This is a hugely attractive time for overseas buyers to buy property in London (and the rest of the UK).
Prices are going up at a rapid rate and show no sign of slowing and with a shortage of buyable housing stock, the option to buy to flip is almost as appealing as the option to buy to let.
However, for overseas buyers the prospect of buying property in London can be daunting, particularly if it’s the first time you’ve done it or if it’s to support a fully-fledged move to the UK.
This is why we thought it may be useful to share our top tips for overseas buyers.
1. Identify the right location and the right type of property
London is a big place and, like all major cities has good, bad and average neighbourhoods.
Moreover, the reasons these neighbourhoods are good, bad or average will vary massively depending on whether you are buying a property to live in, rent out or sell on.
Make sure you do your research. Which areas are up and coming, which are seeing price rises and which are static, which have been ear marked as the ‘next big thing’.
Also look at what types of properties are selling and renting quickest in the areas you like.
If you need some local knowledge, it may be worth talking to someone who knows the London property market well. We will give you an initial steer and, if needs be, introduce the best person in our established London property network to talk to in more detail.
2. Put the required funding in place
If you are borrowing the money you need to buy your property – your mortgage – an overseas buyer will usually need to talk to a specialist lender, especially if an offshore company is involved.
As you can imagine there are strict rules involved with lending this amount of money and with bringing significant sums of money to cover the deposit into the UK.
So that the funding doesn’t cause the deal to break down, we’d suggest you have all the funding you’ll need agreed and in place before trying to purchase a property in London.
3. Get the deal done quickly
With the London property market so active, you will be competing with any number of buyers to buy the property you like. Until the deal is done (i.e. the contract is signed by both parties and exchanged), you could still be gazumped.
Make sure you have someone on the ground working for you. This will enable you to move quickly and take the best course of action for the London market.
In addition, to improve your chances further you can underline you are a cash buyer and ready to sign the contracts immediately (if this is the case).
4. Decide how you will own your property
Different property ownership options carry different tax liabilities and the British tax system is renowned as complex.
Before you proceed with your purchase, we’d suggest you consider the various options – personal ownership, company ownership and trust are the main ones – with a qualified and experienced legal professional.
5. Decide what you want to do to increase the value of your property
Many overseas buyers buy property in London to develop it. It may be a large house that you want to convert into flats or a suburban property that you want to knock down and replace with multiple plots.
If this is the case, you should find out what types of planning consent you will need and whether there are any restrictions (e.g. listed status on a historic building) that will preclude you from doing what you want.
6. Understand buying a flat is different from buying a house
If you buy a flat in London it will almost certainly be sold as a leasehold property (as opposed to a house which will usually be sold as a freehold property).
A lease is basically a contract between the leaseholder (you) and the landlord of the ground the flat stands on giving you conditional ownership for a fixed period of time.
You need to know what the terms of the lease are as it may affect how you use or develop the flat. It could also have a significant effect on your ability to sell the flat when the time comes.
If there is 85 or more years on the lease, you probably won’t have an issue when it comes to sell especially as after 2 years you will be able to extend the lease. But if there are less than 80 years remaining and you want to exercise your right to extend the lease, you may need to pay the landlord the ‘marriage value’, an additional sum you may not have budgeted for.
You may also be subject to service charges and/or management fees whether those are charged by flat or as a share of an overall fee all properties in the block need to pay.
If you are interested in buying a flat, please make sure you go through the associated lease very carefully with your solicitor.
7. Know your budget
There is more to buying a property in the UK than just the sale price. You need to budget for all the additional costs – legal fees, agents’ fees and Stamp Duty.
Stamp Duty Land Tax (SDLT) is a peculiarly British thing. It is a transfer tax due on the gross sale value of the property being purchased.
The top rate is currently 7% which applies to all residential purchases over £2 million (although this rate increases to 15% for £2 million+ properties acquired by a company structure). Before progressing a purchase always double check the Stamp Duty liability as it could significantly stretch your budget.
Similarly, as you will almost certainly need to talk to a specialist lender to secure your mortgage or, if you are buying for rental purposes, a buy-to-let mortgage, there could be a substantial arrangement fee involved.
8. Make sure you have a solicitor
After you find your property and put your funding in place, you will need to buy your property. This will require you to instruct a solicitor.
Your solicitor is responsible for all the legal aspects of your purchase. They’ll, conduct the searches, make enquires on the legal aspects of the property and manage the exchange process.
While many overseas buyers will use a solicitor they either know or have been recommended to act for them, we would suggest that if you haven’t yet found a solicitor we should speak.
We have a long and successful history of helping overseas buyers buy property in London and the UK and have all the professional contacts you’ll need to make sure your purchase is as smooth and straightforward as possible.
If you are planning to buy or sell a property in the near future, please email me at Jeremy.Tulloch@collinshoy.com or call me on 0208 515 6600.