Property & Ladder Overseas Residential Investment
The UK has long been established as a prime place for overseas investors to invest in property due to projected capital growth and favorable exchange rates.
Many expats also want to invest in property back home to build security for their future and often use property investment as a pension fund. As a result of the high standard of service we provide and unrivaled investment opportunities, Seven Capital has attracted clients from all over the world, mostly due to the fully managed investment service we provide.
With its robust legal system, flourishing financial sector and world-class cities and education institutions here’s what you need to know if you’re considering investing in British bricks and mortar.
Choosing Where to Invest
The UK offers a wealth of property investment options to suit all budgets. Beyond the obvious draw of London, where prices have been subdued for a while now and value is limited, given the huge competition, there’s a host of regional cities like Birmingham, Manchester, and Liverpool where investors can secure a wider pool of properties as well as superior value and returns.
As with any property, securing the right location is crucial. Typically, properties near to good transport links and major employers, universities, colleges and other facilities always fare strongly. Read our blog post the ‘Where to Invest in UK Property 2020‘ to find out more about upcoming hot spots for investors.
Funding your UK Property Investment
Unless you’re buying a property in cash, you will need a special buy-lo-let mortgage to cover the purchase price. A number of UK lenders have specific mortgage offerings tailored to non-residents and expats, though you may find the products on offer are slightly less favorable than those offered to existing UK residents. As always when securing finance, it pays to shop around. There’s a wealth of different products available in the marketplace all offering various terms and conditions.
Regardless of your chosen option, you’ll be expected to have comprehensive paperwork for the application process (such as passport, proof of creditworthiness and mortgage affordability) and can expect to pay various fees to arrange one (typically in excess of £2,000). You will typically need a size able deposit to access a UK mortgage (upwards of 25%) and will need to demonstrate you can obtain enough rental income from the tenant to cover the interest on the mortgage. The amount you can borrow will depend on how much rent the property can generate, but lenders will typically require your expected rental income to meet at least 125% of the monthly interest payments on the loan.
What Returns can I Expect?
This all depends on where and what you intend to buy, but typical yields on buy-to-let purchases sit around the 4-5% mark. That said, yields of close to 10% are still possible on the most desirable properties in up and coming locations. As with all aspects of the wider property investment process, detailed research really pays, with information on property price trends and the most in-demand locations regularly published online.
Tax Considerations when buying UK Property from Overseas Taxes
British property offers excellent values and rental yields for overseas investors but there are many potential tax traps that should be taken into consideration.
During the time that a property is owned by an overseas investor, they should be aware of several taxes that are paid on top of usual running costs including the Non-Residential Landlord Scheme and other taxes upon exit.
One of the biggest costs besides property price is Stamp Duty Land Tax (SDLT). Stamp duty is worked out based on the property value and is always paid on the completion of the purchase.