Buying Property in London as a Foreigner
Despite the uncertainty and the ups and downs of the past year with COVID19 and Brexit causing massive fluctuations in the London property market, the UK capital remains the top destination in the country and one of the top destinations around the world when it comes to property investments. As the largest financial centre worldwide, London is expected to continue attracting many people to work and invest in the city, and there’s an increasing demand for housing – even after lockdown. Many overseas investors who are interested in London may wonder if foreigners are able to purchase property in London, and the good news is that there are no restrictions for overseas investors in this city.
Why Do Overseas Investors Choose London?
There are several reasons why foreign investors choose the capital city of the UK. First and foremost, it is a global financial centre and a very worthwhile investment prospect, with millions of people coming to live, work, and visit the city on a yearly basis. It’s the most populous city in the UK with around 8.7 million people and is a city with one of the highest numbers of billionaires in the world. London has one of the best infrastructure systems worldwide and is also home to some globally renowned universities. Despite the uncertainty that we have seen in the London property market since the EU referendum in 2016 and last year as a result of the COVID19 pandemic and the UK preparing to leave the EU officially, London has a reputation for property prices that appreciate over the years. Investors who are looking to purchase buy-to-rent properties can typically enjoy stable, rising rental rates in the capital over time.
Can a Foreigner Buy Property in London? What You Need to Know:
If you are considering investing in London property from overseas, you may be wondering how similar or different the process will be compared to purchasing a property in your home country. In general, the fundamentals of investing in any UK property are very similar to that of other countries, however, it’s worth doing your research to be prepared for any differences that come up in terms of taxes, for example.
One of the first decisions that you will likely make is whether you are going to invest in London property from your home country, or whether to move to and work in the UK while you invest in property in London. Bear in mind that while people from overseas are welcome to purchase property in London, you may find it difficult to apply for a UK-based mortgage for an investment property in the capital if you are not a UK resident. On the other hand, British mortgage providers are more likely to lend against a London property if you plan to move to and work in the UK. If you have the funds available to make a full cash payment, purchasing a property in the UK – whether you intend to use it as a resident or as an investment property – is typically a very straightforward process.
Advantages and Disadvantages of Investing in London Property for Foreigners:
If you are able to secure a mortgage from a British provider or have the funds available to make a cash payment, buying a property in London from overseas can be a very worthwhile investment. Despite the uncertainty of the past year, over time, the property market in the UK as a whole has enjoyed consistent yearly growth, making it an attractive option for overseas investors who want to take advantage of investing their money in an asset that is likely to grow in value on an annual basis. In addition to a high return on investment, those looking to purchase a property in the UK may find that homeownership in the country will go in their favour should they decide to apply for UK citizenship.
On the other hand, the London property market is not without its pitfalls. Due to Brexit and the COVID19 crisis, there is currently a lot of uncertainty. Despite this, many investors are seeing a potential opportunity as a result of falling house prices. Depending on where you are originally from and what you are used to, you may find that there are not as many tax deferral options available to you when purchasing a property in the UK, compared to countries such as the US, for example. As a result, it’s important to be aware of how your investment is likely to go over the year with all British property taxes included. In addition, it’s important to bear in mind that the British government is considering introducing a new tax on foreign investment in UK properties. Having dual nationality, a British spouse, or owning property in both the UK and your home country could lead to more complicated taxes.
Cost Considerations for Investing in Property in the UK:
If you are a foreign investor considering purchasing a London property, there are various costs to take into consideration alongside the asking price for the home. These include:
- Stamp Duty Land Tax: There is currently a stamp duty holiday on properties priced at less than £500,000 in the UK, in place until April 2021. Normally, purchasing a property in the UK means that you are required to pay stamp duty upon purchase. This is typically lower for your first property and slightly higher for any subsequent properties purchased.
- Income Tax: In the UK, any income above the £12,500 threshold is taxed. Depending on the annual income that you receive from your investment property, there are various income tax bands, which are capped at 45% for those earning above £150,000 per annum. You will be subject to a 20% tax rate as a non-resident of the UK if you’re investing in London property as a company.
- Capital Gains Tax: Regardless of whether or not you are resident in the UK, you will be required to pay capital gains tax if you sell a London investment property, which can be up to 18%.
Some other cost considerations alongside taxes include:
- Mortgage fees
- Valuation fees
- Solicitor fees
- Survey fees
- Estate agency fees
- Land registry fees
- Renovation and/or repairs
- Monthly running expenses
- Regular taxes, such as council tax
- Moving costs if you are investing in the property as a private home for yourself
- Property management fees if investing in a rental property
Can Foreigners Buy Property in London – Steps to Take:
People from all around the world are welcome to purchase property in London if they have the means to do so. Generally, it is easier to purchase a home and get a British mortgage if you are a resident in the UK, although this is not always necessary. If you are considering investing in a property in London from overseas, the following steps apply:
Consider Your Budget:
Property prices can vary a lot depending on the London location that you choose, so consider your budget and determine what is the best area for you to invest in.
Decide on a Property Type:
Determine the type of property that you wish to purchase. Consider what you plan to ultimately use the property for, for example, whether it will be a main private residence for yourself, a rental property, a property offering short-term stays, or a property that you plan to renovate in order to sell on in the future.
Ideally, you should discuss your options for financing your property investment with a UK-based mortgage broker or independent financial advisor as early as possible. It is best to do this at the beginning of the process, to ensure that you will be able to secure a mortgage from a British provider before you find a property that you would like to invest in. Ideally, you should have a maximum loan to value (LTV) of no more than 75%. The lower the LTV, the better your monthly interest rate.
Search for a Property:
At this point, you can begin to search for a suitable property for sale in London. If you are doing this from your home country, there are various websites that you can use such as Zoopla and Rightmove. You can also contact a London estate agent who will be able to help you with your property search.
Property Terms and Restrictions:
It is worth bearing in mind that some properties in London are listed buildings. If you purchase either a grade one or two listed building in the capital, you will not be able to make any changes to the building’s original structure and will be restricted in the renovations that you can carry out.
Making an Offer:
Unless you offer the first asking price, it is quite common for your first offer to be rejected. You can improve your chance of having your offer accepted by investing during a buyer’s market, such as right now due to the uncertainty in the UK.
You will be required to have a valuation survey carried out on the home if you need a mortgage. You’ll also need to instruct a solicitor or conveyancer to complete the required legal paperwork and transfer the deeds for the property into your name, at which point you will exchange legally binding contracts with the seller.
If you’re from another country looking to invest in property in London, getting your foot on the UK property ladder is often easier than you think.