I’m a non-resident, so would I have to cash-buy?
In short, absolutely not. What is true is that the non-resident lending environment is very different to that for domestic UK borrowers – there's a more limited field of options to choose from, interest rates are likely to be a little higher, and the max loan size smaller. But, at the same time, there’s nevertheless an established market of options.
Working with a variety of brokers, we have access to the whole of this market, which consists of around 15 buy-to-let lenders. Some of these will only be available to British citizens, but that certainly isn’t the case across the board. As a non-British resident or citizen, you can still typically borrow up to 75%, with rates more or less comparable to those for British citizens.
Further, if you’re buying property to use yourself rather than rent out, there’s a limited but more competitive field of mortgage options to choose from.
Regardless of whether it’s a buy-to-let or residential mortgage, you don’t need to have credit history in the UK. Lenders are happy to accept proof of income in overseas currencies, and a lack of background in the UK.
Are rental guarantees always a positive thing?
Particularly overseas, as part of large-scale, investor-led developments, properties are often advertised with one, two, or even longer fixed periods of rent assured by the developer. At face value, this sounds extremely appealing – landlords don’t have to rely on tenants and have the security of knowing they’ll have income coming in regardless.
It’s also true that, on occasion, we’ve put properties to clients that do have rental guarantees in place, as part of a wider investment case that we think stacks up.
In most cases, however, look beyond the surface and rental guarantees become a little more problematic. Very often, a rental guarantee goes hand-in-hand with a highly inflated property price, so in effect this income is ‘baked into’ the amount the investor is paying upfront. Also, the definition of ‘guaranteed’ needs some scrutiny. In reality, rather than rely on the financial stability of the tenant, landlords are relying on the developer, who like tenants will only be able to pay rent if they have the capital to do so.
For these reasons, something that Tailor My Property find much more appealing are completed properties that have sitting tenants in place. This means investors aren’t running the same risk of paying an above-market price, and have much more control over the tenants in their property, whilst still receiving rent from day one.
Will I always be paying a premium on new-build properties?
It’s absolutely true that new-builds can be more expensive than traditional, resale properties. Particularly in Asia, and in the Middle-East, there’s a lot of large-scale, off-plan developments advertised, replete with glossy brochures and models, and which come with gyms, swimming pools, and prices that are far above the going rate for the local area.
They’re also the kind of properties that, in our opinion, are less appealing to local buyers and renters. In other words, there’s a reason they’re being marketed almost exclusively overseas.
That being said, we also believe there are many advantages to buying the right kind of new-build. Firstly, they tend to be far more hands-off than older properties with immediate wear and tear to address. In terms of being protected, buying new build typically gives you a 10-year warranty against structural defects, and assurances that the building conforms to current building, and fire and safety standards in the form of EWS1 certification.
Further, energy-efficiency has become a real industry buzzword, with soaring utility bills giving rise to demand for modern, more sustainable properties with cheaper running costs. This is also supported via lenders with the offering of green finance products. So, what we’re seeing is a swell in demand for new-builds, amongst investors, owner-occupiers and renters alike.
The challenge, then, is identifying what kind of new build is the right kind of property, as opposed to those that are inflated and less appealing to a local demographic. That’s where Tailor My Property can help. Receiving different properties from our partners on a daily basis, we filter those that we believe make sense from those that we think don’t, and focus on these with our clients. As a general rule of thumb, we concentrate on small as opposed to large-scale new build developments, built with a design and architecture that is sensitive to the history and existing character of the area, or that retain the features and identity of the building if it’s a refurbishment.
Is UK property all about London?
Historically, the UK has been relatively monocentric as a housing market, with London dominating when it comes to volumes of transactions – particularly amongst international investors. Indeed, London continues to represent long-term reliability, with historical trends demonstrating consistent gains over virtually any 10-year period, supported with extremely strong rental occupancy.
That being said, the landscape has certainly changed in recent years, with a more even redistribution of investment across the UK. In part, this is because of the London market itself. Yes, it still makes sense over long time periods, but of late price growth has been in negative territory and five-year forecasts predict shallow, albeit positive, changes in prices. Added to this, whilst occupancy levels are high, rental yields in percentage terms track behind the UK average, meaning it is harder for the number to stack up on a cash-flow basis.
At the same time, regional areas have really emerged as appealing investment locations in recent years, driven by political support, infrastructure changes, commercial relocations, and the subsequent influx of potential renters into core regional cities. Data over the last few years clearly underlines this, with price growth outstripping London in cities such as Manchester and Birmingham, and forecast to continue doing so in the short to medium term.
Therefore, there’s nowadays much more to UK property than London. There are various locations, each with different rental expectations, price growth and trajectories over different timespans. What Tailor My Property are here to help with, therefore, is in identifying a client’s priorities, and subsequently the location that it most attuned to their objectives.
Is it always best to buy through a limited company?
Purchasing a UK through a limited company is becoming increasingly common for buy-to-let investors, including those living overseas, and there are a number of potential benefits to doing so. Chief amongst these is the paying of a flat rate of corporation tax on rental income, as opposed to tiered income tax.
The ability to earn shares rather than rental receipts also gives greater flexibility, as does the ability to incorporate shareholders in the company.
Fortunately, lenders are slowly adapting to this by accepting applications from companies, and some of the core non-resident lenders will now lend in this scenario.
However, it’s also true that the lending landscape remains more limited for non-residents compared to buying in their own name, and investors should expect to be paying a slightly higher interest rate as a result.
Add this to the costs of setting up and maintaining the accounts for limited companies, and the benefits of purchasing through this structure could be negligible, if not non-existent. This is particularly true for smaller properties where the rental income is relatively low, and when you don’t already own additional UK properties.
The more accurate assessment, therefore, is that purchasing through limited companies can be highly beneficial dependent on personal circumstances – the level of rent on the property; whether you own property already; whether you plan on returning to the UK; you and your family’s future plans for your property portfolio; and various other factors. For this reason, we’d highly recommend speaking to a tax advisor who can undertake personalised tax planning with you – something we can help to set up.
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