Buy-to-let mortgages for the UK are easy enough to arrange from the UAE (and elsewhere). And it may be a good time to have another look at the sector, now the dust has settled on the double smashing of reduced tax relief and increased stamp duty that many said would end the market altogether.
Where to buy in the UK?
What you can get in rent for a place relative to the property price is called the rental yield. London has famously low yields, since prices have risen in the last few years but only so much can be squeezed out in rent from the renters. Portico has an interesting little ‘heat map’ on London yields (low as 2.2%!), while much has been reported recently of exactly this rental issue for landlords.
Cities and towns in London’s commuter belt, however, should be of interest, since people who travel into London each day earn capital city wages in more competitively priced towns. Midlands and northern cities – places that either allow commute to London or are fast-developing business hubs themselves – should also be on your radar. Scotland, too – as with England’s biggest cities, places such as Edinburgh, Glasgow and Stirling are teeming with both white-collar renters and students.
Everyone – no matter where they live or what their nationality – pays what’s called Stamp Duty Land Tax when buying:
- A UK freehold property, that’s either
- New or existing property;
- Buying through shared ownership;
- If you take on a mortgage or share of a house having paid for it (ie, not left in a will)
Stamp Duty works in property value bands. However, unlike income tax, where you’re taxed more in total when your earnings tip you into a higher band, relevant Stamp Duty rates apply only for the amount in which the property’s value is in that band.
For example, the basic SDLT is:
Up to 125,000 = zero
(The next 125,000)125,001 – 250,000 = 2%
(The next 675,000) 250,001 – 925,000 = 5%
(the next 575,000) 925,000 – 1.5m = 10%
(The remaining amount) Over 1.5m = 12%
So if your purchase was valued at £300,000, the first £125,000 of that house pays no tax. The next 125,000-odd after that pays 2%, so around £2,500. The remaining amount of the house, that which is over £250,000 – ie, £50,000 worth of house! – pays at 5%, so around £2,500.
However, if you’re buying as an investment because this is your second purchase, bear in mind that you will pay an extra 3%. So make sure you budget for that, rather than putting every penny into the deposit and having nothing for the related tax and fees.
Lenders will lend up to 75% of the value of the property of the house – some won’t even go as high as 65%. This means that you’ll need to have 25% of the value as a deposit before stamp duty, property valuation and other fees are factored in. This is simply the nature of buying as a non-resident compared to living in the UK – but be sure to engage professional assistance in arranging your mortgage to deal with exactly this sort of tough issue.
What you can’t (or might struggle to) mortgage
While there are a handful of UK banks and building societies that will generally look at non-resident applications, it’s important to see things from their perspective and consider what type of properties they may reject when you apply for a mortgage:
- While first time buyers like to start small with an apartment, bear in mind that if the square-footage is important. An apartment of 300 square feet or less (let’s call it a studio) will struggle to find a lender. This is chiefly because you won’t be able to command a high enough rent relative to the mortgage cost.
- Exact location. Apartments above shops (such as on Britain’s high street) have only a few options for lenders for UK-based buyers. This number reduces sharply when the lender is considering a non-resident’s application. Shops that open late – including hot food establishments – often have the most difficulty
- It’s a case-by-case basis, but some lenders may take a dislike to a neighbourhood’s recent record of disturbance.
You’ve bought the house with a mortgage, now you need to rent it. Who do you go to for this? It’s worth researching the market for competitive letting agents – those who will advertise your property, engage the renter, collect the cash each month and generally be on-hand to relay any information to you about repairs. In fact, it’s worth doing this in tandem with your house hunting.
Remember that for those investors who live abroad, you will be relying on such companies a lot to give you a full solution.
Also consider that letting agents vary in terms of rates depending on the location of the property. Surprise, surprise – London often has the highest rates. Will that factor in at all to the overall location in which you wish to make a purchase?
For your BTL project, get the professional involved early. To begin with, get your IFA on the phone when it comes to rough budgeting and ongoing costs, and perhaps drop a line to Holborn Assets’ dedicated mortgages team to chat through the lending options.