Navigating the world of mortgages can be a difficult task for anyone. But for seafarers and ships crew, the journey can be even more challenging.
The unique nature of their profession often leads to hurdles that are rarely encountered by individuals with more traditional occupations. However, understanding the ins and outs of seafarer mortgages can make the process significantly smoother.
This article aims to shed light on this niche area of the mortgage market, providing you with the knowledge you need to confidently embark on your mortgage journey.
Who is a Seafarer?
Before we look at the specifics of seafarer mortgages, it’s important to cover who qualifies as a seafarer.
In the context of mortgages, a seafarer is an individual who spends a significant amount of time working at sea on a ship. This includes a wide range of professions such as ship officers, yacht crew members and even cruise ship entertainers.
(It does not include oil rig workers).
If your job requires you to spend extended periods away from the UK, sailing international waters, you likely fall into the category of a seafarer.
Unique Challenges Faced by Seafarers in Securing Mortgages
Seafarers face a unique set of challenges when applying for a mortgage.
These include:
- Irregular income: Seafarers often have income that fluctuates due to the seasonal nature of their work or varying contract lengths. This can make it difficult for lenders to assess their income stability.
- Tax status: Many seafarers benefit from the Seafarer’s Earnings Deduction (SED), which allows them to earn a tax-free income. While this is a great advantage, it can complicate the mortgage application process as lenders may not be familiar with this tax arrangement.
- Residency issues: Seafarers spend a significant amount of time outside the UK, which can lead to questions about their residency status. Some lenders may be hesitant to offer mortgages to individuals who are not UK residents.
- Perceived risk by lenders: Due to the unique nature of their work and income, seafarers are often perceived as higher risk by lenders. This can lead to more stringent lending criteria.
Understanding Mortgages for Seafarers
A seafarer mortgage is not a specific type of mortgage product, but rather a term used to describe a mortgage application made by a seafarer.
These applications require a more nuanced approach due to the unique challenges mentioned above and are often referred to as a specialist mortgage.
When applying for a mortgage, lenders will take into account the irregular nature of your income and your tax status. They may also require additional documentation to verify your income and employment status. This could include copies of your contracts, payslips, or tax returns.
You should still have the normal choices of repayment method and interest rates.
It’s worth noting that lenders will look at seafarer applications on a case-by-case basis.
How are the mortgages calculated?
The earnings of seafarers can be complex to decipher due to the nature of their profession and the fact that many work for overseas companies or receive payment in foreign currencies. Gathering all your income and tax documentation is a crucial step in preparing for a mortgage application.
Income Evaluation
Your income will undergo the same scrutiny as it would for any other mortgage type.
Lenders will want to ensure that your income comfortably exceeds your expenditure. This is known as an affordability assessment. For seafarers, proving this can be challenging, as income can fluctuate throughout the year. Be prepared to provide a minimum of two years’ income proof to a mortgage lender as part of the affordability assessments. Your financial records may also need to be verified by a certified accountant or HMRC to confirm their accuracy. Evidence of your expenses, such as other loans, student loans, regular payments, and costs, will also be required.
Gross vs Net Income
As a seafarer, you may be exempt from tax on some of your income if you’re paid in a different currency. This means that you can use this gross amount as your income figure for a mortgage application. However, you might need the net income of any amounts you receive in GBP or some other currencies.
Certain mortgage lenders might require your net income regardless of the currency you are paid in. Determine what kind of income documentation a mortgage lender will need, as this will depend on your payment method. A mortgage broker will assist you in gathering all the necessary information before your application.
Currency Considerations
Lenders are open to applications from seafarers paid in a foreign currency. However, different lenders accept different currencies. Major currencies, such as the Euro (EUR) or US Dollars (USD), are more widely accepted than lesser-known currencies. Earnings in foreign currency will likely undergo stricter checks than earnings in British pounds (GBP). This is mainly because exchange rates can vary, meaning that your current affordability may not be as predictable for the future if you’re paid in a foreign currency.
Offshore Accounts
If any of your income is directly deposited into offshore accounts, you might find that this cannot be included in your affordability calculation for a UK mortgage. However, a broker can assist you in finding a lender who’s willing to consider your application. Alternatively, explore how to secure a mortgage in the UK based on foreign accounts.
Seafarer’s Allowance and Tax Status
If you’re claiming Seafarer’s Allowance or Seafarer’s Earnings Deduction, and are therefore not subject to UK tax, it shouldn’t affect your mortgage application. You’ll need to maintain comprehensive records to demonstrate your income as well as evidence of your tax status. Typically, you’ll also need to continue submitting UK tax assessment forms while claiming Seafarer’s Earnings Deduction and you’ll likely be asked to provide these tax returns as part of your application.
