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Making a success of buy-to-let investments in the UK

To make a success of your buy-to-let investment, there are certain things you will need to take into consideration as an expat. This article breaks down some of the key points to help you make the best of your property investment and to also try and avoid any costly errors.

Written on 25 July 2023

Whether you are a UK expat that has found themselves having to move abroad as a temporary measure for work, or if you already live abroad and are interested in owning and renting out a property within the UK, this type of investments caters to many unique situations. But understanding the process is vital… no one wants any hidden surprises after they decide to commit to the process!

Understanding the potential costs

Expat or not… you will usually need a minimum deposit of 25% of the chosen house’s value (which can also vary up to 40%). Of course, the amount that can actually be borrowed will be dependent on the property’s rental income.

Fees and interest rates are quite often much higher than residential mortgages. New rules were brought in by the Bank of England in 2017 which resulted in much tighter requirements on buy-to-let mortgages.

These rules also meant a new test which meant that monthly rental income on the property would usually need to cover 125% of the mortgage repayments, as well as being able to clearly show that the borrower could afford the repayments if there was to be a significant increase in the interest rates at that time.

Choosing an independent mortgage advisor that frequently deals in expat buy-to-let investments can help widen your choice of lenders and increase the chances of finding one that is affordable and suited to you.

Along with these costly increases, things such as Expat landlord insurance should also be considered into your upcoming costs. If you have chosen to rent out your UK property, ensuring your property is fully covered before you leave the UK is essential, especially if your plans involve living and working abroad and being too far away to regularly check up on the property. It can also be much more tricky to find the correct insurance policy that is financially sustainable.

If you are renting your UK property, then your landlord’s UK property insurance for Expats policy should include cover for the following:

  • Buildings and Contents
  • Rent arrears
  • Malicious and accidental damage
  • Potential legal costs with contract disputes and repossessions

Currency and foreign exchange

As a whole, if you are an expat that is getting paid in a foreign currency while trying to obtain a UK buy-to-let mortgage, it is safe to say that this will make the process more difficult for you.

Since 2016, lenders cannot use their usual automated affordability checks on someone that is paid in a foreign currency. This means that the process of regularly monitoring the foreign exchange rates became much more of a problem, which caused much fewer mortgages to be available to expats.

Having said this, there are specialist lenders that do monitor exchange rates. They usually have a list of approved currencies for mortgage repayments.

There is also an option to obtain a UK buy-to-let mortgage from abroad using a combination of foreign currency and Sterling (although this combination is mostly only Sterling and either Euro or US Dollar).

In the case of rent, your tenants in the UK would typically always pay in Sterling into a UK bank account. But you, as a non-UK resident landlord will need to access the money paid by your UK tenants in a different currency (depending what country you are living in) meaning the above could cause a problem.

This is a really important factor to consider when considering renting out a property. The most commonly used method for this is to open an account with a UK currency-transfer company. This will avoid you having to transfer the money yourself into a foreign bank account and being liable to poor exchange rates… and high transfer charges!

A positive thing worth noting on the subject of currency and your investment in the UK is that a lot of UK expats find themselves having to move abroad as a temporary measure for work, but due to the cost of living often being much lower in several other places abroad than in the UK, expats can most often find that their employment wage abroad has allowed them to have a much greater disposable income to fund their UK investments upon returning.

Choosing the right property

If you are living abroad and do not already currently own a property in the UK but are investing in one (for buy-to-let purposes), here are a couple of things to consider.

Most lenders have an upper age limit of between 70-75 years old (meaning when the loan must be paid back by, not when you borrow). In most cases, the larger and more expensive the house purchase, the longer people need to repay. This is worth evaluating when you are choosing what type and size property for your investment.

Another thing to familiarise yourself with is to know the best yields in the location you want to purchase in. Yes, rental income will be able to be charged higher when your tenants are a large family in a four bedroom house… but the demand for that size of rental property in most locations is low and is significantly harder to find frequent tenants in need of a property of that magnitude.

For example, one to two bed properties/ apartments are shown to typically be the largest return for investors within the UK, as well as tenants also stay tending to stay in these for longer periods of time. Being a non-UK resident that is working full time may not want the bother of constant changing tenants within their UK property.

New Build and Off-Plan properties

Something important that can massively factor into the success of your investment is whether you are considering new build properties or part of an off-plan development.

