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UK property investment as a non-UK resident

An detailed overview of property investing in the UK for people who live abroad or are seeking specialist advice about the best opportunities available.

Last updated 28 June 2019

While property investing in the UK has long been an attractive, secure and profitable venture for people living abroad, the significant socio-economical changes that have occurred since the 2008 global financial crisis have made UK property investments even more attractive to overseas investors.

The trend for renting property in the UK is constantly increasing, with 25% of UK citizens under 40 renting property, while overall UK property prices continue to rise although these rises are not as prominent as pre-2016.

The result of the 2016 EU referendum has had a significant impact on the value of £GBP which saw a fall of around 15% overnight – something that has yet to be recovered from – making the UK a much more affordable investment opportunity for those investing using non-GBP sources.

The devaluation of £GBP combined with a slowed down UK property market and an increasing rental market makes it a great time for non-UK investors to invest in UK property. The potential ROI of between 5% and 10% and a long-term expectation that the property prices in the UK will increase significantly are just two key factors as to why more and more non-UK residents are looking to UK property for mid to long-term investments.

IMPORTANT: This article provides an overview of investing in property the UK, it does not constitute advice and should not be used to make financial decisions. You must always seek advice from independent financial specialists when making major financial decisions.

A checklist for UK property investors

For those that are unfamiliar with investing in UK property, the following is a short checklist to help clarify the process that you could follow:

  1. Establish your budget and financial situation: Understanding what you can afford is a vital first step. You should keep in mind that any investment opportunity is likely to require a cash deposit of between 10% and 25% of the total value of the property. You should also incorporate stamp duty, legal fees, potential agency fees, exchange rate fluctuations and clarify what size of mortgage you are eligible for.
  2. Identify a suitable area to invest: while “London” is the easiest answer, the cost of property is prohibitive in much of the city and the outlying areas – and better ROI opportunities are likely to be found outside of the capital in emerging cities like Manchester, Birmingham or Leeds. Things to understand about local area would include affluence, (un)employment rates, demographics, range of investment opportunities, current and future transport infrastructure.
  3. Speak to a specialist: the are many nuances and terminology that are important to understand and speaking to an independent specialist is normally the best way to understand what matters. Key aspects of property ownership you need to be familiar with include: off-plan, leasehold vs freehold, stamp duty, conveyancing, income tax requirements, capital gains tax.
  4. Choose your preferred unit:if you are investing in the property, you are unlikely to be living there however it is still important to understand the position, size, location of the property to understand its likely rentability. For example, an apartment with a decent view is likely to be more appealing to a potential renter than an apartment that overlooks a motorway.
  5. Reserve your unit: this is likely to include paying a reservation fee to the developer as well as providing proof of earnings/financing and proceeding through money laundering checks. You will be required to provide proof of ID and your financial background, so do not be surprised or offended if you are asked to provide bank statements and your passport.
  6. Mortgage application: if you are seeking a buy-to-let mortgage, you should have already identified or engaged a mortgage broker. You could go direct to a lender, however a broker is likely to have access to specialist lenders that specifically provide mortgages to non-UK residents.
  7. Conveyancing: as part of your purchase, you will be required to engage a UK solicitor that will handle the paperwork, conduct searches on your behalf and create/review the various contracts. Mortgage brokers may wish you to appoint an approved solicitor to conduct the conveyancing process.
  8. Choose a suitable currency transfer mechanism: as a non-resident of the UK, it is likely that your property investment will be subject to a minimum of two currencies which ensures that the currency exchange rates are going to impact you. If you considered that for a property of £250,000, a 25% deposit will be required of £62,500. The impact of a 2% exchange rate fluctuation combined with a potential transaction fee of 1.5% could be a very expensive hit to your total budget. Similarly, exchange rate fluctuations are going to impact your income if you are intending to transfer the money from £GBP to your local currency. Currency exchange brokers can provide a range of services which will limit your exposure to transfer fees, exchange rate fluctuations and can significantly reduce the costs.
  9. Contract exchange and payment of deposit: once the searches are complete, you will need to exchange contracts which will also require you to pay the deposit on the property. Quite often the deposit will be as much as 25%. Once this is complete, you will be legally committed to purchasing the property and not proceeding after this point will automatically mean you lose your deposit and you may also be subject to a penalty charge and additional costs.
  10. Completion: Completion is the point at which you get the keys to the property. This might be soon after the exchange of contracts if the property is already completed, or if you are investing off plan (i.e. the property is still being built) it will be at a future agreed date.
  11. Decide on letting agent: as you are unlikely to be living locally (not being a UK resident) you are likely to need a letting agent to manage your tenants. They will provide you with contract assistance, assist with the day-to-day management of the property. Depending on the level to which you wish them to manage the property, the fee may range from 10% of rental income to 25%. The higher end of the fees may also provide you with a guaranteed rent for a set period of time, protecting your income if your property is empty for any period.
  12. Sort out landlord insurance and life insurance: while tenants are required to cover their possessions, landlords will be responsible for covering their mortgage and the building/property itself with adequate insurance. Life insurance that covers your entire mortgage will be required as a pre-requisite by any mortgage lender.
  13. Declare and pay your taxes: as income from a UK property is raised in the UK, you will be subject to UK tax rules, even if you are considered a non-resident. This means that the income will be subject to income tax and any gains made on the property when you sell or dispose of the property may be subject to capital gains tax. You may also be able to offset some of the costs (letting agent fees, furnishing, upkeep) against your income, so it is important that you appoint a specialist tax accountant to assist with your self-assessment and tax declarations. You may also be required to declare the income received in your country of residence, so it is important you engage a local specialist as you may benefit from a double tax treaty which ensures that while you have to declare tax in both jurisdictions, you might only have to pay tax in one.

