CapEx UK Property Investment FAQ's
Q1. Is property a good investment vehicle
A: If done wisely, the property can be one of the best investment vehicles. It can generate both passive income by way of rental yields and capital appreciation, as the capital value increases over time. But, it must be considered a long terms strategy for periods of a minimum of 5 years, due to the fact that the acquisition costs can be substantial, which are offset against future returns.
Q2. Is investing in property better than investing in the stock market
A: There is no clear answer to that question. It largely depends on how much money you have to invest and what your risk appetite is. You should always seek professional advice in this objective and always work with a professional, unless you know exactly what you’re doing. Property investment, if done right, can be very lucrative and is less volatile than stocks, as it’s underpinned by bricks and mortar, being tangible and immovable. It’s been said that 90% of the world’s millionaires have made their money through property.
Q3. Should I work with a sourcing/buying agent?
A: Irrespective of the property objective, if you’re new to that respective market, then it certainly will benefit you to work with an agent who represents you, rather than the seller. They are more familiar with the market and the potential pitfalls that you may not be and that the seller’s agent may not alert you to.
Q4. What are the benefits of working with a sourcing/buying agent?
A: These agents will be more familiar with the respective market than you can ever be, given that they’re operating in it every day and sometimes for many years. They are motivated to guide you as the buyer and prevent you from paying too much for the right or wrong property. They’ll know the ins and outs, and a good sourcing/buying agent will generally save you far more than their fees. If they cost you £5k but save you £30k, then you’re up £25k.
Q5. Am I allowed to own property in the UK, as a non-resident
A: UK properties are freely available to anyone who can afford them, provided you can prove that your funds are not from ill-gotten gains. Mortgages and bank accounts are also available to non-UK residents, provided the buyer qualifies in terms of the lender’s criteria.
Q6. Can I get residency in the UK, if I buy property?
A: Sadly, unlike many other European countries, you cannot get residency in the UK, with the purchase of property.
Q7. What factors should I consider, when buying property?
A: Buying property in itself, is a big decision, but once you’ve made that decision, there are a multitude of factors that you need to take into consideration, when choosing the optimum property, as these factors can have an effect on capital appreciation and/or rental yields. Some of those factors are: a. Location b. Price c. Condition d. Tenure e. Layout f. Proximity to transport links g. Local amenities
Q8. What sort of mortgage loan to value can I expect to get from a UK bank, when I buy a UK investment property?
A: Typically, as a non-UK resident, one can expect to receive LTV’s of up to a maximum of around 70%, depending on the property and depending on the potential rental level.
Q9. What are the most important factors that the bank will consider when reviewing my application for a mortgage?
A: With a buy-to-Let mortgage, the most important criteria that the banks tend to have, are: a. They want you to share some risk by investing some of your own money by way of a deposit, normally upwards of 30% of the purchase price. b. Part of the affordability calculation also includes something called Interest Cover Ratio (ICR), which is the minimum ratio between the reasonably expected rental income and the interest rate. As a rule of thumb, the ICR requirement is 145% of the mortgage payment rate. That means that if you’re applying for an interest-only mortgage of say £100 000 and the monthly payments to service that mortgage are £333 (based on an interest-only £100 000 mortgage at 4% interest over 20 years), then you’ll need to show a minimum monthly rental income on that property of £483.00, to qualify for the £100 000 mortgages.
Q10. How do I mitigate the risk of buying a property in the UK, if I’m based overseas?
A: a. Do your research on the agent you’re dealing with and make sure that they’re both knowledgeable and trustworthy. b. As a buyer, you’ll also have your own solicitor to represent you in the transaction, so do your research on them too and appoint your own solicitor whenever you can, so that you know they’re unbiased and uninfluenced by the selling side. The solicitor will perform all the requisite checks to ensure that the paperwork is in order. c. Make sure that you get a professional survey done, before the exchange, to ensure that there are no major issues that might be costly, down the line.
Q11. How much cash do I need to buy a UK investment property
A: You need to have upwards of £50k for an investment property, irrespective of whether you’re leveraging or not. If you’re paying cash, it’s possible to be all in at that level and if you’re mortgaging, then you’ll need at least that amount as a deposit.
Q12. What kind of rental yields and capital appreciation can I expect to receive from a UK residential investment property
A: All things being equal, the location and type of property will affect both of these figures. In a normal market, if you’ve done your due diligence properly, you can expect to see annual rental yields of 3 up to 9% and annual capital appreciation of 3 up to around 10%.
Q13. What are the different kinds of residential properties available in the UK
A: a. In terms of houses, you get detached, semi-detached, terraced. End-of-Terrace. b. In terms of flats, you get flats (otherwise known as apartments), converted flats, split-level flats and studios.
Q14. What are the 2 main types of tenure (right to possess) for residential properties in the UK
A: There are 2 main kinds of tenure, being: a. Freehold, where you not only own the property (building) but the land upon which the property is built for an unlimited period; b. Leasehold, where you own the property (building) for a set period (anything up to 999 years, subject to the title), but not the land that it’s built on, as that’s owned by someone else, called the freeholder; c. A hybrid of the 2, where the leaseholder owns a share of the freehold.
Q15. Is it difficult to get a mortgage for a leasehold
A: It’s not difficult at all unless there are certain adverse conditions present, such as a. There are less than 70 years left on the lease; b. The service charges and/or ground rent are/is too high; c. The flat is in a high-rise building with cladding issues; d. It is smaller than 30m² in the case of buy-to-let.