Guide to Buying Overseas Property in UK

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Looking to invest in overseas property? Due to a similar legal system and the popularity of England as a study destination for university students, the UK is quite a popular location for Singapore property investors.

Despite the uncertainties presented by the COVID-19 pandemic and Brexit, Singaporeans are still showing interesting in UK property thanks to strong potential for capital appreciation.

At the moment, the UK is grappling with an undersupply of property and the pound has fallen dramatically ever since the Brexit referendum. Investors who believe the pound will eventually start climbing again may take this as a chance to pick up property at an affordable price.

Related article: Guide to Buying Overseas Property in Australia

 

About Buying and Investing in Property in UK

Non-resident foreigners are allowed to buy property in the UK. Foreigners face no particular restrictions as to the properties they can buy.

There is an array of property to choose from, including freehold and leasehold flats and houses. You can also choose between under-construction or newly-built property and second-hand or resale property. Like in Singapore, newly-built properties tend to cost a premium. If you are buying second-hand property, be aware that older properties can be less energy-efficient or require renovation or repairs due to age.

Most foreign investors hire an agent to help them source for a suitable investment property, explain the buying process and handle paperwork. You might also need to use an agent to manage your property and look for tenants.

Sellers are required to put together a home report which you as a prospective buyer have the right to peruse. The home report will set out some of the property’s features as well as the Energy Performance Certificate, which indicates the home’s energy efficiency rating. The home report should give you an idea as to the operating costs involved.

Buyers typically hire a lawyer before committing to a purchase. The lawyer performs due diligence to ensure that the deal is legitimate and made in good faith. Next, the lawyer will make a bid for the property on your behalf. If accepted, the seller will prepare a contract. In order to seal the deal, you will need to pay a holding deposit. Your lawyer will then handle the paperwork and alert you to the documents and payments required from you before completion of the transaction.

 

Eligibility: What Property Can You Buy in UK? 

As a foreign investor, you are eligible to purchase all types of properties, whether under-construction, new or resale.

That being said, it is a good idea to work out your eligibility for a mortgage, using a mortgage broker if necessary. Qualifying for a UK bank loan, if you choose to use one, is likely to be more difficult for a foreigner than it is for UK residents.

 

Fees and Costs: How Much More Must You Pay to Buy UK Property? 

Fees and costs of buying property in UK

Things to note 

Property price

Variable

Legal and administrative fees 

Variable

Stamp Duty Land Tax

Based on property price (only if property worth over 125,000 GBP) 

Income Tax

Only if you receive rental income from the property 

Capital Gains Tax

Only for UK residents (i.e. if you live in UK for a long time) 

Service Charge (maintenance) 

For those buying/living in an apartment 

 

While there are no additional charges levied on foreign buyers, you will need to pay the costs of your property transaction, including legal fees and any costs incurred by your lawyer such as fees for searches, reports and registration. You should also consider the administrative costs and interest that your mortgage will involve.

In addition, there are various taxes that non-resident UK property owners are subject to.

As a purchaser, you will need to pay Stamp Duty Land Tax when purchasing any type of residential property worth more than 125,000 GBP in England and Northern Ireland. SDLT is calculated based on the property price.

You will also subject to income tax if you are receiving rental income from your property. To this end, you might be required to hire an agent to withhold income tax from your rent.

As a non-resident person, you should not be subject to capital gains tax. However, if you do end up residing in the UK for a period of time or doing business in the UK through a branch or agency, you might become liable for capital gains tax.

If you are buying a flat, you might also need to regularly pay a service charge for management services.

 

Application: How to Buy Property in the UK

  • Hire a lawyer
  • Sign the contract 
  • Pay deposit (5% to 10%) 
  • Complete the paperwork 

Once you have found a property you wish to commit to, you should hire a lawyer before you enter into a binding contract with the seller. The lawyer will be able to do due diligence to ensure that the property deal is legitimate, and look through your contract to protect your interests.

Upon signing the contract, you will usually be required to pay a deposit. This is most commonly 10%, but can sometimes be just 5%.

Your lawyer will handle the paperwork and alert you to any sums of money to be paid by the requisite deadlines. A resale property transaction can take a few weeks to reach the completion stage.

 

Financing: How to Pay for Property in UK 

Property in the UK can be freehold or leasehold, with the typical lease being 99 or 125 years, although shorter leases can also be found, particularly in London. If you are hoping to finance your property with a bank loan, it is advisable to avoid leases of less than 60 years.

You can choose to either take out a mortgage from a bank in Singapore or from a bank in the UK. Whichever you choose, you are not allowed to use your CPF savings to pay for any part of the property purchase.

Should you choose a UK bank, be aware that you will typically have to take out the loan in GBP. This could expose you to foreign exchange risk in the event of any currency fluctuations. Qualifying for a loan from a UK bank is also likely to be more difficult for foreigners than locals, and you may be excluded from the lowest interest rates or face more stringent income requirements.

Should you opt for a loan from a Singapore bank, you are usually given a choice between GBP or SGD. Another thing to note is that you will be subject to the Total Debt Servicing Ratio (TDSR), which restricts your total debt repayments, including any other loans and credit card debt, to not more than 60% of your gross monthly income.

The economic conditions resulting from the pandemic and Brexit might make UK property an attractive proposition for Singapore investors looking for good deals. The lack of restrictions on foreign investors is another plus. However, be aware that investing in overseas property requires a lot more due diligence, and you should ensure that you thoroughly research the location and the property itself before committing to a purchase.

 

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