Offshore broker business

Habit pervades every profession. But when it is both easy to break and lucrative to do so, surely it is time for a change? This is currently the case with the many mortgage advisers who do not deal in offshore mortgages for property in the UK. Often brokers are put off because they believe that the loans are complex to arrange or the type of business is simply beyond their areas of expertise. But in short, they are missing a trick.

NatWest International, based in the Isle of Man, currently receives around 60% of its mortgage business through mortgage brokers - most of whom are from large London firms familiar with high net worth clients.

But there is no reason for this to be the case. It has experience in offshore loans that is enough to carry the less experienced broker too. The bank operates nothing less than a hand-holding process, so that a broker's knowledge in the field can literally stop at the point of introduction.

Lucrative prospects

Philip Smith is the principal of Complete Mortgage Planning Services and a consultant for Conti Financial Services, which specialises in overseas mortgages. Having started his business in 1993, Smith entered into ­offshore mortgages six years ago and has found the sector to be very lucrative - ­especially in the last two years. It now accounts for between 60% and 65% of his business.

"There is still some ignorance on the part of UK brokers," says Smith. "They hear the word offshore and recoil. Most have a desire to stick with the usual suspects and do business with lenders they know. But we are not complaining, because we get a lot of referrals from this type of broker who often unnecessarily worry about being the one 'carrying the can' if things go wrong."

With a minimum loan size of £75,000 and no maximum, most loans arranged offshore are substantial. Over the course of this year, the average loan size at NatWest International currently stands at £470,000. Mortgages of this size and nature attract high procuration fees for brokers - which can often reach a five figure sum.

Brokers should also be aware that there is no shortage of clients attracted to this type of mortgage, and it is unlikely that there ever will be. This is because clients are driven by something that they all want to minimise or avoid - tax. Not all banks provide tax advice direct, so the broker or the client should contact their own tax adviser.

Novice offshore brokers can also take comfort in the fact that they will usually only be dealing with clients in one of three situations.

First, there are the British expatriates who live and work abroad but want to retain a position in the UK housing market - especially in recent years when house price gains have been spectacular. Despite having a high disposable income - often the result of a good employer package, high salary and living in a tax-free part of the world - their circumstances sometimes do not sit well with UK lenders. Often this may be due to their credit record not being sufficiently exercised and they do not qualify for an 'onshore' loan.

Then there are the foreign nationals or 'in-pats' who have come to the UK, often from the US, to work for a limited time. While wanting to buy a property in the UK for the time they are posted here, they also want to keep their remittances outside the UK tax net, so arranging a loan offshore makes sense. In addition, it is unlikely that a foreign national could meet the criteria required by UK lenders. This is because they are often without a detailed credit history and employment accounts and they may not be on the electoral roll.

Purpose built

Although all lending through NatWest International is currently buy to let, in the case where the property is residential, loans can be offered to a 'single purpose vehicle' (SPV) company at the same rates of interest. An SPV is a tax-efficient holding company located in various offshore juris­dictions such as the Isle of Man, Guernsey, Jersey, Gibraltar and the Cayman Islands.

Again, although this might sound daunting for a broker, lending to an SPV is second nature to the bank, by using our expertise and making it our problem. However, the bank will soon be launching a regulated 'buy-to-live' mortgage aimed at UK residents who are not domiciled for tax purposes.

Finally, there are wealthy foreign investors buying property in lucrative central London. Clients like these can spend millions of pounds on one property. However, for loans over £1m, some banks may require that separate legal representation is sought and paid for by the client.

But in the face of an increasingly mobile society, offshore mortgages are creeping further into the mainstream, according to Smith. He says: "I recently had a client who followed a girl to Australia and stayed there," he says. "He didn't want to sell his £200,000 flat, but his current lender would no longer provide a mortgage. We arranged an offshore loan which enabled him to live in Australia and retain his UK property."

In the past few years, the market has witnessed a shift towards smaller brokers introducing offshore loan business, as they become aware that there is little reason to be intimidated. But there is some way to go. The spring of 2007 has been a particularly busy time and one in which all parties have benefited. All that remains is for more brokers to come and claim their share of this growing and increasingly transparent market in time for next year. n

Bill Shimmins is head of international personal banking at NatWest International - Isle of Man