Since Covid-19 struck, Infinity has hosted a number of popular webinars on a variety of topics. Last week we tackled the property market in the UK in the 2020 post-pandemic landscape with input from some industry hard hitters.
Danny Broadfield, Associate Director of CBRE, the world’s largest commercial real estate and services and investment firm, gave us an overview of the UK property market, while Samuel Lee, Senior Adviser at Capricorn Financial Consultancy, London’s largest mortgage broker, talked us through the mortgage landscape.
Here are eleven takeaway points from the webinar:
Can Expats Buy UK Property?
Technically, no legal restrictions apply to expats who want to buy UK property. Non-residents and foreigners buy property in the UK all the time. That being said, property purchase in the UK entails much more stringent requirements and a larger deposit for those who haven’t been UK residents for more than two years. The same tax obligations regarding property and property-related income apply to non-UK residents as to UK residents. If the UK property is sold and a profit is made, capital gains tax will apply. If you are a non-Uk resident and own a UK property that you rent out, you will be required to pay tax on the rental income you earn just as you would as a UK resident landlord of a UK property. However, you may be exempt from paying tax on your rental income in the UK if you pay tax on your rental income in your country of residence, and that country has a double taxation agreement with the UK.
Covid-19 has triggered a drop in UK property prices and volume of sales
The property market in the UK got off to a flying start in 2020 following a positive election, a conclusion of sorts on Brexit at the end of January, which triggered a favourable exchange rate. CBRE closed 180 sales out of Asia alone in the first two weeks of January, with a level of transactions not seen since 2017.
Then came Covid-19, and with agents and surveyors unable to access properties, the market pretty much ground to a halt. The uncertainty triggered by the pandemic caused consumer confidence to collapse during the lockdown phase and prompted a dramatic decline in sales. As lockdown is easing, the UK property market is slowly starting to reignite, but economic growth will be slow.
CBRE is predicting a drop of 40% in the volume of sales in 2020 compared to 2019 and doesn’t see the market returning to 2019 levels until January 2022.
In terms of prices, CBRE is predicting a decline of 5-10%. This is based on offers accepted over the last 3-4 weeks at 5-10% below the asking price, compared to 1 to 2% in January.
The UK property market will not see as severe a drop as after the global financial crisis
There has been widespread fear that the pandemic will trigger price drops to match those of the global financial crisis; however, given that the pre-Covid property market was characterised by a market which had already been flattened by Brexit, with fewer distressed sales due to government measures introduced in response to the pandemic such as mortgage payment holidays, a lower average loan-to-value ratio and a more favourable employment situation, it looks unlikely that we will see a drop in prices as significant as the 18% from peak to trough during the GFC (and also the recession of the early 1990s).
The Bank of England’s Chief Economist Alex Haldane reported recently that the UK is doing better than forecast, optimistically predicting a V-shaped recession.
Now IS a good time to invest in property in the UK
Now is definitely a time when you can get a good deal. Developers are offering bigger discounts than they were at the start of the year and the decline in transactions means that they will be more willing to reduce prices.
In addition, with the Bank of England base rate at an all-time low of 0.10%, mortgage rates are particularly attractive. Typical interest rates for overseas buyers are between 2 and 4%. The higher the deposit you have, the more choice you will have and the lower the interest rate is likely to be.
Bear in mind, though, that property should be viewed as a mid to long-term investment. If you’re looking to flip a property to make a quick buck in the short term, forget it. You won’t.
The best places to invest in UK property
Property in London represents a good investment – central London properties are always in high demand. To give one example of an attractive prospect, a period conversion in Borough, London (zone 1) offers rental yields of around 3.8 -3.9% on one-bed apartments and 4% on two beds (gross average rental yield for zone 1 is 2.94%).
Birmingham, the UK’s second city in terms of GDP, is also booming at the moment. HMRC is moving its head office to the city, and huge corporations including Deutsche Bank, HSBC, PWC and Deloittes are establishing back offices there with leases starting in 2020 and 2021. The HS2 high-speed train will also slash journey times between Birmingham and London, making the city a good investment bet for affordable properties outside the capital.
Can I release equity in an existing UK property to invest in a new property?
Yes, this is perfectly possible and quite common. Remortgaging a property to take a loan of up to 75% of its current value is a great way for expats in Asia to release equity to invest in their next purchase, whether in the UK or locally and expand their investment portfolio. Remortgaging often enables homeowners to take advantage of lower interest rates.
Can I get an interest-only mortgage?
Interest-only mortgages, whereby you are repaying the interest on the loan but not the capital, are an option better suited to medium-term investments. Monthly repayments to the mortgage lender will obviously be lower than with a typical repayment mortgage. They can be a good choice for buy-to-let properties where the rent will cover the interest payments, and the principle can be repaid in lump sum payments or upon the sale of the property.
Can I finance a UK property for my child to live in?
This is a fairly typical expatriate scenario with parents acting as the guarantor for their child, enabling them to get on the property ladder or increase the amount borrowed. It can help reduce stamp duty and act as a useful estate planning tool. However, only certain UK mortgage lenders offer this type of guarantor mortgage, and independent legal advice should be taken. Applicants must be 18 or over.
Is commercial UK property a good investment at the moment?
