Buying UK Property from the US
UK property, or Real Estate, continues to be a cornerstone asset for many investors – flexible enough to suit a varied portfolio and robust enough to deliver returns over the long-term. With an exceptional performance record delivering substantial growth over the last decade and political uncertainty around Brexit seeming to fade, the market appears to be a relatively secure investment market for the risk-averse. In light of the Covid-19 global pandemic stock markets are reacting sharply and as such many investors are looking to property for its long-term performance.
But what about overseas buyers? How easy is it for someone in the United States, for example, to take advantage of the benefits that the UK can offer? And how does the UK market compare to the US market?
Comparing the Markets
The US and the UK are two of the strongest economies on the planet and this strength is recognised across a broad range of sectors – with real estate being no exception. As rising demand pushes supply to its limits, both markets have seen exceptional growth and yet, in spite of these similarities, there’s a number of trends that differ between the two.
2019 was a slower year for house price growth in the US, with increases levelling out at around 3.3%, lower than the 5% witnessed in 2018. It looks like the trend is set to continue in 2020 with predictions estimating growth of around 2.2%.
That said, housing affordability is at its lowest level since 2008 and demand continues to rise. Developers are struggling to build new homes quickly enough to satisfy demand and though this means the rental market is improving, initial affordability still remains a question mark.
It also appears that the popularity of city markets is on the decline – despite these locations driving growth, higher prices are driving people out of the prime markets and into commuter destinations.
This is a similar situation to what we’re seeing in London in the UK. With affordability at its limits, the traditionally popular market is beginning to fade. However, that’s where the similarities end.
Regional UK cities are driving growth and remaining affordable, making them increasingly attractive for overseas buyers that can also leverage favourable foreign exchange rates.
Financing a UK Property Purchase from the US
Financing a UK property from the US works in much the same way as it would for any other overseas investor. Typically, US investors will use a Buy-to-Let mortgage on the property and while traditional lenders may have less products available, working with a specialist broker that has access to whole of market lending can often deliver better interest rates and more favourable terms for international buyers.
In terms of taxation, US residents typically have to report worldwide income to the US government and while income arising from UK property will be taxed at the UK rate, the Double Taxation Treaty will typically offer credits to offset this.
At the same time, the ‘standard’ UK taxes will apply on property and property-related income for non-residents as for those in the UK. Stamp Duty Land Tax, sometimes known as closing costs or transfer tax is paid at standard rates and Capital Gains Tax is paid at the same rate if the property makes a profit upon sale.
Why Invest in UK Property?
While both markets have seen booms in the industry, the US is seeing more flat rental growth that translates to lower rental yields.
The UK, on the other hand, is expected to have a private rented sector worth £75 billion by 2025 – making it a major player in the housing landscape. As legislation such as the tenant fee ban comes into effect and more zero deposit schemes are adopted, the UK rental market is demonstrating its intent to deliver better quality renting than in recent years and is predicted to grow to over 50% of the population by 2039.
With affordability and greater rental flexibility, as well as better foreign exchange rates for overseas buyers, it’s no surprise that the UK PRS (Private Rental Sector) is set to soar. This presents a huge opportunity for US buyers that want a long-term, consistent investment in a thriving market.
Investment is a major pillar of the UK – US relationship and both countries are the largest investors into the respective economies. The UK is the single largest investor in the US, with more than $540 billion invested into the country, representing 15% of the country’s foreign direct investment (FDI).
Likewise, the US is the largest investor in the UK and American firms have invested $750 billion in the British market, nearly a quarter of their total investment in Europe and more than 12% of US FDI worldwide.
At the same time, more than 1.25 million Americans work for British companies in the US and over 1.5 million Brits are directly employed by US companies. Bilateral trade and investment support millions of jobs indirectly and are a huge contributor to demand in the UK, and no surprise therefore that US expats and smart investors are looking to take advantage of these established ties.
While there are considerations to make for US investors that have identified a UK property investment, there’s no doubt that it’s a more affordable market that is forecasting significant returns over the long-term. As growth in major US hotspots cools down, the UK continues to heat up, with less uncertainty contributing to already high demand.
As both countries continue to be top investors in each other’s economy, there’s plenty of opportunities for the smart investor to take advantage.