Dennis Chan, Chestertons Global Head of Sales, navigates through the key questions facing investors living in the Gulf.
Can overseas investors buy UK property?
Yes, overseas investors are allowed to buy properties in United Kingdom. This is a really popular question I get from clients based in the Middle East and Asia. Unlike some cities in the world that impose legal limitations on overseas investors buying properties, there are no restrictions for international buyers purchasing UK real estate. You also do not have to be a UK resident or possess a UK employment visa in order to make the purchase.
Because of such investment-friendly policies, it is hardly surprising UK real estate is hugely popular with global investors. The buying process is straight-forward too. You appoint a buyer’s solicitor who will need a verified copy of your passport, proof of address (for example, your latest utility bill) and also provide your proof of funds, which is usually your bank statements or salary certificate to show the source of your savings. Overseas investors will also able to finance their purchase through a mortgage loan from a UK-domiciled bank. International investors may also open a UK bank account – it is not absolutely essential but recommended to receive rent and pay for any maintenance to the property. You can even open a UK bank account without visiting the UK.
Can I get a UK bank mortgage as an overseas investor?
Yes. London is a global financial centre and there are many high street UK banks and private lenders that offer mortgages to international investors. Depending on where you reside, the local bank in your city may also extend UK mortgage loans. For example, HSBC and Standard Chartered Bank have offices in the Gulf and they may extend the mortgage loan depending on your eligibility. You may apply for a mortgage regardless if the property you are buying is for your own use, or you plan to rent it out. For Muslim investors from the Gulf, it is also possible to get a sharia compliant mortgage from certain UK banks. I would recommend investors to speak to a licensed UK mortgage specialist at the start of your property search to establish how much they can potentially borrow.
The mortgage application is an easy five-step process, which includes the following:
- Consultation: List your requirements and get instant advice on the key figures you can expect in your scenario.
- The specialist will collate quotes from various lenders and send you a detailed proposal.
- Once decided, you will fill out a supporting questionnaire to secure the ‘agreement in principle’ – this mortgage offer is usually valid for a period of 6 months.
- Once you have reserved the property, the specialist will formally submit your application and provide you with regular updates through to completion.
- Your mortgage specialist will be on hand at any time to answer mortgage queries, and towards the end of your fixed rate they will contact you to secure a new rate.
Is it a good time to buy in the UK? Is UK property a safe investment?
With economic uncertainties raised during the Brexit turmoil and 2020 pandemic, many investors are indeed wondering if this is the best time to buy UK properties. At the start of 2020, the UK property sector was experiencing a ‘Boris Bounce’ – the strong election results in favor of Conservative Prime Minister Boris Johnson brought certainty and confidence to the British economy.
Brexit was finalised after years of parliamentary tussle, and this led to a positive response within the housing market. The pent-up demand of recent years was released, with a 13% rise in sales in Jan 2020 compared to Jan 2019 according to published market data. Rightmove, which is the UK’s leading property portal, reported site visits hit a new record of 152 million monthly visits.
However, without warning, 2020 suddenly turned into an unprecedented year for altogether different reasons. The UK was suddenly locked down to fight COVID-19. With the UK property market shut down for 3 months, sales and lettings experienced a sharp and sudden decrease. While virtual viewings became the norm, lenders were not able to approve mortgages as valuers were not allowed to inspect properties physically.
Fast forward to August, the market reopened, and transactions rebounded upwards with a vengeance. The question that most market pundits are debating is how long will this positive trend continue? This is a difficult one to predict in the short term (in the next 6 to 12 months). My advice to property investors is to adopt a long-term view. In the last 20 years, London real estate prices have almost quadrupled based on data published by the UK Land Registry. You will agree that there had been several economic crisis’s in the last 20 years, but the UK has always prevailed. The resilience of UK property market is one of the key attractions.
Some people will have made a lot of money when they bought in April 2009. But you do not need a crystal ball – even if an investor had bought in October 2007- the market peak – and rode out the crash, he will still be making money today. My point? Trying to catch the market bottom is futile.
What are the UK government doing to attract international investors?
The latest initiative by the UK government – the Stamp Duty Holiday – was announced on July 8, allowing homebuyers to save up to £15,000.
