What Non-British Expatriates Need to Know Before Purchasing Real Estate in the UK

If you're not a British citizen and are wondering whether you can own property in the UK, the answer is yes. Non-residents can buy property in the UK, regardless of their place of residence.

Many expatriates dream of owning property in the UK, whether they are investing, seeking a vacation home, or planning for future needs.

While purchasing property in the UK is generally straightforward, it can be easier if you're a cash buyer, as this avoids the complexities of obtaining a mortgage. If you need to finance your purchase with a loan, the process may be more complicated.

Let’s delve into how buying on loan might impact your property acquisition.

Loan Obstacles

While purchasing UK property is generally easy, it has not always been easy for those living overseas. Non-UK citizens often face difficulties securing loans to buy property (mortgages) in the UK due to factors such as receiving salaries in foreign currency, lacking a UK credit history, or encountering strict lending criteria from many high street lenders.

Additionally, obtaining a mortgage requires substantial paperwork, including three months of bank statements, payslips, identification, and proof of address.

For a non-UK resident expat living thousands of miles away, with no realistic way of meeting a local mortgage broker, these requirements can make the process challenging.

There have been instances where mortgage lenders were hesitant to lend to overseas borrowers due to the additional work involved.

Moreover, Banks are concerned about the risk each borrower poses and the likelihood of losing money if they approve a loan. When a customer resides in the UK, it is easier for banks to locate them or their property if necessary.

However, if the borrower lives abroad, the bank must deal with another country’s legal system, making it more challenging to resolve lending issues. For many banks, this complexity has been enough to avoid offering mortgages to expats altogether.

Changed Scenario

However, this situation has changed. Over the past decade, a growing number of UK lenders have specialised in offering mortgages and short-term finance tailored specifically for non-UK citizens buying or refinancing UK property.

These lenders have addressed some of the biggest challenges expats face, such as the inability to meet banks or brokers in person, difficulties in returning documentation to the UK, and ensuring all parties in the transaction are aligned.

To verify that your mortgage lender is accredited and licensed, you can check the UK Financial Conduct Authority (FCA) registry (https://register.fca.org.uk/).

Most lenders now eliminate the need for clients to be in the UK, with all communication conducted via email, phone, or video call. They also work with lenders who accept online payslips, online bank statements, and ID certified by someone in your country, which can then be couriered to the UK.

Clients are assigned specialists who provide regular updates. These lenders also connect clients with solicitors, surveyors, and property professionals to expedite the loan process.These UK-based financiers offer mortgages and short-term finance ranging from £250,000 to £100 million, with terms from 3 months to 30 years.

Loans

There are various types of loans available, but the most popular among expats are residential and buy-to-let mortgages. If you or a family member plans to live in the property, you will need a residential mortgage. Otherwise, if the property is intended for rental, you will require a buy-to-let mortgage.

Residential mortgages are the largest and most common form of credit in the UK, enabling millions to purchase homes. The average home in the UK currently costs around £234,000, with significant regional variations. For instance, in London, the average is over £400,000.

Unless you are fortunate enough to have hundreds of thousands of pounds in savings, you will need to borrow a significant sum of money. This is where a residential mortgage comes in.

Residential Mortgages

A residential mortgage is a large, long-term loan taken out by one or more individuals to buy a home to live in. The property must be used as a residence by the borrowers, not rented out or used for commercial purposes.

Residential mortgages are regulated by the Financial Conduct Authority (FCA), which guarantees consumer rights across the UK. However, because residential mortgage providers must be FCA-accredited, not every lender offers these products. Nonetheless, some mainstream lenders are keen to offer mortgage products to overseas customers.

Although options may be limited due to FCA requirements, expats still have access to reliable and competitive lenders in the mortgage market. Specialist mortgage brokers can also help source the best products for both British and non-British expatriates.

Buy-to-Let Mortgages

A buy-to-let mortgage is a secured loan for individuals who wish to buy property to rent out to tenants. These mortgages have become increasingly popular among expats, allowing them to retain potentially valuable UK real estate for future use or sale, while the rental income often covers the mortgage costs.

Buy-to-let investments are ideal for expats who want to keep their options open, explaining their continued popularity.
Buy-to-let mortgages are generally more expensive than residential mortgages, even for UK customers.

They usually require a larger deposit and incur a higher interest rate, as lenders seek extra security against potential periods without tenants or non-payment of rent, which could lead to missed mortgage payments.

Recent Changes

The UK government recently increased Stamp Duty for buy-to-let properties by 3 per cent and reduced tax relief for landlords. Certain types of buy-to-let mortgages are complex, and expats need to fully understand the requirements to secure the best deal.

FCA Certification

Banks need FCA certification to provide residential mortgage loans, but most banks large enough to be FCA-accredited focus primarily on their UK customers, not overseas ones.

Taxes

First-time buyers purchasing a buy-to-let property will not have to pay the buy-to-let stamp duty rates if they intend to live in the property. However, overseas buyers looking solely to invest and rent out will be subject to an additional 2 per cent stamp duty.

Previously, overseas buyers were subject to the same stamp duty rates as UK residents. Now, anyone buying a property costing more than £125,000, who is not a first-time buyer, must pay stamp duty. With more taxes on the horizon, now might be an ideal time to invest.

Types of Interest Rates

Interest-only: Payments cover only the interest for a set period, with the principal repaid later.

Compound Interest (Rolled-up): Interest calculated on the accumulated interest and the principal.

Fixed Interest Rate: The interest rate remains constant for the loan term.

Tracker Interest: Pegged to the Bank of England’s base rate plus a pre-agreed charge.

Variable Interest Rate: The lender can adjust the interest rate, affecting mortgage costs.

Understanding these terms and options will help you navigate the UK property market effectively.

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