Do you live outside of the UK and want to buy an investment property in London? Well read this article find out everything you need to know to not just find the right property, but to also stay in compliance.
Hi I’m Ugo Arinzeh with Onyx Property Consultants and Keller Williams.
If you’re new to my channel please make sure to subscribe as I put out weekly videos and articles, and share top tips for those moving over or investing in the London property market.
As a London property agent, I worked with countless buyers and investors buying property in this incredible city.
Having moved over from America, I specialise in working with international buyers and landlords to help them find the perfect property and look after it.
In today’s article I’ll share the important things to consider if you’re looking to invest in a rental property here in London. It’s part of my Investing in London series for Landlords and Investors.
So, the first thing you’ll need to consider is what is your budget and where you want to invest.
The average house prices in London is about £470K and converted to US dollars, that’s about $580,000 so it is a considerable investment. Given that, once you know your budget, you’ll have to consider how you will make the purchase whether that’s with all cash or if you’ll need a mortgage. Securing a mortgage is not straightforward so you want to talk to a specialist financial advisor or mortgage advisor. Some of the things you’ll need to consider as you’ll be purchasing the property for investment, is whether you want the interest rate fixed or variable. Here in the UK, if you go for fixed, you may only be able to have it fixed for up to 5 years, sometimes 7 and very rare offerings of 10 year fixed. We in America are used to 30-year fixed rate mortgages which means your mortgage payment won’t fluctuate based on what happens to current interest rates.
For whatever portion of cash, you’ll be bringing over, the next thing to consider is currency changes as well as the cost of moving money. If say you’re moving money over from America, when you move the money may have a major impact on the number of Pounds you end up with. The good news is that for my American clients, it has been a great time to buy property in London because of the significant weakening of the pound over the last several years primarily as a result of the Brexit referendum to leave the EU. This chart shows that back in October 2014, well before the Brexit referendum, £1 used to get you around $1.60. Today that same £1 would only get you about $1.23. So, flipping it, as a US investor moving dollars over, your dollar is now a lot stronger. Said another way, on that factor alone, you would be able to afford 23% more house for the same money or you could buy the same property for 23% less dollars in order to buy it.
As an example, if in October 2014 if you were looking to buy a £1M London property, that would have meant it would take $1.55M (excluding any transfer costs). Today that same property would only cost $1.23M, so you can see how significant that would be.
Now offsetting those currency gains, you would have to pay higher stamp duty costs. Stamp duty is a tax on purchase that you will want to budget for. Make sure to check out my video on Stamp Duty so that you know everything you need to know, especially as this purchase will be as an investment property and that will trigger different stamp duty rates. Other things to factor into your budget are the actual conveyancing costs associated with hiring a solicitor, title searches and other miscellaneous costs.
So, once you’re really clear on budget and the cost of buying an investment property, you’ll next need to consider the type of property and location. Many Chinese investors for example have bought quite a bit out in east London as they seem to have a preference for new build developments and there are lots of units coming up around Canary Wharf and the Docklands. Some international buyers have also been buying in southwest London around Nine Elms and at the Battersea Power Station development which is part of a massive redevelopment that is years in the making. While there has become an oversaturation of available properties, for those investors who are cash flush and are able to take a long-term position, they will benefit from this whole new city being created including new tube stations. The major driving force was the relocation of the US embassy to Nine Elms in a shiny brand-new complex back in early 2018.
If new build is not for you, you might want a more classic London property in the most popular areas for expats such as South Kensington or Notting Hill. Make sure to check out my recent video on Best Areas in London for Expats as this might impact the type of tenant you can attract. Also, I have a great video which explains the different property types.
So, are you thinking about investing in the London property market? Be sure to type in a comment if it’s something you’re thinking about.
So, beyond budget, areas, and affordability, you’ll need to give major consideration to your purpose for investing and return on investment. Personally, I own property both here and in America, so I am a big advocate of property as a source of wealth building. Having said that, yields in London are a lot lower than most other places in America so most foreign investors have bought in London not for cash flow return, but for long term appreciation growth. Gross yields in London average around 4% which is not impressive especially when you consider that in secondary markets like Liverpool, the yields are closer to 12%. What has kept investors flocking to London in the past has been the long term capital growth. An average London property bought in 1998 at £115,000 would be worth £671,000 today, a whopping 400%+ increase.
Final point of note beyond the cost of buying the property is that as a foreign investor or non resident landlord you are subject to the government’s Non Resident Landlord Scheme as dictated by the tax and revenue department called HMRC, comparable to the IRS in the US. Under this scheme non resident landlords must register with the government for purposes of filing tax returns and until they do, any property manager or even the tenant must withhold 20% of the net rental revenue and remit it to the government on your behalf. There are other tax changes and requirements that impact landlords, so make sure to check out my other videos on that topic and let me know what specific questions you have.
So in this article we’ve covered things to consider as a foreign investor including Budget and how much you can afford. We’ve talked about your Financing Options, Currency Exposure and Stamp Duty and how they will impact your budget. I’ve also shared with you points to consider on Areas in London to invest as well as the Different Types of Properties All of these things will impact your Rental Yield versus Long Term Appreciation which is really about your strategy and what you’re trying to achieve. Another major point was the Non Resident Landlord Scheme and other tax changes.
So having said all that, the final point to consider is that London property prices have come down significantly over the last several years primarily due to stamp duty, tax changes and Brexit. This has offset some of the adverse factors that impacted landlords. So I think it’s a great window of opportunity for savvy investors to buy and take a long term hold position.
If you want to know more about investing in London property and don’t know where to start, click the link below to my website to register to get my regular newsletter full of helpful tips about the London property market.
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And if you have questions about anything I’ve covered, comment below, and check out my other articles about the London property market and living in London.