Buying Property from the UAE
For British expats living in Dubai or anywhere else in the United Arab Emirates, investing in buy-to-let property in the UK is a popular move.
Since launching buy-to-let mortgages for British expats in 2014, Skipton International has seen a lot of interest from the Gulf States – with 23% of applications coming from British expats based in Dubai alone.
Average house prices in the UK have risen by 5-9% a year since 2007, and in London prices have grown by 41% over the same period. With house prices expected to rise by 4-6% in 2016, the UK is an attractive place to invest in property.
Demand for rental properties in the UK is also growing. Research by Savills predicts Britain will need another 1.1 million homes for rent in the next five years while rental housing stock has actually shrunk by 2.8% in the past five years.
In its Rental Britain report, Savills’ researchers tip Manchester, Reading, Edinburgh, and Bristol as good places for buy-to-let investors because of their ‘strong economic growth prospects and reputation as vibrant, desirable places to live.’
Why purchase property in the UK
Until 2002 British residents living in Dubai had to look overseas as property ownership was restricted to citizens of the UAE. Federal law only began recognising freehold tenure by foreigners in Dubai in 2006.
Britain has a property market and legal system most expats are familiar with, having perhaps purchased property there in the past.
Having family or friends in an area makes it easier to spend time looking for a property to buy, and when visiting to check on the property in years to come. And, while most investors are keen to buy properties that give the best return on capital. There is also the possibility you are remortgaging a UK property you own outright in order to finance a home, or an investment property, in the country where you now live. The process for securing a mortgage in Dubai can be more onerous than securing one on a UK property, with expats buying property there under Dh 5 million requiring a deposit of at least 25%, rising to 35% for properties over Dh 5 million.
In Dubai the mortgage will be based on net income rather than rental income, with expats needing to have a salary of over Dh 15,000 a month to be eligible.
How to purchase property in the UK
The process will be different according to individual circumstances but you are likely to need to reflect on the following if you decide to go ahead.
1. Finances & Budget
The Dubai government doesn’t place restrictions on transfers of funds into or out of the country. When buying property in the UK you will need to supply proof of where your funds come from to meet anti-money laundering regulations. To obtain a mortgage you will need to supply supporting documents proving your identity, address and income.
Skipton International has created an expatriate mortgage calculator to help you estimate the size of offshore mortgage that might be available. Skipton International may loan between £100,000 and £1.5 million, at up to 75% of the property’s value.
2. Understanding terminology
Most properties in London are leasehold, which generally means you have to pay the freeholder (the person who owns the ground the property is built on) an annual rent. Leaseholds can extend for up to 125 years. If a property has less than a certain number of years left on the lease it can be difficult to secure finance, and can be difficult to sell.
3. Stamp Duty
While Stamp Duty Land Tax (SDLT) doesn’t exist in Dubai, it applies to all properties over £125,000 sold in the UK. The rate of SDLT changes through various property bands. From April 2016 anyone buying a second property in England and Wales i.e. anyone investing in a buy-to-let property, will pay a levy of 3% on top of existing stamp duty for the property. The request for payment will come within two weeks of purchase.
4. Property Agents
Unless you have family or friends who can source, vet, and look after your tenant, and take care of maintenance, you will need a property agent. Agents typically charge 10-15% of monthly rental income, in addition to fees for finding a tenant and setting up a lease. You will also pay VAT on all services an agent sources for you e.g. if they carry out maintenance work on your behalf, you will pay VAT on the work itself, and VAT on the procurement of the service. The trade body for property agents is MARLA.
Typically when you make an offer on property in England and Wales it is ‘subject to survey’. Valuation surveys of the sort required by Skipton International are by an approved Royal Institute of Chartered Surveyors (RICS) surveyor. This indicates whether the property is worth what you are proposing to pay, and looks at whether the property is in a sound condition. If you are purchasing an older property or one where there might be maintenance issues, you can also instruct your own surveyor to carry out a comprehensive buildings survey.
After your offer has been verbally accepted by the vendors, you need to engage a conveyancing solicitor. Skipton International uses Conveyancing Direct and customers can get preferential rates.
Your solicitor will receive a Memorandum of Sale then will conduct searches on the property – ensuring the vendor is the owner, and has the right to sell, checking there are no legal disputes or planning issues relating to the property, and putting any questions you have to the vendor’s solicitor so the answers have a legal bearing.
Once you and your solicitor are satisfied everything is in order, you can exchange contracts, usually paying a 10% deposit. Your solicitor will negotiate with the vendors for a completion date, by which point you need to ensure your solicitor has the balance of funds – from yourself or from your mortgage provider, ready to pay on completion. Your solicitor will register the title with the Land Registry.