Investing in UK buy-to-let property from Singapore

Houses on a street

Whether for rental yields or capital gains, UK property is an attractive investment for British expats in Singapore.

Since launching buy-to-let mortgages for UK property in 2014, Skipton International has seen 8% of applications come from Singapore-based expats.

In Singapore, foreigners are not allowed to buy vacant land, or houses with land, without government approval. Until 2005, foreigners were only allowed to buy apartments in blocks with more than six floors. While some of the restrictions on types of property have been relaxed, buying property in Singapore is still an expensive purchase for British expats.

Stamp duty may only be 1-3% of property costs, however, foreigners can expect to pay Additional Buyer Stamp Duty (ABSD) of up to 15% on top. Add in legal fees, and real estate fees, and the total cost of buying a property in Singapore can be over 19% of the purchase price. Selling costs are similar, with taxes only dropping if you hold a property for more than four years.

High buying and selling costs are just one reason why Singapore-based expats are so interested in investing in buy-to-let property in the UK. As Skipton International's House Price Index shows, property in the UK has been steadily rising in value over the past five years, with the average house price in England now topping £300,000 for the first time.

Capital gains quickly cancel out new stamp duty levy

Compared with the high levels of ABSD in Singapore, the UK's new stamp duty levy of 3% looks more reasonable. An additional 3% stamp duty on a £200,000 property is an extra £6,000, while it will be another £15,000 on a house or flat costing £500,000 – the sort of sums that can be offset by capital gains over longer term investments.

In areas where property is increasing in value more rapidly, the charge may be cancelled out by the rising value of the property in just a few months. From February 2015-2016, house prices in London rose by 13.8%, in Cambridge by 13.6%, and in Bristol by 12.5%, compared to a UK average of 8.2% over the same period.

Increasing demand for rental properties in the UK

In 2015 rents rose by an average of 4.9% across the UK, with increases of 8% in London, 16% in Newcastle and Edinburgh, and 18% in Brighton and Bristol.

Research by PwC shows the number of privately renting households has doubled between 2001 and 2016 - growing from 2.3 million to more than five million. PwC estimates this will rise to 7.2 million by 2025. More than half of people between the age of20-39 are expected to rent by this time.

The price differential of homes in the UK to local earnings is at its highest level in eight years, with the average price of properties in cities now £211,880, up 8% in a year. City homes now cost 6.6 times average earnings, with properties in Oxford, London, and Winchester costing 10 times average earnings.

Single first time buyers potentially have to save for an average of 13 years before they can afford to buy, while a third of people in their mid-30s who don't already own a home predict they never will. This means more people will need to rent properties for longer, thus increasing demand for good quality rental accommodation.

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 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

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 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 MARLA.

5. Surveyors

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.

6. Solicitors

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 Singapore and are looking to purchase a buy to let property in the UK find our more about expat mortgage we offer or use our expat mortgage calculator to find out how much you could borrow?

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