Structuring a UK buy-to-let refinance after a move to Australia

Good rental properties. A difficult moment to refinance.

The couple held dual UK and Australian citizenship and had recently relocated permanently to Australia. They wanted to keep two established UK investment properties as part of their long-term property strategy, but both existing fixed-rate mortgages were approaching their end dates.

Their preference was to refinance onto interest-only facilities so that more of the rental income could remain available for cash flow, liquidity and future investment rather than being used to reduce capital immediately.

• No current Australian employment income The clients expected to return to well-paid professional roles, but they had not yet started new jobs. That meant there was no established overseas employed income to evidence at the point of advice.
• Rental stress testing created a shortfall Both properties produced good rental income, yet the lender’s affordability calculation indicated that rent alone was unlikely to support the existing borrowing at the required level.
• Overseas residence narrowed lender choice The combination of recent emigration, future foreign income and UK investment property required a lender comfortable assessing the full cross-border position rather than relying on a standard automated route.

The challenge was therefore not the quality of the properties themselves. It was finding a structure that could bridge the gap between strong underlying assets and an income position that was still in transition.

Build the refinance around future income, rental cover and the right stress test.

Elizabeth identified a specialist lender prepared to consider the applications once the clients had commenced suitable employment in Australia. The lender could then assess surplus personal income alongside the properties’ rent through top-slicing rather than requiring the rental income to carry the full affordability calculation on its own.

This approach avoided treating the absence of current employment as an automatic reason to abandon the refinance. Instead, it created a route that could become workable once the clients’ new Australian income was established and evidenced in the form required by the lender.

Product choice affected borrowing capacity as well as payment certainty.

Two-year and five-year fixed products were considered. A shorter fix would have created an earlier opportunity to refinance again, but it also produced a more demanding affordability stress test with the lender under consideration. That reduced the borrowing capacity available for the existing loans.

The five-year fixed option therefore offered a stronger fit for this recommendation. It provided a longer period of payment certainty and, crucially, a stress-test treatment that was more compatible with the clients’ required borrowing.

Interest-only borrowing was also consistent with the investment objective because it keeps scheduled monthly payments lower than an equivalent capital-repayment mortgage. The capital balance does not reduce through those payments, however, so the outstanding debt remains due and a credible repayment strategy is essential.

Protection and estate planning were part of the review.

The clients also wanted each borrower to be able to clear the outstanding mortgage debt if the other died during the mortgage term. Level life insurance was therefore recommended to match the interest-only borrowing, subject to insurer terms and underwriting.

The review also identified that their Wills had not been updated for many years despite the move overseas and continued ownership of UK assets. A separate cross-border estate-planning review was recommended so that the legal position could be considered by an appropriately qualified specialist. Willow’s role in this case was mortgage and protection advice, not legal or tax advice.

Understanding an expat buy-to-let refinance.