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Buying a property in the UK

Why the UK?

Uploaded July 2011

The UK is a nation obsessed with property – with good reason. The country has a vast choice of housing stock from period manor houses to modern studio apartments, and practically everything in between. So, whatever type of home you’re after, you are bound to find it in the UK.

Prices vary dramatically from region to region however, so be sure that your budget meets your location aspirations. For example, property prices in London and the South East of the country are pretty much double what they are elsewhere in the UK – and certain areas of the capital are double again!

The good news is that, historically, British property prices have doubled approximately every seven years, so even though there isn’t much to be seen in the way of capital growth at the moment, there is no reason why it shouldn’t return.

But, like every other country, buying a home in the UK is by no means a sure bet. There is a shortage of new-build homes which should mean that house prices rise once again as demand begins to outstrip supply, but this is certainly not guaranteed.

Popular buying locations

The most popular location to buy property in the UK is, without a doubt, London. The vibrant capital has plenty to offer the overseas visitor, from shopping and restaurants to theatres and museums. It is easy to get around thanks to a diverse public transport system and there are plenty of parks to stroll around should you fancy getting out in the fresh air.

Other popular cities include Edinburgh, Bristol and Manchester, all of which also offer a wealth of facilities and amenities among a cosmopolitan atmosphere.

But, if you are after a sense of history, then cities such as Bath, Cambridge and Canterbury may fit the bill better. These are far smaller than the previously mentioned cities, and so are much easier to navigate. They also offer a friendlier feel.

If it’s a coastal home you desire, then the southern counties of Cornwall and Devon are much desired. Picture postcard villages can be found throughout these areas, with traditional tea shops galore. Bigger towns and cities cater for everyday necessities, while the beaches provide some great walks – weather permitting!

The buying process

It is usual in the UK to look at a property twice before deciding whether or not to go for it. If you do decide that it’s the home for you, then you can put in an offer. This can be for any amount that you feel the property is actually worth – it doesn’t have to be the asking price.

However, this can be a dangerous game as there is no guarantee that your offer will be accepted – especially if someone else has their eye on it and has also placed a bid. Having said that, vendors (sellers) do make their decision on more than price alone. For example, if you are not in a chain (ie don’t have a UK property to sell in order to fund the purchase) and are a cash buyer (ie aren’t reliant on a mortgage) then there is a very good chance that your offer will be accepted over someone else’s.

Once you have had had your offer accepted you will need to instruct a solicitor and commission a survey. If you don’t like the results of the survey then you are entitled to pull out of the purchase without incurring any penalties. In fact, you are able to pull out at any time before you exchange contracts, even if you have simply changed your mind.

The downside to this is that the seller can also move the goal posts, and might pull out of the sale at any moment – and you will have lost any money that you have already spent (such as solicitors costs and survey fees).

Your solicitor will conduct a range of searches on your behalf, and will liaise with the vendor’s lawyer to iron out any contractual problems. Once this has taken place you will exchange contracts – meaning that it’s a done deal. Finally, usually seven days after exchange, you will complete on the purchase and will be able to move in.

Legal issues

There aren’t really any legal restrictions to purchasing a UK property, but you will need to consult a tax advisor.

Every purchaser buying over a certain threshold is required to pay stamp duty (see fees and taxes) and you may also be liable for capital gains tax. However, regardless of where or what you have bought, you will need to pay income tax on any rental income that you receive. There may be advantages in setting up a company in order to buy the property, but again you will need specialist advice.

Inheritance tax also applies to all properties in the UK, regardless of which country the owner is resident. Again, owning the property via a company or trust maybe financially beneficial, but it really depends on the individual circumstance.

Finance

Interest rates in the UK are currently at a historical low, so if you need to get finance in order to fund your purchase then you could do a lot worse than getting a mortgage in Sterling. Having said that, it is also possible to borrow the funds in another currency – it really depends on which best suit your needs.

Sterling mortgages are available to non-residents, but you are unlikely to get quite as favourable terms as a UK buyer. The majority of loans available to foreigners require a 35 per cent deposit, but you should still have the option of either a traditional residential mortgage or a buy-to-let loan. Likewise, you should be able to choose between a fixed rate loan or a base rate tracker.

Non-resident mortgages will be offered provided that you meet a range of criteria. This usually encompasses your age (the loan will run for 25 years or until you reach retirement age), affordability (ie your existing financial assets and income) and rental income if you are planning on renting the property out.

If you are self-employed then be prepared to produce at least three years of accounts in order to prove your income.