It is important to note for international buyers that once the holiday ends March 31st, 2021, an additional 2% rate for overseas investors will come into force. There is still time to take advantage of the holiday and if you are not yet in the position to buy, it is something to take into consideration when calculating purchase costs. The UK housing market is considered a safe haven – not only does it provide investors with capital appreciation and secure rental returns, the industry is monitored and policed by various bodies, which will bring a peace of mind to investors.
For example, all new homes come with a 10-year warranty, which covers major structural damage to the building, giving you peace of mind for an large surprise payments. As a landlord, initiatives like the Deposit Protection Scheme secures the tenants deposit by a 3rd party – in the case of any disagreement the final amount must be agreed between both parties before being released.
What are the purchase costs of buying a property in the UK?
Overseas investors need to set aside additional budget to pay the purchase and administrative costs. The amounts you need to pay will vary based on the value of the property, but here is a guide to help you budget and save. Based on a purchase price of £350,000 as a Buy To Let, you can expect to pay stamp duty of £18,000, if your completion date is before 31st March 2021, you will only need to pay £10,500. Legal costs are approximately around £2500 and bank fees of around £5000 if you wish to apply for a mortgage.
There will be other minor costs that are payable upon the property’s completion such as valuation fees. No two property purchases are the same, so it is advisable to consult a licensed financial advisor, solicitor, or mortgage broker to get a detailed breakdown of the actual purchasing costs.
Where is the best location to invest in the UK/London?
If you have travelled or lived in London then you might already have an idea of locations to invest in – maybe with a view to relocate there one day in the future, or solely as a buy-to-let investment. For someone not particularly familiar with the UK market, my first tip would be to look for areas of regeneration or new masterplan.
CBRE had studied the effect of regeneration on local property markets in London and found that house prices within a 750-metre radius of a regeneration zone grow faster than the wider market, by up to 3.6 percent per annum on average. You can use websites such as Zoopla or Rightmove to compare price growth in a particular area, as well as average asking prices of similar properties in the surrounding areas. Being an overseas buyer, use all the tools available to you to help make a decision.
My pro tip? Look out for Waitrose supermarkets in the area – a great indicator that the location is thriving. Using a broker can also take some of the pressure off by narrowing down your search based on your requirements. I know it can feel like a rabbit warren of property portals and blogs that can overwhelm and confuse. Lean on a trusted and experienced expert to help guide and teach you and one day you could be the owner of an impressive London property portfolio.
What is the process of buying a UK property?
For any first-time overseas investor buying a UK property, it can be confusing and overwhelming as the buying process will greatly differ from their home country. It can actually be a barrier for many entering the market so it is something I spend a lot of time educating my clients on at the onset of their search and throughout the process. Everyone was once a beginner, including myself. First off is narrowing down your location.
You might have travelled or lived in London previously so have an idea, or perhaps you are starting your research from scratch. My top tip is to look for areas of regeneration, usually outside Zones 1 and 2 that have cheaper entry prices and more opportunity for capital appreciation. This is when you can enlist the help of a broker to help narrow down your search and provide expert recommendations – we can even give you pre-access to new phases or projects before the rest of the market. Next is securing a Mortgage in Principal or Agreement in Principal from a lender.
I recommend that all buyers do this at the start of their search, even if you are planning on buying cash, to help you understand your borrowing potential and repayment schedule. There are many UK high street and private banks that will lend to overseas investors. The AIP usually lasts for around 90 days and is not legally binding.
Once you choose your property you will firstly need to pay a Reservation Fee (usually between £2000-5000 and provide your passport copy, utility bill and credit card details. Next step is to instruct a lawyer who will handle the contracts and payments between you and the seller.
You will pay the deposit (standard is 10 percent) and then exchange within 28 days – this means exchange of contracts, at which stage both parties are contractually obliged to proceed to completion. In between exchange and completion, your appointed solicitor will perform the necessary conveyancing and inform when they receive the notice to complete from the developer’s solicitors.
Finally, you will reach the Completion stage when the outstanding balance is paid – either using your own cash or a bank’s mortgage. This is also the point when you will need to pay the Stamp Duty in order to receive the title documents and keys.