If you’re a foreigner investing in UK property, you may well be utilizing a mortgage for your property purchase. The type of mortgage you chose (interest only or repayment) the number of years you take the mortgage out for (the term), the deposit you have available and the interest rate will all impact the performance of your investment.
These are our top tips:
- Seek the advice of an independent mortgage firm that specialises in mortgages for overseas investors. They should have access to lenders in your own country, in the UK and other jurisdictions and provide you with the most choice.
- Run different investment analysis scenarios so you have a clear indication of the how the mortgage variables will impact the performance your investment and your long term investment strategy.
- If you are overseas, make sure you start the process 4-6 months BEFORE completion of the property. Mortgage applications for overseas purchases typically take longer than for domestic buyers.
- Generally, the more deposit you have (the lower your LTV) the lower the interest rate you’ll pay.
- Most lenders typically offer LTV’s of around 60-75% (meaning you’ll need a cash deposit of at least 25% to 40%)
- Buy-to-let mortgages typically carry a higher interest rate than residential mortgages.
Key Terms and phrases used associated with mortgages for UK property:
Buy-to-let mortgages – in the UK, mortgages for investment property are referred to as ‘buy-to-let’ mortgages
Loan-to-value – the ratio of the loan to the value of the property
Interest only – you only pay the interest each month, not the capital you have borrowed (you pay back the capital at the end of the mortgage term).
Repayment (principal and interest) – you pay back some of the capital and the interest each month. At the end of the term you will have repaid the entire loan.
Fixed rate mortgage – a fixed rate of interest over a specified period (usually deferring to the banks Standard Variable Rate at the end of the term, if a new mortgage is not arranged (the new mortgage can be arranged with a different lender at the end of the term).
Variable rate- the interest rate could go up or down depending on lenders’ decisions and Bank of England’s base rate.
Tracker – set at a fixed percentage above the Bank of England base rate for the term of the loan.
Discounted variable – set a fixed percentage below the lenders standard variable rate.
Remember, always seek the advice of an independent mortgage broker. Foreigners should use independent mortgage brokers who are experienced in assisting overseas buyers.
We hope you found this article useful if you are thinking of investing in the UK. You may be interested to download a copy of our latest UK Market Review with the latest on the residential property market.
Important notice: Proptech Pioneer and its associated companies seeks to provide investors with guides, information and tools, but we cannot guarantee this information to be accurate or perfect. You use the information at your own risk and accept no liability if you rely on this information. Proptech Pioneer is not a tax advisor, conveyance, lawyer, financial advisor or mortgage advisor. You should seek independent advice from independent professionals before making any investment decision.