The papers have been full of doom and gloom stories in recent months heralding the death of buy-to-let and a falling housing market.
Additional Stamp Duty for those buying a second home, uncertainty in the property market because of Brexit, the threat of mortgage rate rises and increasingly stringent mortgage lending criteria have all contributed to a miasma of unease for expat buyers.
However, you shouldn’t believe everything you read– the UK housing market is still a really safe and lucrative place to park your hard-earned cash. And especially if you looking for a long-term investment, it’s a safer bet than the more volatile stock market.
Know how you will fund it
You need to be sure of where your funds are coming from and that you have enough to pay deposits, legal fees and stamp duty. Do you have a savings pot or are you planning on using tax-free earnings? Maybe you already have property and are considering remortgaging to free up some equity?
The Bank of England base rate is currently 0.25% and there are still some fantastic two, three, five and even 10-year fixed deals to be had. Santander, for example, has recently announced it is offering a fixed 18-month deal at just 0.99%.
One of the main ways banks set rates is based on how cheaply they can lay their hands on the money they lend out. This usually comes from savers or by borrowing on the money markets for a certain rate at a certain period, known as the swap rate.
Swap rates dropped last year because of global economic turbulence and Brexit but have since risen and there is a good chance mortgage rates will start to rise as a result. If you prefer the certainty of a fixed monthly repayment as opposed to a variable rate mortgage this could be for you.
Be clear about what you want from the start
Buy-to-let as a get rich quick scheme is dead, but the buy-to-let market is still the perfect place to make long-term gains. During the rapid property rises of the early Noughties it was easy to make a killing on the property market – buy a property, then sell it at a decent profit just a year or two later. The economic crash of 2008 has put paid to that but property has always been a long-term investment. For example, according to Lendinvest’s buy-to-let return on investment (ROI) index, properties in London have seen an ROI of as much as 18.9% over the last five years (annual rental yield plus annual capital gains).
Find a specialist mortgage broker to help you
As an expat investor you might find it tougher to get a mortgage because you don’t fit standard lending criteria or even to search for a mortgage in the first place. If you’re looking online from abroad, you might not even find some lender sites because of security issues.
A specialist broker will be able to search out lenders other than those on the high street and will know what criteria will fit best with your circumstances. For example, many high street lenders will turn you down if you don’t have a UK credit history or aren’t on the electoral register. But a niche lender will have different criteria under which you could be eligible.
Understand how the buy-to-let market works
As long as you go into the buy-to-let market knowing the pitfalls you can make a profit. Negotiating a great buying price is just the start as is finding a property in an area which is likely to see an increase.
You also need to make sure you understand your tax liabilities. Stamp duty land tax has to be paid on all properties on a sliding scale and if this is not the only property you own you could be subject to additional stamp duty of 3%. In addition, if you intend it to be a buy-to-let property, any money you make from renting the property out could be subject to income tax. If you sell the property you will have to pay capital gains tax on any increase in value.
However, you can increase your income from buy-to-let by turning it into a house of multiple occupancy (HMO) such as a student property. This can make it increasingly profitable. Remember though, managing a rental or HMO takes time and effort. If you don’t live in the country, you need to consider how you will manage that.