Despite what the economy throws at it, the UK’s property market has proven time and time again to be one of the most stable markets in which to invest, which is the reason it remains so popular amongst investors worldwide. However, as an investor looking to enter the market as a non-UK resident, understanding how to go about it can feel daunting to begin with.
Here, leading UK property development and investment company SevenCapital, which supports clients buying UK investment property from all over the world, from Hong Kong to Singapore, Dubai to South Africa and beyond, busts through some of the most common myths about investing in the UK from overseas.
Myth #1: Brexit will cause a housing crisis and make your investment worthless
Truth: This is simply not true. Whilst the UK saw a slow down in growth since Article 50 was triggered, what we have seen is that the slow down or small dips in the market happen as a result of the uncertainty of when and how the UK was going to leave. As soon as the UK election took place in December 2019, which saw newly elected Prime Minister Boris Johnson vow to ‘Get Brexit Done’, the pound soared overnight to its highest level since May 2018, and the UK property market jumped into action with house prices rising at the fastest rate on record for the time of year – because finally the UK had certainty as to whether they were or were not going to leave the EU.
What actually has taken more effect across the UK market is that the London market became so inflated in terms of house prices and rents compared to the rest of the UK and rose much faster than wages, it outpriced many of its own residents. As this happened, the UK market has simply shifted in response. Buyers and tenants alike now look towards areas such as Slough and Bracknell on the outskirts of London – called the commuter belt – where prices are far lower and they can still commute into the capital easily. Alternatively, they have looked to alternative regional cities, such as the UK’s second city of Birmingham, where again prices as well as cost of living are far lower.
This has caused the London market to stagnate but has strengthened and spotlighted some very good, fast growing and more affordable markets for buy to let investment.
Myth #2: You can’t get a mortgage on UK properties
Truth: Whilst buying with cash is always easier and there are different options available, it is more than possible to attain a mortgage as a non-UK resident buying a UK property.
Rather than looking to a typical UK high street lender, many of whom might not offer lending for overseas buyers, there are many specialist lenders who are used to dealing with UK investment from overseas and will guide you through the process step by step.
It is wise to also be prepared for the process of obtaining a mortgage agreement to take a little longer than it would in the UK and to be aware that the loan-to-value (LTV) ratio is could be lower than in the UK. You would also be wise to do your research amongst different specialist lenders into the term they would typically offer on a mortgage as this will affect your repayment amount and, if you’re investing in buy-to-let what rental yield you will want to achieve.
A good wealth manager, agent or the developer you want to buy from should be able to recommend trusted brokers who will search the market for the best lenders for you if this is the route you wish to go down.
Myth #3: Tax and Stamp Duty is too high/complicated:
Truth: Whilst there are tax implications to consider, with specialist advice from your wealth manager or tax advisor, tax needn’t be so taxing on your overall returns.
The UK tax rules you will need to be prepared for include stamp duty, the UK tax rate on net rental income for a buy to let, and capital gains tax if you decide to sell the property at some point in the future.
The first tax you will need to be ready for is Stamp Duty land tax. Non-resident investors are current subject to a 3% levy on top of the standard UK rates per tax band. However when considering these figures it is important to remember the capital gains you are likely to see after a long period of time – UK property values have historically doubled every 15 to 20 years, which makes that initial tax payment pale into comparison.
Myth #4: There are hidden fees that no one tells you about until you’ve already invested
Truth: If you’re investing through a trustworthy wealth manager, agent or developer directly, there should be no hidden fees and the procedure should be fairly standard.
However what you do need to take into account is what you might need to include in your costs of running a buy to let investment from overseas. These include agent fees for finding you a good tenant and administering all the correct paperwork, fees to cover a property management firm typically around 10% of monthly rental income – unless you choose to manage your property directly, however it is recommended that you have someone locally who knows all the rights of tenants and landlords respectively who can manage and inspect your property on your behalf. You also need to keep funds aside to cover any essential maintenance and repair costs caused by normal wear and tear, which are the responsibilities of the landlord.
Myth #5: Off-plan is too risky
Truth: Off-plan investing can be risky as you are investing in something that is not yet built and you cannot yet earn from, but it can also pay dividends – if you invest with the right developer.
We all hear stories about people investing in something that doesn’t materialise, or the developer going bust. However, there are steps you can take to avoid this, and make off-plan investing a lucrative part of your investment strategy.
All good developers offering units off-plan will present you with an attractive below-market rate. However the important thing here is to not be blinded by the better deal, but simply do your homework. Do your research into the developer behind the development – do they have a good track record of delivery? Are their developments known for being good quality? How have their developments performed in price and rental value since they’ve been completed? Any developer worth their salt should be able to provide you with solid proof for all of these questions.
Going further, find out how strong the developer is financially. Where do they get their funding from or does their business model allow them to self-fund many of their projects? This will give you a very good indication as to whether you are in good hands when considering an off-plan development.
Andy Foote, director at SevenCapital said: “There are lots of myths surrounding property investment as an investor from overseas but the constant is the performance of the UK Housing market, historically doubling every circa 15 years making it an enduringly attractive investment vehicle. Seek the right advice from a trusted financial advisor or wealth manager, make sure you do your research to make sure you’re investing with a trusted UK developer with a strong track record, and investing needn’t be complicated and could turn into one of the most valuable investment decisions you ever made.”
For more information on SevenCapital visit www.sevencapital.com or call 0121 296 1548