I am originally from Brazil, but have lived in the UK for a few years and have decided I want to stay here in the long term.
As such I have started saving for a house deposit, and although I won’t be buying for a while I want to start getting my finances in order. My main bank account is with a Brazilian bank and I don’t have any significant record of credit or borrowing in the UK.
I have just opened a basic bank account with a UK bank, and my flatmate has transferred some of the household bills into my name. What else can I do in order to start building up my profile?
Will my credit history in Brazil count for anything when I come to apply for a mortgage here? Are there any other financial barriers I might come across as I hopefully build a life in the UK?
Will a financial history in Brazil – good or bad – be considered by UK banks?
If it is important, I have indefinite leave to remain in the UK and I work full-time for a UK-based company, but also co-own a small business in Brazil. – M.A., via email
George Nixon, This is Money, replies: You’ll often hear of the plight of the so-called ‘credit invisibles’: prospective homeowners turned down for a mortgage because they’ve no borrowing history to speak of at all.
These examples often lead to people questioning the UK credit scoring system, and wondering why they need to borrow money to prove they can subsequently borrow more money.
‘A poor credit rating will not necessarily stop you getting a mortgage, but it may stop you having access to more affordable interest rates’, says Dennis Hussey, an adviser at National Debtline.
Although taking out a credit card isn’t the be-all and end-all, it can help. This doesn’t need to entail a spending spree.
Simply taking out a credit card, putting your petrol bill or train fare on it and paying it off in full each month can be sufficient to show a pattern of sustainable borrowing.
And this situation is magnified for newcomers to the country, as they will obviously have no financial history to speak of.
Fortunately, you’ve gotten off to a good start. Basic bank accounts are a special type of current account which banks are legally required to offer to everyone, including immigrants that are UK residents.
They don’t usually provide overdrafts, but provide a useful starting point to begin building a financial history.
There are also other simple ways of improving your score, such as registering on the electoral roll, checking your credit file for errors and, if you can, taking out a credit card and paying it off in full and on time each month.
Dennis Hussey, Money Advice Trust
‘Opening a UK bank account and paying household bills in your own name is a good first step’, Mr Hussey added.
‘There are also other simple ways of improving your score, such as registering on the electoral roll, checking your credit file for errors and, if you can, taking out a credit card and paying it off in full and on time each month.’
As you might have expected given your question, your financial record in Brazil, or from any other country you might have lived, will not be considered.
This is both a positive and a negative. If you’re a bad borrower in your native country, that won’t hit your prospects here, but the reverse applies if you’ve a good financial history.
‘Your credit profile will be based on information related specifically to your financial management within the UK, so bank accounts held in other countries won’t be included’, Kelli Fielding, from TransUnion, one of the ‘big three’ UK credit reference agencies, said.
Mr Hussey added: ‘While a bad credit rating in Brazil is highly unlikely to impact your credit score here in the UK, issues such as persistent debt, falling into arrears on essential bills and county court judgements can all have a negative impact on your file.’
Prospective borrowers should check their credit report through Equifax, Experian or TransUnion to ensure there are no errors that could scupper their chances
Council tax can be potentially problematic. For immigrants who don’t know this, if you miss a council tax bill and don’t pay within seven days of a reminder notice, the full year’s bill instantly becomes due.
Meanwhile, for those who are unaware, UK residents – people who spend 183 or more days in the UK each tax year – usually pay UK tax on all their income, both UK-based income and anything from abroad, such as an overseas business.
You should always make sure your credit file is accurate and up-to-date, as any errors could cause an issue with a future credit application, which in turn can hit your credit rating.
You can request a copy of your statutory report for free, but the big three of Equifax, Experian and TransUnion can often charge a monthly fee for a more comprehensive service. The website ‘Checkmyfile’ lets you see all three at once, and offers a free 30-day trial, before charging £14.99 a month.
UK residents who also have overseas income have a duty to disclose it to the taxman
If there are any issues with your credit report, like a default where there shouldn’t be, you should contact the lender.
When it comes to applying for a mortgage as an immigrant, there a few things to be aware of, according to Nick Onslow, a chartered financial planner at The RU Group.
‘The reader normally needs to have lived in the UK for three years to be eligible for a UK mortgage’, he said.
‘Three years also allows them to build up an address and credit history that lenders can reliably make informed decisions on. Paying your rent on time and having a form of credit that you pay off each month will all help with any application.
‘As the reader has an indefinite leave to remain in the UK many lenders will look for a 10 per cent deposit rather than 25 per cent if they didn’t have the right to remain.’
And of course, with house prices at an all-time high, saving for a deposit and being able to afford somewhere is no easy task. As a result, it’s important to work out if you can benefit from any schemes which are designed to help first-time buyers onto the property market.
Nick Onslow, chartered financial planner at The RU Group
Tax-free Isas are open to UK residents and, in particular, they can benefit from a Lifetime Isa. This account is opened for those aged between 18 and 39 and up to £4,000 a year can be saved into one.
Both cash and stocks and shares versions are available.
The most appetising element of it is the fact the Governments tops up any deposit by 25 per cent, up to £1,000 of ‘free’ money a year. However, withdrawing the money for any other purpose incurs a 25 per cent penalty, costing you not only the bonus but some of your own savings too.
Nick added: ‘As saving towards a deposit is so important, taking risk with that money on the equity markets may not be very appealing, especially if you hope to buy in under five years’ time.
‘If you do have a five year or longer horizon you could consider putting funds into an Isa in a low-cost passive Vanguard Life Strategy fund at a level of risk that you feel comfortable with.’
If you plan on buying within the next five years, the best bet is to keep the money in cash to ensure you don’t lose any due to stock market fluctuations.
In that situation, the best bet is to hunt for the best savings account you can find, even if rates remain at close to all-time low levels.
Nick added: ‘One option is to invest in Premium Bonds and hope for a big win. They are 100 per cent protected by the Treasury, and up to £50,000 can be held.
‘You might not get a return, however the current annual prize fund rate is 1 per cent. All prizes are tax-free and 24 people a year win £1million.’
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