 

 

Benefits of UK property investments

History of long-term property price increases

The UK has a long history of increasing property prices and even the recent market instability has only significantly impacted the high-end of the property market, specifically in the south east of England. There are very few investments in the UK that have matched the gains made on UK properties and while there are significant property development projects, the speed at which properties are being created has recently been outstripped by the increasing demand for housing.

Excellent return on investments

While there are substantial costs associated with buy-to-let investments, low interest rates, guaranteed income schemes and a strong rental demand means that investors will typically see an excellent return on investment of between 5% and 12% per annum on any investment.

Increasing rental demand

As the younger generations struggle to afford deposits to buy property, the UK is seeing an ever-increasing demand for renting property with 25% of those under 40 now seeking to rent, compared to just 8% of those over 65.

Decreased valuation of £GBP

The crash of £GBP in the immediate aftermath of the UKs vote to leave the EU referendum has meant that investing in the UK has remained significantly cheaper for those looking to invest from outside the UK.

Risks and concerns associated with UK property investments

UK tax rules

The current political uncertainty of the UK means that tax rules are likely to change, so ensuring you stay compliant with tax rules is imperative. This is likely to mean that you have to pay a specialist to complete any tax returns as well as provide advice. Recent changes include proposed increases in Stamp Duty for non-UK buyers of property, changes to capital gains tax rules in 2015 and changes to the tax breaks for non-resident landlords.

Uncertainty of UK economy

With a minority government, the unknown state of Brexit and unknown future global trade agreements that the UK has, the country is in comparative turmoil. Unfortunately, at the time of writing (June 2019), nobody is really any wiser as to how the future is likely to unfold and therefore the impact of any news is quite significant on rules, value of £GBP and many other factors. Therefore, if you are about to embark on a UK property investment, you should be aware that the risks of political and economic change significantly impacting the costs of any UK investment are real and should not be underestimated. If you are on a limited budget, these risks could see you fall foul of any contracts that you need to exchange, so you should always seek advice from specialists that can help mitigate any potential changes to the socio-economic climate.

Currency fluctuations

Even without the major political and economic upheaval of Brexit, recent history has shown that the global economy has been fragile since 2008, while the financial crashes of the past have caused significant and unpredictable changes to exchange rates. When making any decision, always consider potential changes to the value of the currencies you are exposed to and how they are likely to impact your affordability and return on investment. Work out the impact of extreme scenarios to understand your exposure, or work with a financial specialist to establish whether your financial plans are sensible given your risk profile.

Cost of managing property

If you already have a property portfolio, are a cash buyer and have no need for a letting agent, great. You’re aware of the costs and have plans to keep them to a minimum. However, for anybody new to property investment, understanding that it isn’t as simple as mortgage interest rates and receiving an income. You need to budget for potential issues inside the property that you are required by law to cover, as well as day to day costs. If your rental income is your only income, ensure that you are prepared for every eventuality and understand that owning a property is never as easy as it sounds.

Qualification criteria / minimum requirements of UK property investments

Below is a quick checklist for the minimum criteria that you are likely to meet if you wish to invest in a UK property:

  • Proof of ID and your financial situation
  • 25% cash deposit on exchange (affordability to be proved before payment is required)
  • If you require a non-resident mortgage, it will need to be a minimum of £150,000
  • You may be required to prove your current income to establish your mortgage eligibility
  • Life insurance to cover any mortgage
  • You must be correctly established in the UK tax system and be ready to complete your self-assessment

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