Tuesday, 12 April 2016

Five things for expats to consider when buying a property to let in the UK

Becoming an expat opens up many new avenues but one way that life is almost certain to change is from a financial perspective. A move abroad therefore often means a whole new approach to managing your personal finances. In our 2015 Expat Explorer survey, over half (52%) of those surveyed say that they are now able to save more money than they did at home. We know that people save for a variety of different reasons and, for many it’s often about raising the funds to secure a property.

 For expats it can be more difficult to secure a mortgage while living overseas. However, that shouldn’t mean getting onto the property ladder is out of the question. Buy-to-let is one option for expats but there is a lot to consider. From costs to location and the practicalities of managing the property, plus the taxes and fees you will need to navigate. Buying a property is one of the most significant financial commitments you’re likely to make so it’s important to be as informed as possible.

1. Why buy to let?

Buy-to-let could be an option for many expats to get a foot on the UK property ladder. 

“It can be worth keeping your UK house in case the expat lifestyle doesn't turn out the way you’d expected.” – UK expat in Cyprus
The UK has seen gradual growth in buy-to-let over the last ten years, which has coincided with house price growth outpacing income growth, and an evolving mortgage market. This has gathered pace in recent months, with the Council of Mortgage Lenders reporting a 22% year-on-year increase in the number of loans taken out by landlords in January 2016[1], ahead of tax changes. From April 1 2016, people buying second properties above £40,000 will face a three percentage point stamp duty increase on current rates. Getting up to speed on the rental landscape and understanding key developments in law and regulation is vital for would-be landlords.

2. Do your research
Start with some thought about what’s right for you, research on the rental landscape, and the type of property you may want to buy. The National Landlords Association is a good place to start to find out more about the different things you’ll need to consider.
You’ll also need to think about the sort of tenant you may want to attract and what their requirements will be. For example, if you’re planning to rent a property to students, they will have a different set of needs to professionals. Think ahead so that you can shape your property search accordingly.

“Pay attention to property: it can be worth keeping a home of your own in both your home and host countries. Only sell in the UK if you feel you have to, or if the house prices in your area are on a downward trend. It could be worth employing a management company for your rented home in the UK.” – UK expat in Spain
3. Location, location, location

Finding the right buy-to-let property is different to choosing a new home for yourself. Try to avoid letting personal taste cloud your judgement, and look instead at the market requirements .

Spend some time looking at the local area for recent or planned developments which could impact on the property. Think about other elements that could be attractive to renters such as proximity to shops, leisure facilities and transport links.

“It’s important to focus on locations where rents have outpaced house prices,” says Tracie Pearce, head of mortgages at HSBC. “This means not just looking at large towns and cities, but also at commuter areas, and those with high rental demand and concentrated employment nearby.” 


 4. Navigating costs, taxes and fees

There are many financial implications of becoming a landlord but it is important to be aware upfront of the costs you will encounter, and to consider whether these will be offset by the financial return that you are likely to see.

A 2015 study put the average total cost of a UK buy-to-let property at £8,359, including the cost of fees, maintenance, letting agents and repairs. The same study showed that many landlords were significantly underestimating this cost, with more than half failing to factor in any sort of repair costs to their budget[2].  

In addition to running costs for the property, you will also need to be aware of the different sorts of taxes you’re likely to encounter. In the UK, this will include Stamp Duty Land Tax, Income Tax and Capital Gains Tax.

There’s also the question of property value and fluctuation in the market which could impact house prices in the region that you buy. Consult property websites for information on how prices change across different locations or recent trends in price rises or drops.

5. Becoming a landlord

Managing a property from overseas can be complicated so you could consider using a third party letting agent. For a fee (usually between 5 and 15% of rental income), agents can handle things like tenant selection and referencing, rent collection and property management.

In the UK, landlords are required by law to keep the property safe, meet reasonable tenant requests like occasional redecoration, maintenance and improvements to energy efficiency. Tenants will need to pay agreed rent and bills, allow access for repairs and to ensure the property is properly cared for.

Organisations such as the Association of Residential Letting Agents and the UK Association of Letting Agents can provide more information about the accreditation or licences you may need to secure.  

You should always think carefully before purchasing a buy-to-let property. The value of a property can fluctuate, and not all properties will grow in value or provide sufficient income to cover all your associated costs. You will be responsible for your costs even if you do not have a tenant. Property can also be difficult to sell quickly if you need to do so.

The content for this article has been inspired by HSBC Expat’s guide on buying to let in the UK which was written by a team of contributors with experience in property and finance. If you’re looking for more information, you can find more detail in HSBC Expat’s guide to buying to let in the UK

No comments:

Post a Comment

Have your say here

ShareThis

LinkWithin

Related Posts with Thumbnails