Fees and taxes

When buying a home in the UK you will need to pay for a survey in order to ensure that the property is sound. There are three types of survey that you can get, ranging from a basic mortgage valuation, via a homebuyers report to a full structural survey. Depending on which type you plump for, the costs range from around £300 up to £1,000.

Your solicitor will also charge you for their services – and as prices vary dramatically it’s a good idea to get a few quotes before committing to a particular lawyer.

However, perhaps the biggest outgoing when purchasing a property is Stamp Duty. This is currently charged on a sliding scale as follows:

£0 - £125,000 0%
£125,001 - £250,000 1%
£250,001 - £500,000 3%
£500,001 - £1 million 4%
£1 million or more 5%

When you come to sell you will need to pay your solicitor once again, as well as an estate agent to market the property. As a rule of thumb they charge around two per cent of the asking price plus VAT, but again it pays to shop around.

You might also need to pay Capital Gains Tax. This is charged at varying rates of ten, 20 and 40 per cent depending on your income. However, everybody is entitled to a £10,600 tax-free allowance after expenses – so it may pay to purchase as a couple as opposed to an individual. Consult a specialist tax advisor to see if you will be liable for this tax, as everybody’s circumstances are different.

New-build versus resale

Due to the recession, there aren’t as many new-build homes to choose from as there were five years ago. However, construction is still underway in many parts of the country and so, if you are looking for a home that you can move straight into, then a new property may be your best bet.

New homes also come with a ten-year NHBC building warranty, meaning that your property is covered against any defects for at least a decade. Brand new homes suit those who are after a low-maintenance lifestyle, as they simply don’t require the upkeep of their older counterparts.

On the flip side of the coin, period properties also command a premium due to the character that they provide. The British are very good at preserving original features such as fireplaces and cornicing but, as a result, these homes are extremely popular and cost even more than a brand new home.

And, as is the nature of the beast, older properties also tend to be found in the best locations – simply because they were there first!

Investment potential

As interest rates in the UK are currently so low, buying a property to rent out is certainly profitable at the moment. This is amplified by the fact that many first-time buyers are currently unable to get mortgages so they are, in effect, being forced into remaining in rented accommodation. Such a mix provides a solid base for any future landlord.

However, it is unlikely that interest rates will stay so low for long and, likewise, banks are going to have to start lending to first-time buyers again at some point – meaning that profit margins won’t be quite as good.

Having said that, plenty of people made a good living from renting out property in the boom years too – so you just need to ensure that you do your research and buy the right type of property in the right area.

For example, there are plenty of opportunities to let to both students and young professionals in the city centres, provided that you are close to good transport links, while family homes prove more popular in the suburbs. More unique homes, such as cottages, may well be best suited for the holiday let market.

Health and education

The National Health Service, or NHS, receives plenty of bad press but, ultimately, it means that any emergency treatment is available at a high standard free of charge. It is perhaps not the most efficient system if you are in need of long-term healthcare, but if you don’t want to pay for private health insurance then it is at least an option.

There are plenty of private healthcare providers around, so should you want to have complete peace of mind then this would certainly be worth looking into. If you are only planning on spending a short amount of time in the UK on an annual basis, then your travel insurance should suffice.

The same can be said for the British education system. State schools are available to every student on a no cost basis and, while some schools are better than others, it is generally of a good standard.

Having said that, the private education sector has an excellent reputation, with many overseas nationals choosing to send their children to boarding school in the UK. The majority of boarding schools allow day pupils too, if you would rather have your children come home every night.

A good middle ground can also be found in terms of grammar schools, but entry to these are dependent on good exam results at the age of 11.

Transport

Thanks to no less than four airports – Heathrow, Gatwick, Stanstead and City – London is one of the best connected cities in the world. In addition, if you’d rather keep your feet on the ground, the recently upgraded Eurostar can get you from London St Pancras International to the centre of Paris in just two hours and 15 minutes.

London itself has a wealth of public transport options, including buses and the famous tube. Taxis, which are available in the form of black cabs, are unrivalled due to every driver having to complete ‘the knowledge’ – meaning that they can, traffic permitting, get you from A to B in the quickest possible time without any concerns of you being taken the long way round.

Once you come to leave the capital the traffic lessens dramatically, and so you may wish to drive. There are plenty of hire car options available if you don’t wish to commit to purchasing a vehicle.

Alternatively, the national rail network covers pretty much the entire country, and so you may prefer to let the train take the strain.

More pages

Page 1: Why the UK?
Page 2: And finally…