We highlight some key points to consider if you’re thinking about investing in buy-to-let property in the UK.

Expat buy-to-let mortgages – essential guide

Britain’s buy-to-let market remains a popular option for expats looking to invest in property. Demand for rental properties has been increasing, supporting rents and returns available to investors. Additionally, favourable exchange rates are attracting overseas investors after sterling fell sharply against other major currencies in 2016, in the wake of the EU referendum. Savills expects the demand for rental properties to continue, with over a million extra households needing to rent a property over the next five years1.

Landlords have been joining the market to meet this demand. Between 2013 and 2015, the number of buy-to-let mortgages taken out each year increased by nearly a third2.

Lending criteria

Expats and international buyers who live outside the UK can secure a mortgage for a buy-to-let property, assuming they meet the affordability and other criteria set by most UK lenders.

Unlike residential mortgages, which are usually approved based on a range of personal financial circumstances including salary, the criteria for buy-to-let mortgages also covers the rent from the property. Lenders typically require this to be between 25% and 40% more than the monthly mortgage payment (on a stressed interest rate basis).

Barclays’ approach to affordability is broader, as it takes an investor’s broader disposable income and commitments into account, not just the rental coverage on the property.

Find out more about the affordability criteria on our buy-to-let mortgages

How to apply

The application process for a buy-to-let mortgage is different for international buyers compared to domestic investors. “If you have not lived in the UK before, or have been out of the country for some time, then you might not have a credit footprint here,” says Rupert Stevens, Senior Product Manager for Premier Mortgages at Barclays. “This means you might be perceived as a greater risk, so lenders may need to examine your financial position in more detail than normal.”

This includes details of personal income, monthly living expenses, bills and any other buy-to-let mortgages, as well as an estimate of the likely rental income the property will generate.

“Investors will need to have enough cash to put a significant deposit down on the property,” says Rupert. “Most lenders in the UK require a deposit of at least 25%, and in some cases of up to 35% for international buy-to-let applications.”

If you rent your former home in the UK while you live overseas, most lenders will allow you to keep your residential mortgage running, usually for up to six months. Barclays allows you to rent out your property with a residential mortgage for up to 2 years. Before you do, you’ll need to apply for a 'permission to let' from your lender.

But if you're overseas beyond this time limit, then most lenders will ask you to replace your residential loan with a buy-to-let one.

“Buy-to-let premiums tend to be more expensive than residential ones, but investors can consider an interest-only mortgage to keep payments down, or make provision for a likely rise in monthly premiums,” says Rupert.

To talk to us about your mortgage options, call us on +44(0)1624 684316*. Or find out more information on our buy-to-let mortgage products.

What type of mortgage do you need?

You can choose an interest-only or capital repayment buy-to-let mortgage, although minimum loan requirements may apply. Our minimum loan size is £100,000.

Interest-only mortgages have typically been popular among buy-to-let investors, as tax relief is available on the whole monthly repayment, which may reduce the UK income tax liability on rental income.

Currently, landlords and investors can offset a percentage of their taxable income against allowable expenses, including mortgage interest – usually their largest expense3.

How much they can offset depends on whether they are a basic-rate taxpayer (20%), a higher-rate payer (40%) or an additional-rate taxpayer (45%).

These rules are changing. From 6 April 2017 onwards, the UK government is gradually reducing the tax breaks it grants to private landlords.

Over the next four years, this tax relief is being gradually reduced and will be restricted to 20% by 2020/21. This means for example that a 40% tax payer who receives rental income of £15,000 and mortgage interest payments of £10,800 currently pays £1,680 income tax, but this will rise to £3,840 in 20204.

Bear in mind that, just as tax rules affecting buy-to-let investors have changed recently, so they may change again in the future, and their effects on you will depend on your individual circumstances. Barclays does not give tax advice and we strongly recommend that you take tax advice tailored to your individual circumstances.

Choosing the right property

Many overseas buy-to-let landlords have been attracted to the UK by the recent weakening of the pound against most other currencies.

Anyone paying for property or putting down a deposit with pounds derived from euros or dollars, for example between May and October 2016, experienced a double-digit increase in the amount of sterling they could buy with their home currency5, making UK property more attractive to invest in and helping offset the recent tax increases.

Just remember that when your mortgage is denominated in a currency other than your local one, changes in the exchange rate may increase the equivalent value of the debt in terms of your home currency.

In London and many of the UK’s larger regional cities newly-built apartments are the main market for many expat and international landlords, says Ben Newman of Savills.

“Offshore investors like new-builds because they require little or no maintenance, usually come with an National Home Building Council guarantee and are more attractive to professional tenants than older properties,” he says. Around half of all new homes built in London were bought by buy-to-let investors, the latest research shows6.

Since 1 April 2016 the Stamp Duty purchase tax levied on buy-to-let properties has increased. An extra 3 percentage points is now added to the Stamp Duty rates paid by landlords on top of the standard rate, which varies depending on the value of the home being bought7.

For example, someone buying an investment property worth £500,000 before 1 April 2016 would have paid Stamp Duty at 0% on the first £125,000, 2% on the portion between £125,001 and £250,000 and 5% on the portion between £250,001 and £500,000, or £15,000. The rates on each tier are now 3%, 5% and 8% or £30,0008.

To talk to us about your mortgage options, call us on +44(0)1624 684316*. Or find out more information on our buy-to-let mortgage products.

Your home may be repossessed if you do not keep up repayments on your mortgage.

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