With overseas buyers braced for tougher UK stamp duty rules, Emma Lunn looks at how brokers and lenders can ease the strain
Foreign buyers of UK property could soon be hit with higher stamp duty costs, with a proposed 1 per cent hike on the cards.
Foreign buyers of UK property could soon be hit with higher stamp duty costs, with a proposed 1 per cent hike on the cards. The government is consulting on plans to introduce the stamp duty surcharge for residential property purchases in England and Northern Ireland by non-UK residents. Stakeholders have until 6 May to respond. Tens of millions of pounds could potentially be raised by the move, with the government planning to spend the cash on helping rough sleepers.
Ministers have blamed overseas buyers for inflating house prices and making it more difficult for UK-based would-be first-time buyers to get on the housing ladder. But while the extra tax will undoubtedly raise much-needed cash to help homeless people, questions remain about whether it will be enough to dissuade foreign investors from buying property in the UK.
Buying agent Henry Pryor describes the move as a “childish policy” and says he hopes it will be dropped. “While sellers and estate agents will squeal at the prospect of yet another cost being heaped on to buyers, most overseas purchasers that I am dealing with are sanguine,” he says.
“Most have seen a significant currency uplift post-referendum and most are pragmatic; if they have to give the chancellor 1 per cent more, they will give sellers 1 per cent less.”
The suggested surcharge will be levied on top of existing higher levels of stamp duty on second home and buy-to-let purchases, introduced in 2016. Its launch will push up tax rates on properties costing between £925,000 and £1.5m to 14 per cent, and to 16 per cent for properties sold for more than £1.5m.
The Buy To Let Business managing director Ying Tan says the extra tax will do little to dampen demand from overseas investors. He says: “It is just an additional cost that a buyer will factor into their calculations when doing due diligence. The UK has a proven track record for property, and buyers will see beyond the slight increase in cost in the short term for the long-term benefit of capital growth.”
The key reasons foreign investors buy property in the UK remain, with or without extra stamp duty costs. Among other factors, foreign buyers are typically attracted to the multicultural lifestyle of London and the UK, and the relatively transparent legal system.
While Brexit might have had a plateauing effect on the UK housing market as a whole, it is actually boosting the top end of the market. Ultra-wealthy opportunist buyers have cashed in on softening prices and a decline in sterling since the Brexit vote in 2016. Figures released by HM Revenue and Customs in January showed that about 300 homes sold for more than £10m in the tax year to April 2017, an increase from the 100 or so in that price bracket sold during the preceding 12 months.
London Money director Martin Stewart says Brexit is a double-edged sword when it comes to foreign investors. “The decrease in the pound has made high-end-value properties much cheaper. But the reverse is while the desire may be there to purchase a property, the confidence to write the cheque is currently not. It is difficult to feel too sorry for people buying a £10m house having to find an additional 1 per cent SDLT and I doubt it will be enough to put buyers off. However, I think buyers will think twice about purchasing in a country that was once very open and embracing, but now appears to be becoming more introverted.”
However, MT Finance director Tomer Aboody is more confident of continued activity in prime markets. He says: “At the higher end, there is still quite a bit of activity with foreign buyers in the £5m-plus market, for example, and as a foreign buyer, why would you not? Your money is going further as that property three or four years ago would have been 20 or 30 per cent more expensive, so you will simply build the 1 per cent into your calculations and in the scheme of things, probably will not notice it.”
The government consultation makes it clear that the surcharges will apply not just to private property, but much more broadly and could also increase stamp duty costs for businesses in the build-to-rent and private rental sectors. However, accountants have already raised concerns about how non-resident individuals will be defined.
The 42-page consultation document states that someone will be considered a non-UK resident if they have spent fewer than 183 days in the UK in the 12 months prior to the property purchase. This is a different residence test to the one used for other UK tax purposes and could be difficult to monitor.
The UK mortgage market for foreign investors is fairly complex so advice from an experienced broker is a must. Only a relatively small proportion of lenders have the underwriting expertise necessary to offer deals to international buyers looking to buy property in the UK, and they will all have different acceptance criteria.
For example, some lenders have longer lists of countries they are happy for clients to live in, while others are more open to applications from self-employed buyers based overseas.
Trinity Financial product and communications director Aaron Strutt says: “We speak to lots of British expats and foreign nationals looking to buy in the UK, and they want to know how much they can borrow and the best rates they can access. There is still a lot of demand for property in the UK.
“When an enquiry from an overseas buyer comes in, we have a long list of lenders we approach and it has taken a lot of work to get all of the names and contacts at the banks and building societies. The lenders will want to know which country the buyers live in, the size of their deposit and how they earn their money.”
Skipton International extended its UK BTL mortgage proposition in February to include applications from non-UK nationals living overseas. Previously, the offshore lender only offered UK BTL mortgages to British expats. To be eligible for a mortgage, clients will need to reside in a country on Skipton International’s approved list, and have a UK bank account to service the mortgage repayments and collect rental income. Skipton’s rates include a three-year base rate tracker at 3.99 per cent (base rate plus 3.24 per cent) for loans below £300,000 and 3.24 per cent (base rate plus 2.49 per cent) for loans of more than £300,000.
These products are available up to 75 per cent loan-to-value and come with a £1,999 fee for purchases and £999 fee for remortgages.
SPF Private Clients chief executive Mark Harris says his brokerage arranges a number of mortgages for overseas buyers and has both a Chinese and Russian desk, along with a number of additional languages covered by other booking staff.
“Larger transactions can be served by private banks and those below £1m are best served by specialist BTL and offshore lenders. The investor needs their hand holding through the process, both mortgage and legal, and also help transferring currency, so for this a broker is essential,” he says.
The mortgage rates overseas buyers will be offered depend on whether the property will be a UK base for themselves or their family (dubbed ‘buy-to-live’), or a BTL property to be let to tenants. NatWest International offers mortgages to both UK residents who work abroad, but need a family or a holiday home in the UK, and overseas BTL investors.
Buy-to-live rates include two-year fixed rates starting at 3.12 per cent at 70 per cent LTV and five-year fixes at 3.45 per cent. Two-year and five-year fixed rates for BTL loans start at 3.2 per cent at 65 per cent LTV.
Some Islamic lenders, such as Gatehouse Bank and Al Rayan Bank, are also targeting brokers and the overseas buyer market. Gatehouse Bank launched a range of home purchase plans – the Sharia-compliant alternative to a conventional mortgage – in March. Products are available for UK residents, UK expats and international residents looking to purchase or refinance property in England or Wales.
Two-year fixes start at 3.19 per cent and are available up to an LTV of 80 per cent.
The plans are available to employed and self-employed workers, as well as contractors.
London & Country associate director of communications David Hollingworth says: “More lender options can always help in extending choice for customers, but having a strong understanding of the ‘wills and won’ts’ of different lenders will be so valuable in finding a solution for expats or foreign nationals alike.
“The smaller mutual lenders are using their ability to consider a case on its merits to their advantage again and while some clarity on the bigger criteria points is always useful, many will be prepared to talk through a case. Lenders with international branches can also offer an alternative approach, so building those relationships will help advisers add to their proposition.”
More details about the tax regime for foreign buyers will be known when the consultation comes to an end in May and then when legislation is put in place.