Covid-19 has left big question marks over how people will work in the future. Not only are some big companies struggling, but the massive shift towards working from home during the pandemic has caused many to question whether they need big office spaces or whether they can reduce the size of their offices and rethink how workplaces are used in order to lower overheads while still maintaining efficiency. It seems likely that there will be a glut of commercial property on the market which will trigger a fall in property prices. In addition, commercial property lenders will often not go beyond 50% loan-to-value, will demand blue-chip tenants and charge higher interest rates. The general consensus is that commercial property is a high-risk investment in the current market conditions.
What documents do I need to apply for a mortgage on a property in the UK?
You will need:
Proof of income
Proof of address
Evidence of deposit
Mortgage companies, such as Capricorn, will assess your financial position, submit your dossier to their lenders and can have an in-principle decision within 24-48 hours with no upfront fees. Most lenders will require a survey of the property and a mortgage offer, valid for six months, which can be issued within six to eight weeks.
What upfront costs are involved in buying property in the UK?
Stamp duty land tax is payable on all property purchases with a value of over £125 000 at a rate ranging from 2% to 12%.
If you purchase property in the UK by taking out a UK mortgage, you are required to pay a mortgage deposit of between 5% and 40% of the property cost.
If you take out a UK mortgage to purchase property in the UK, you will need to pay several fees in addition to the mortgage payments, such as a booking fee, an arrangement fee, and a valuation fee.
Land registry fees
Land registry fees are paid to the UK government for the transfer of the UK property’s legal deeds.
When you purchase UK property, you will need to employ a conveyance or solicitor to proceed on your behalf, regardless of whether you are a cash buyer paying for the property outright or taking out a mortgage.
Removal costs are the costs involved in the transfer of your possessions from your old residents to your UK property.
Can I get a mortgage on a property in the UK if I don’t want to let it out?
Yes, this is classed as a residential mortgage, and rates are attractive as this type of loan is considered lower risk by the banks. The lending will, however, be based on your personal income and finances, so you must prove that you are able to meet your outgoings and commitments in your home country as well as all the costs on the new property, which may make it harder to get approval. To give an example, a Capricorn client based in Singapore recently obtained a rate of 1.19% fixed for two years on a residential mortgage.
Are loans being executed in the current landscape with Covid-19?
Movement has been slower because some bank staff are furloughed, and many retained staff are working from home, but lenders are accepting applications, and offers have been going out over the last few weeks. Approval is taking a little longer than usual, but doors are open.
The Process Of Buying Property In The UK
The entire process of buying a UK residential property typically takes around three months in total. It may, however, endure a bit longer if you are one of many interested in buying property in the UK and when the UK housing market presents particularly favourable house prices.
Before buying property in the UK, estimate the size of the property investment you can comfortably afford. A UK property investment is undoubtedly a wise one, but it is important not to take on a mortgage if the upfront cash deposit will leave you with pennies. It is also essential to consult numerous UK real estate agents and explore a variety of options and property prices before settling on one property in the UK.
Make an offer
Once your finances are in place, you can make an offer on a UK property. Although you have the option of making an offer verbally, it is advised to work through a real estate agent and get the offer in writing. Furthermore, it is also recommended to consider working through UK property investment companies to ensure you receive sound advice before making such a significant decision.
If the seller accepts your offer, they will draw up a contract specifying that the legal ownership of the property in the UK will be transferred to you. In the UK, Northern Ireland, and Wales, an offer on a property purchase doesn’t become legally binding until after the exchange of contracts. Your offer can be either above or under the asking price. When establishing your offer, consider the duration that the property has been in the market. It may help to speak to a real estate agent or a property management company regarding this step, as UK residential property often sells for lower than the asking price, but you also run the risk of getting turned down if your offer is too low.
Hire a solicitor
You will require the help of a solicitor to complete the legal aspects of the property purchase. Solicitors and legal advisors typically charge an hourly rate for their services and represent you through the entire duration of the buying process.
Get a property survey
Most UK lenders will arrange a valuation survey. However, you should consider commissioning a property survey that takes any possible maintenance and repair costs into account. Although you will be required to pay for the survey, it may save you a substantial amount in the future if there are any issues that may have resulted in a reduction in your initial offer.
Finalise the offer and the mortgage
If a property survey brings problems to light, you can renegotiate your offer based on the issues found. If you are opting for a UK mortgage, you will also be required to renegotiate if the survey concludes the value of the property to be lower because your mortgage provider will likely lessen the amount they will lend you. Once the renegotiation has occurred and the seller accepts your offer, you will have to pay the deposit and complete your mortgage agreement.
This will be your last chance to back out of the sale before the contracts get exchanged. Your mortgage lender will allow you a full week to accept the offer of the mortgage. Although you can still cancel the sale after signing the mortgage agreement, you will lose the upfront fees you paid for the mortgage costs.
If everything else is in place, your seller’s solicitor will provide you with the contracts you need to sign to finalise the sale. Be sure to read the contract very carefully before signing and check that the correct purchase price and dates are included.
Finalise the sale and final arrangements
Once you have signed all the relevant contracts, the money for the property purchase will be transferred to the solicitor of the seller’s account. At this point, you will receive the keys to your new UK property. If there are any outstanding or ongoing costs, you will need to pay them, and your solicitor has to register the sale with the Land registry.
We hope this information is fairly comprehensive, but if you have any questions at all about investing in property in the UK, we’d be happy to answer them. And if you would like to take the plunge and invest, we have the expertise and experience to ensure that you make the right choice to complement your existing investment portfolio. You can contact us via email at firstname.lastname@example.org.
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