Investing in UK buy-to-let from Europe
Over 1.3 million British expats live in Europe according to figures from the United Nations and nine European countries have over 20,000 Brits living in them. The most popular locations for British people to live in Europe are Spain, with 319,000, Ireland, with 249,000, and France, with 171,000
Skipton International has customers from many countries across Europe, with a good spread between British expats who are working, and those who are retired and living abroad.
The demand for buy-to-let mortgages from British expats based in Europe is growing. During the first three months of 2016, Skipton International received more enquiries for buy-to-let mortgages from British expats in Spain than for the whole of 2015.
While most European countries allow overseas investors to buy residential and commercial property with the same rights as citizens, some places restrict property ownership to local residents, making the option of investing in property in the UK even more important to British expats.
Popularity of investing in UK buy-to-let
Research by the National Landlord Association found over 40% of their landlords reported an increase in demand for tenants over the past year, with the biggest demand in the East of England (48%), and the South West (45%).
Average rents in the UK outside London are £764 a month, while in Greater London they are an average of £1,543 a month. According to the Office for National Statistics, private rental prices paid by tenants in Great Britain rose 2.6% in the 12 months to April 2016, an increase ranging from 2.8% in England, 0.2% in Wales, and 3.7% in London.
The Association of Residential Letting Agents (ARLA) suggests the average tenancy length in the UK is 19 months (23 months in London), while the average void period between lets is just three weeks.
Long term investment
The average price of property in the UK is £189,901 (Land Registry Figures March 2016), a 6.7% increase over the past 12 months. The average property price in London is £534, 789, an increase of 13.9% over the same 12-month period.
A survey by Skipton International earlier this year found 70% of investors expect the value of their property to increase over the next 12 months. The Skipton International Expat Survey found that 85% of British expats surveyed would still invest in UK buy-to-let property despite recent changes such as the introduction of a 3% stamp duty levy, or the removal of interest rate relief for landlords.
Up to 35% of those surveyed cited long term investment as the main reason for purchasing a buy-to-let property in the UK, followed by pension planning (19%) and a desire to remain invested in the UK (12%).
How to purchase property in the UK
The process will be different according to individual circumstances and you should reflect on the following if you decide to go ahead.
1. Finances & Budget
When buying property in the UK you will need to supply proof of where your funds come from. 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 to you. Skipton International may loan between £100,000 and £1.5 million, at up to 75% of the property’s value.
2. Understanding terminology
Most flats and apartments 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
The rate of Stamp Duty Land Tax in the UK changes through various property bands, and applies to all properties over £125,000. In April 2016, the UK government introduced a 3% levy on second homes, or buy-to-let properties, which applies to residents, and non-residents alike. The request for payment will come within two weeks of purchase.
4. Property Agents
Unless you have family or friends who can source, vet, look after your tenant and take care of maintenance, you will need a property agent. Agents typically charge management fees of 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. For example, 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 ARLA.
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 where customers are offered preferential rates.
Your solicitor will receive a Memorandum of Sale then will conduct searches on the property. This will ensure 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, contracts can be exchanged, 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.
If you live in Europe and are looking to purchase a buy to let property in the UK, visit our Expat Mortgage page or alternatively complete our online expat mortgage calculator and see how much you could borrow.
Skipton International also offer a range of expat savings accounts. For more information please call our Customer Services team on +44 (0) 1481 730730, phone lines are open Monday to Friday, 8.30am - 5.30pm (GMT).