Impact of Tax and Time at Sea
Your tax status and income play an important role in your mortgage application. As a seafarer, you may be eligible for the Seafarer’s Earnings Deduction (SED), which allows you to claim a tax-free income.
While this is a significant advantage, it can complicate your mortgage application process.
Generally, seafarer mortgages are intended for individuals who reside in the UK for at least half of the year. If you find yourself outside the UK for more than six months in a tax year, you may not be eligible for a seafarer’s mortgage.
In such instances, it might be worth considering expatriate mortgages, which are specifically designed for individuals who spend the majority of their time outside the UK.
It’s possible to secure a non-expatriate mortgage even if you’re abroad for more than half of the year, but this is subject to the discretion of the individual lender. You’ll also need to demonstrate that you maintain a residence in the UK where you spend a portion of your time and that you are registered to vote at this address.
Additionally, you’ll be required to provide comprehensive documentation of your travel history, including your entries and exits from the UK.
Potential Higher Interest Rates
Due to the risks associated with irregular income and non-standard residency status, lenders may charge higher interest rates. This means that over the term of the mortgage, you could end up paying more in interest compared to someone with a more traditional occupation.
However, this isn’t always the case. Some lenders specialise in seafarer mortgages and understand the unique circumstances of your profession. They may offer competitive rates comparable to standard residential mortgages.
This is where working with an experienced mortgage broker can be invaluable. They can help you find these specialist lenders and negotiate favourable terms on your behalf.
Applying with a Non-Seafarer
One strategy to potentially mitigate some of the challenges faced by seafarers when applying for a mortgage is to apply with a non-seafarer partner.
If your partner has a stable, UK-based income, it could provide additional reassurance to lenders and increase your chances of approval.
However, it’s important to note that both applicants will be jointly responsible for the mortgage repayments. Therefore, this decision should be carefully considered and discussed with your partner.
Property Types
Certain types of properties may pose additional challenges when applying for a mortgage due to perceived risks.
There are some types of property that can make it more difficult to get a mortgage. These issues mostly involve how the property has been constructed and this could mean finding a lender that offers specialist property finance.
If you’re a seafarer, these challenges may compound the difficulties you already face in securing a mortgage. Here are some property types that may be more difficult to finance:
Former Council Properties
Some lenders may be hesitant to provide mortgages for former council houses and flats. The lower resale value of these properties can make them less appealing to lenders.
Non-Traditional Construction Properties
Properties constructed with non-standard materials, such as concrete, steel or timber frames, or converted buildings, may also pose challenges. Lenders may be concerned about the potential for these properties to depreciate in value or that they take longer after a repossession.
Certain Types of Flats
Some flats can also be problematic. For instance, lenders may be wary of flats smaller than 30 square meters, flats over a shop, flats with cladding, or high-rise flats located above the seventh floor. These concerns are typically due to issues related to resale value and low demand.
Unique Properties
Properties with unique features or unusual designs may also be harder to finance. These could include properties with thatched roofs, listed buildings, or properties located in flood zones. Lenders may perceive these properties as higher risk due to potential maintenance issues or insurance difficulties.
If you’re a seafarer or yacht crew member interested in purchasing one of these types of properties, it’s advisable to seek the assistance of a mortgage broker. They can help you find a lender who specialises in these styles of property.
Remember, while it may be more challenging, it’s not impossible to secure a mortgage for these types of properties.
The Role of a Mortgage Broker
Given the complexities involved in securing a seafarer mortgage, it’s highly beneficial to work with an independent mortgage broker who has experience in this area.
A knowledgeable broker can guide you through the process, helping you with the unique challenges and requirements.
Mortgage brokers have access to the widest range of lenders and mortgage products, including those that are more accommodating to the unique circumstances of seafarers. They can help you find a lender who understands your situation and is willing to offer favourable terms.
Moreover, a broker can assist with the paperwork, ensuring that you provide all the necessary documentation to support your application. This can significantly increase your chances of a successful application.
If you’re a seafarer looking to secure a mortgage, don’t navigate these choppy waters alone.
Seek the guidance of a professional mortgage broker who understands the unique challenges you face. They can help you find a suitable mortgage product and guide you through the application process. Start your journey towards homeownership today.
Call us on 0330 030 5050 or use the form below.