The majority of off-plan property purchases are all done through the means of heavy paperwork and detailed blue-print walk-throughs (due to not being able to view the property). Due to the property’s build not yet being completed, other complications for your investment can occur.

Issues such as build schedule delays are extremely common. This is something to consider when budgeting for a rental income as you may need to cover the loss due to the delays yourself, until the build has been finished, checked and approved for key release (this is without finding appropriate tenants and approving a move-in date!). These build delays can go on for months at a time and are crucial to budget for.

Despite this risk, off-plan and new build investments for buy-to-let can be massively beneficial as a landlord. New build homes make extremely attractive listings and are in very high demand, which can be endlessly beneficial when wanting a large, diverse group of potential tenants.

You can also financially benefit if you chose to invest early within the build process. This is because new build companies are extremely keen to have every plot on that development reserved as early as possible for guaranteed sales… and are willing to offer very generous deals and discounts to make sure that every last plot goes!

New build companies often offer a 10-year warranty on the property, creating opportunity for capital growth for the investor. These new build properties tend to also be much more energy efficient which is also great for landlords.

Trying to obtain a buy-to-let mortgage on a new build property can be trickier due to limited lenders. Many lenders see new builds as high-risk investments due to the array of potential last-minute issues that can arise. Many lenders that are willing will require a higher mortgage deposit, averaging around 35%.

Buy-to-let new build properties will usually involve having your expat landlord insurance and clarifying on the information whether the property is new. Some will require a year of the build and some will simply ask if the property’s build was completed after 2000.

Renovating a property

Renovating a buy-to-let property can be beneficial for landlords as there are different ways of approaching renovations to increase the monthly rental price that you charge. Expanding to make space for an extra bedroom is usually the go-to and will often push your buy-to-let property up into the next rental price bracket.

However, adding bedrooms is not the only way of bringing the rental price up on your property. Many tenants look for high quality finishes and modern fixtures. Renovations such as white-wash painting throughout or new kitchen fittings can drive your property’s rental price up massively… sometimes more than adding extra bedroom space.

Small changes to basic properties can give the feel of a new build, without it being one, which usually means opportunity to charge higher monthly rental prices.

Renovating a house in its entirety and making drastic changes can quickly diminish a profit. Despite there being massive opportunity of adding value for resale in the future, it is also possible to make the mistake of over-investing thousands when it is not guaranteed to make that money back. Being strict on your budget is essential, especially as a landlord. At the benefit of the landlord and the future tenants, fixtures and finishing touches are usually better to be basic, easy to keep clean and easy to fix/replace if damaged.

Understanding Lease

When buying a property that is a house, it will most often be a freehold. This means that you would own all of the land, as well as the building that sits on that land in its entirety. It is sometimes possible to buy the freehold on a building of flats but would need to involve at least half of the lease holders within the same building to purchase it with you.

Flats are usually leasehold, which means that you own a lease on that flat. This is a contract that provides you with the right to live in that place for an agreed number of years. Many consequences come from breaking your leasehold that can involve extremely hefty fees and a negative impact on your credit score. As a landlord, there are several courses of action you can take if someone wants to or has broken their lease with you while renting.

There is also an option of having a ‘share of freehold’ meaning that when purchased, you acquire shared ownership of the freehold title relating to the building, as well as the leasehold on the individual flat. The terms of your lease would still be valid and must still be adhered to.

Owning a share of the freehold can benefit you as and other co-freeholders can collectively agree to grant themselves a 999-year lease. This is a financial safety net of your investment. As well as this, a share of the freehold also grants the ability to have a better control of the general day-to-day management of the building itself.

Speak to specialists who can assist with UK property investments

The most surefire way of maximising the chances of making a success of UK property investment is to speak to trusted specialists.

As already explained, investing in property is far more complex and has many more legal requirements and you cannot undertake UK property investment alone. It is recommended that you at least speak with specialists across a range of services, including legal, tax and foreign exchange - but also using specialist property search services can reduce the pain, especially when you live abroad and can't necessarily visit properties easily.

We provide a unique introduction service to a trusted group of UK property specialists who can provide you with help when investing in UK property.

Our introductions include an initial free consultation with each partner and enable to you have a general discussion to help you build a better understanding of how to invest in UK property and also the services and costs you will need to undertake to make your property investments more successful.

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