Buying UK Property from Overseas
The UK has a wide selection of appealing property investment opportunities, especially for overseas investors that can take advantage of current foreign exchange rates.
Whilst at first glance the process may seem complicated, it can be relatively straightforward provided the investor works with experienced industry professionals.
Below we answer some of the common questions that arise when buying UK property from overseas and the implications this has both financially and legally.
Can I buy property in the UK as a foreigner?
The short answer is, yes. Overseas buyers can purchase UK property even if they do not live in the UK, although there are several considerations to take into account.
Buying UK property is always much easier if the investor is a cash buyer, as this circumvents the need to apply for a mortgage or take on additional borrowing.
In terms of lending, a growing number of British mortgage lenders are more likely to lend against a property if the recipient intends to use it for Buy-to-Let. While in the past this was typically provided by more specialist lenders, as the trend has taken hold we’ve seen a much broader range of products across the board.
Investing in the UK also has a number of unique elements and costs that need to be considered, such as Stamp Duty Land Tax and other specific tax implications.
Do foreigners pay Stamp Duty in the UK?
Unlike other tax considerations, Stamp Duty Land Tax (SDLT) is payable by everyone – no exceptions and no personal allowances regardless of whether you are a UK resident or not. Because SDLT as a term is relatively unique to the UK it doesn’t mean it’s unique to purchases, in Germany it’s called Real Estate Transfer Tax, in the USA – Local Customs and in Singapore SSD – whatever the country term is it can catch-out many non-UK residents so it’s important that they consider this in their planning.
Anybody who already owns a residential property, or even has a share in a residential property, across the world, is required to pay a slightly higher rate of SDLT, providing the share is more than £40,000.
Paying Stamp Duty is the responsibility of the buyer. While it’s possible for you to do it yourself, it’s typical that the solicitor will arrange the payment of the Stamp Duty during the wider process.
Can non-residents get a mortgage in the UK?
There’s a common misconception that non-residents can’t get mortgages in the UK but the opposite is true. Non-residents can freely get mortgages for a UK property, although it can be a longer process than domestic buyers.
In terms of securing finance, many international investors will benefit from the wider outlook that a specialist partner can offer over mainstream organisations – offering better interest rates and more favourable terms.
The biggest difference between applying for a domestic or international mortgage as a UK resident and a non-resident is, as expected, the time it takes to complete the process. While domestic investors could potentially complete the process in a month between application and completion, international investors will generally take a little longer – between 2 and 3 months on average.
Can I use rental income to qualify for a mortgage in the UK?
Most lenders have tight policies around using rental income to qualify for a mortgage and although it’s possible, it can be more difficult for landlords that choose to take this route if that is their only source of income. Lenders will typically want evidence of enough rental income to cover the mortgage – typically this will be rental income that is 125%+ of the mortgage repayments.
Typically lenders will want to demonstrate through market research that the rental values are correct and will use desktop valuations and research to do so – evidence of rental income will also support your mortgage application. Bear in mind that any income you do need to prove will need to be through official channels – such as self-employment accounts – and not simply shown on bank statements.
BTL Mortgage criteria does vary from lender to lender and as you’d expect, some vendors are more lenient with demonstrating past performance. If you’re purchasing a Buy-to-Let property for example, rental income is more typically accepted, especially if it’s being provided by a broader portfolio.
How long does buying a property in the UK take?
Buying a property in the UK can vary wildly depending on how long your search takes, the type of property you’re looking to buy and how long the administration process takes.
For example, provided the process goes as smoothly as possible, MoneySavingExpert predicts that the process could take up to 14 weeks. This accounts for:
- Finding the property, researching the area and putting an offer in: 6 weeks
- Legal matters, surveying and exchange: 4 weeks
- Completion, exchange of contracts, keys and deeds: 4 weeks
This is clearly an example scenario and it’s important to remember that your personal process could be shorter or longer.
Now take Off-Plan Property as an example. Due to the nature of the purchase, this will typically take a lot longer as the property has to be built beforehand. While this offers unique benefits, it obviously means the process is spread over a wider timeframe. With Off-Plan purchases from overseas buyers will typically exchange contracts well in advance of completion, depending on build times, with completion and handover coming much later. Good developers supporting international or overseas purchases will support clients with mortgage applications ready for completion, guiding them through the process at each step.
If you are purchasing completed developments delays can usually be mitigated by performing due diligence and research prior to each stage of the process. By having the right partners in place, buyers can make the entire process more efficient, especially important for overseas investors that will be investing remotely. Remember that the UK has strict anti-money laundering (AML) requirements so getting basics ready such as Proof of Identification, Proof of Address and Proof of Funds ready in advance can be really helpful in speeding up the process.
Has Brexit affected the UK market?
Brexit has played a huge part in the wider UK market since the vote in 2016. After half a decade of incredible growth for the South, the Brexit vote appeared to flip the script – the popular London market declined and regional cities in the Midlands and across the Commuter Belt saw broad increases.
This has meant over the last three years, Birmingham has led the way for UK growth and thrived as an affordable market, despite rising uncertainty.
The situation appeared to come to a head at the start of December last year, as the announcement of a General Election (GE) and continued Brexit uncertainty created a much more volatile market. That said, since the results of GE 2019 and the adoption of a firm Brexit stance, UK property has enjoyed a ‘Boris-bounce’, with prices increasing and regional cities continuing to forecast exceptional growth.
Can EU citizens get a mortgage in the UK?
Lenders will generally treat any country in the European Economic Area (EEA) as the same as British citizens for mortgage purposes. This includes countries in the EU as well as Iceland, Norway and Switzerland.
There’s no expectation that Brexit will change this, despite Britain leaving the EU. Instead, anyone applying for a mortgage will experience the same credit checks that you’d normally expect. Although they’re by no means mandatory, a good credit record will help the chances of being accepted, as will registering to vote and having a UK bank account with direct debits.
What are the pitfalls of buying property in the UK as a foreigner?
The main pitfalls that impact overseas buyers are the financial implications associated with any purchase that is unique to the UK market. While cash buyers will generally have an easier time as they don’t have to apply for lending, tax considerations can still be an issue if not properly prepared for.
In terms of taxation, a cost unique to the UK that needs to be considered is Stamp Duty Land Tax. Similarly, depending on where you’re investing from, double taxation could be an issue, where you’re taxed by the country you’re a resident and the UK. This is mitigated by a ‘double-taxation agreement’.
Depending on whether your country of residence and the UK has a double-taxation agreement, you can apply for either partial or full relief prior to being taxed or a refund after you’ve been taxed.
Each agreement will set out the country you pay tax in, the country you apply for relief in and the amount of tax relief you’re eligible for. Be sure to research this thoroughly prior to making your investment. You can learn more about double-taxation agreements here.
While these are all challenges that can be easily solved, they do require a degree of proper planning and research beforehand. It also helps to have a trusted network of partners in place that can assist with any queries.
By properly understanding the financial impact of property investment in the UK, as well as the associated costs, overseas investors can plan ahead and ensure a thriving investment that can easily be ‘hands-off’, delivering just the benefits that come with a prime investment.
With JLL research showing more than half of UK residential property investments now originate from overseas, it’s clear that the stability and ROI the UK market can offer is attracting foreign investors, a trend that doesn’t look set to slow-down any time soon. The UK is firmly at the top of investor wish lists across the globe in 2020.