When taking into account all of the above issues, and the relatively short timescale, it was fairly obvious that we would need to utilise our private bank/niche lender contacts. Over the years we have secured bespoke funding solutions for an array of foreign nationals looking to invest in UK property. This is an area in which we specialise with an ability to inject a high degree of competition amongst lenders. This ensures that we are able to secure the best rates possible and nurture long-term client relationships.

Solution

We are often approached by clients looking to secure funding in a relatively short timescale. As a consequence we have built up a huge network of contacts. We were therefore able to approach a lender who from previous experience was able to move relatively quickly and was accommodating of Hong Kong nationals residing outside of the UK. Thankfully, rental income from the client’s property portfolio was sufficient to pass the lender’s stress test and secure the maximum 75% LTV ratio.

It was at this point that we experienced an issue with documentation when an application to the Hong Kong government, for an employer’s reference, was refused. Thankfully, we were able to secure alternative supporting documentation which confirmed the client’s employment position and was accepted by the lender. It is worth noting that we were able to get the full mortgage offer out from the lender in three weeks. This ensured that the client was able to refinance existing mortgage funding before reverting back to standard variable rates at significant financial expense.

The exact details of the funding solution were as follows:-

UK property portfolio value: £1,506,800
Mortgage LTV ratio: 75%
Mortgage type: Interest only
Mortgage term: 18 years
Mortgage interest rate: 3.74% fixed for five years

Funds secured: £1,130,100
Outstanding finance: £1,031,396
Equity release: £98,704

In hindsight, the welcoming environment of low UK base rates played perfectly into our hands when looking at refinancing options. Even though the LTV ratio was towards the top end of the range this was supported by rental income which allowed the client to pass the lender’s stress test with ease. The fact that we already had an existing relationship with the lender meant a significant shortening of the traditional mortgage processing time. We were still able to negotiate extremely competitive terms despite the severely shortened timescale.

It was safe to say that the client was extremely happy with the outcome. The funding solution allowed them to refinance their existing assets, withdraw surplus equity, fund home improvements and part fund a deposit on an additional property. They also managed to avoid a potential expensive switch to standard variable rates. While perfectly illustrating our ability to secure almost immediate access to mortgage funding for foreign nationals, living abroad and investing in the UK, this case study also allowed us to flex our commercial muscles – resulting in the addition of a new long-term client.

What can Enness do for you?

As we touched on above, in recent times we have seen a huge increase in the number of foreign nationals looking to acquire UK property – very often without any real form of UK footprint. Historically, this was an area of the market which was relatively uncompetitive but there have been some huge changes of late. The concept of refinancing a UK property portfolio on a relatively high LTV ratio of 75% was challenging let alone the additional issues detailed above. We even managed to overcome the surprise refusal of the Hong Kong government to provide a reference for their employee. This had the potential to scupper mortgage negotiations but we were able to provide alternative supporting documentation which was accepted by the lender.

We know that many investors will be familiar with many of the elements in this scenario. So, if you ever find yourself in a similar situation to the above client we would welcome the opportunity to discuss your requirements in more detail. We have a very broad range of relationships in the lending market and as an independent mortgage broker we are able to negotiate with in excess of 300 different lenders. You will see from our previous case studies that we are experts in bespoke funding solutions, often required to address complex financial scenarios. We have access to real-time market rates and can therefore provide a number of potential solutions. The real-time rates allow you to compare and contrast not only cash flow but also short, medium and long-term financial liabilities – allowing you to choose the most appropriate option for your situation.

Many clients approach us looking to maximise their income and assets to raise funds. While we appreciate the need to maximise funding, this must be done within a controlled environment as there is no benefit in overstretching finances and cash flow.

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