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I am on a five-year work assignment in the EU and face problems with the mortgage on my family home in London. I have a property loan with a 1.5 per cent interest rate fixed until 2027 and the lender has granted me “consent to let” to rent out the home. The bank has just extended the CTL by 12 months but says it will expire next year after three years and after that I will need either to arrange a buy-to-let mortgage or repay the mortgage. What are my options?
Adrian Anderson, managing director of mortgage broker Anderson Harris, says it’s understandable to be concerned about this situation. You are paying a very cheap fixed rate compared with those available today, and you will probably incur an early repayment charge (ERC) by repaying your mortgage. Also, living abroad means buy-to-let (BTL) mortgages are more challenging and expensive to apply for.
So let’s go through the options. Consent to Let (CTL) is a temporary permission that allows you to rent out your residential property without converting to a more expensive BTL mortgage. It is typically granted for a limited period, as in your case. Beyond that period, lenders have the right to require you either to revert to owner-occupier status — which would involve you living in the property — ask you to switch to a BTL mortgage, or ask you to repay the mortgage loan in full.
One option for you, as you say, is to switch on to a BTL mortgage. But these carry a higher risk (since rental income can be viewed as more unstable). Lenders charge higher rates and require borrowers to meet stricter criteria. By renting out the property, you’ve technically moved from owner-occupier to being a landlord.
You could try to negotiate with your lender for an alternative solution and request an extension of the CTL. Having compelling reasons will help your case. First, you could argue that your fixed-rate mortgage is in place until 2027, so you will incur a penalty if you have to repay it. You could also tell them that you have a firm UK return date and share evidence (such as your work contract), to demonstrate the assignment will end by a specific date.
You could point out to them that your mortgage rate is competitive and emphasise your stable financial situation and record. Stress that the property is well managed and the rental income is sufficient to cover the mortgage and related costs. You could also try explaining that converting to a BTL mortgage may bring future complications when you return home and switch back to residential.
But be prepared for the possibility that your provider might insist you remortgage to a buy-to-let product. Check whether you fit this product’s criteria and the rates on offer from your lender. Ask if your provider will consider waiving the ERC you may incur when your residential product is repaid. You could approach other lenders offering expat BTL mortgages. There is limited competition, though, so products often have higher interest rates and fees.
If you have significant savings or investments, you could repay part of the mortgage to reduce the balance or the lender’s risk. This may help if you later apply for a BTL mortgage with a lower LTV requirement.
Your next step should be to negotiate with your current lender. Provide as much information as possible about your return plans and financial stability. Try to retain your current mortgage arrangement: however, you have time to explore alternative options. You could file a complaint with the provider’s customer service arm. You can also escalate the matter to the UK Financial Ombudsman Service if you feel your loan provider is acting unreasonably under the circumstances.
How can I protect my shares package?
I work for a major US tech company in London and part of my pay comes in the form of company shares. The strong dollar has been great for this part of my pay package over the past few years, and I’ve built up about £400,000 in company shares. But sterling has been getting stronger recently, meaning those shares are worth less. What steps should I take now to protect my wealth?
Charles Incledon, client director at Bowmore Asset Management, says you have three main issues to address. First, the concentration risk of having so much of your wealth tied up in a single asset. Second, your single-stock company exposure is held in a very tax-inefficient environment and finally, the currency risk of having assets denominated in dollars when the majority of your costs and expenses are in pounds sterling.
It’s not uncommon for employees (especially senior staff) of large US tech companies to have built up a third or even half of their total wealth in their employer’s company shares. But if that stock’s share price halves, your overall wealth could take a significant hit.
If you work for a US tech company, even if have strong conviction in your company’s future, a downturn in the broader US tech market could still cause your shares to lose considerable value. You could consider diversifying your wealth by selling your shares and investing in a broader range of assets. It’s important to reduce your exposure to any single asset class, market or sector.
At the same time, it’s a good opportunity to reorganise your affairs to improve your tax efficiency. Company shares held in a stock scheme are typically subject to at least two (but probably all three) of income tax, capital gains tax and inheritance tax depending on how they are structured.
By investing within a wrapper such as an individual savings account (Isa) or pension, you can significantly improve the tax position. Even if you want to keep a large portion of company shares, selling and repurchasing them within an Isa can help protect you against paying tax on future gains and any future dividends. It’s easy to forget that both you and your partner can make use of your Isa and pension allowances.
Lastly, you could consider how to manage and potentially mitigate the currency risk. The past eight years have been favourable for UK investors holding dollar-denominated assets due to a weak pound, but forecasts suggest the pound could strengthen in the near future. Columbia Threadneedle’s most recent forecast has the GBP-USD rate reaching $1.50 next year.
Our next question
My husband and I have separated. We have started discussing what assets we each have and how they can be divided on divorce. My husband has mentioned family trusts in the past, but I know almost nothing about them, and he says that any trust interests he might have “aren’t worth anything”. Are the trusts relevant to the financial aspect of our separation and how do I know if they have any value?
If this happens it could reduce the value of holdings in sterling terms by more than 10 per cent. Diversifying into funds that hedge currency exposure could help. Unless you plan to live in the US, you’ll eventually need to convert your dollar-denominated assets back to pounds, so converting some now, while the exchange rate is favourable, could be a wise move.
The opinions in this column are intended for general information purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect result arising from any reliance placed on replies, including any loss, and exclude liability to the full extent.
Do you have a financial dilemma that you’d like FT Money’s team of professional experts to look into? Email your problem in confidence to money@ft.com.
