British Expat Buy to Let Investment Ultimate Guide

In buy to let investment guide we tell you everything expat landlords need to know about buy to let and give you the tips you need to make buy to let a success.

There aren’t many people out there that haven’t dreamed about buy to let at one time or another. Purchase a buy to let. Rent it out. Use the cash to purchase another buy to let. Rent that one out too and then use the cash generated to purchase another one. Rinse and repeat until your property empire funds the life style you’ve always dreamed of.

Imagine sitting on the beach, sipping a pina colada, without a worry in the world, happy in the knowledge that your properties have their noises to the grindstone, toiling away 24/7, 360 days a year maintaining your fat bank balance on your behalf.

But hang on a moment. If it was that easy, wouldn’t everyone be doing it? To which the obvious answer is yes.

Unfortunately, landlords have responsibilities too! They need to pay taxes, fees, insurance, deal with letting agents, management companies, tenants, maintenance contractors, mortgages and a whole host of other stuff.

And potential landlords also need to consider the opportunity costs associated with buy to let when compared to other types of investments such as buying shares.

But that doesn’t mean it’s not worth it. For some groups, buy to let could be an excellent path to wealth, and one of those groups might just include British expats. Let’s find out why.

Why buy to let suits expats

Buy to let investment has plenty of advantages specifically for expatriates.

One or more buy to lets can grow your wealth in either of two ways. Firstly, the price of property in the UK generally increases over time at a rate above inflation meaning you should make money as the price of your house increases in terms of capital gains. In addition you receive income through collecting rent from your tenants. These two sources of wealth generation combined has the potential to provide excellent investment returns.

Though some people like handle things themselves, pretty much everything can be outsourced if required. Letting agents can handle the day to day running of the property meaning it is perfectly feasible for British expats and other non residents to invest in buy to let property in the UK.

A bonus for expats is the fact that buy to let provides exposure to the UK market. If the pound strengthens, or there is a sudden boost to the economy, you won’t miss out if you have some UK exposure via a buy to let. And perhaps more importantly for some, if you own at least one property in the UK you won’t be priced out of the market if you ever decide to permanently return.

The fact that buy to let investment is available to expats is also a big bonus considering that the majority of UK investment products and services aimed at UK residents just aren’t available to expats or non residents.

Unlike many other types of investment, buy to lets are easy to understand. There’s a saying that you should only invest in things you can explain to primarily school kids. Something tells me it would be a lot easier to explain a buy to let than say a mortgage backed security or something of the sort! In addition, buy to lets come with a relatively low level of volatility and this compares favorably to the main alternative i.e. a portfolio of stocks which regularly drop double digits in a single day.

The final advantage, and for some people the most important advantage for investing in buy to let property is leverage (often called gearing). This is where you borrow money to invest. People often push this to the limit to increase returns. And crunching a few numbers should help to explain why.

The joy of leverage

Let’s say I invest £100,000 and my investments go up 10%. I’ve now got £110,000. Great! I’ve made £10,000. But how about I borrow £300,000 to go with my £100,000. Even though I still only put £100,000 of my own money down a 10% increase in my investments means I make £40,000 (because my house is now worth £440,000).

That’s a much better return on my original investment because a £40,000 return from a £100,000 investment is a 40% return. Borrowing money has quadrupled my gains! Yes, there maybe a few fees to knock off but you get the picture.

Of course there is a chance this could all happen in reverse meaning that the money you borrowed will magnify your losses to the same extent, and although that wouldn’t be good, it doesn’t have to be catastrophic.

The reason I say that, is because it is also possible to invest in the stock market using leverage. The difference comes from the way in which the loan works. A loan for stocks is given to you based on the value of your investments. When they plummet you have to add more money or your investments will be liquidated i.e. you will loose them. Essentially, you have to come up with money right when you are unlikely to have it.

On the other hand a mortgage from the bank doesn’t work like that. As long as you can make your mortgage payments no action will be taken, you can keep your buy to let, and essentially carry on with life. If house prices were to suddenly drop, you’d only really get into any difficulty if you couldn’t meet your mortgage payments. Many landlords keep a few months cash in reserve to ensure that doesn’t happen.

Why it can be a good choice for expats

• Investment returns through capital gains
• Investment returns through rental yield
• Location independent
• Exposure to UK market
• Prevents you from being priced out of the market
• A means of investment that is open to British expats and other non residents
• Easy to understand and monitor
• Leverage / gearing

Disadvantages

As with anything in life, there are a few disadvantages to buy to let that are worth thinking about. Starting with the fact that buy to lets have many costs involved. These begin during the buying process and continue throughout the life of a tenanted property. They include lawyers, estate agents, letting agents, taxes, mortgages, maintenance to name but a few. You could say the extent to which you can limit these costs is directly proportional to how successful your buy to let investment will be.

Even when you outsource everything to letting agents, management companies and tax professionals, in all likelihood you’ll still have things to do and decisions to make. Things inevitably go wrong when you are least expecting it, which can severely impact your day in a negative way if you’re not careful.

Though management companies and letting agents can deal with everyday tasks. An exploding boiler or tenant who won’t pay is probably going to need your input.

Even the best properties in the best areas have the potential for rental voids. A sudden jolt to the economy or pandemic at the wrong time could easily put the kibosh on a seamless transition between tenants. At best missing a couple of months rent will be inconvenient. At worst, it is not beyond the realms of possibility that you miss mortgage payments leading to loss of the property. Banks don’t like missed mortgage payments!

It’s not unheard of for tenants to simply stop paying rent either. Yes, there are rules in place to remove troublemakers from properties when required, and similarly there are insurance products on the market that can limit the damage caused, but that doesn’t mean it doesn’t take time, effort and money to get things back to normal.

A quick look at UK history tells us house prices usually go up. However, that is not always the case. From time to time house prices have been known to go down and though rare, they have on occasion crashed hard. There are certain types of property in certain areas of the UK that are priced lower than they were in 2008. That’s 13 years and counting of negative prices for some buy to let investors.

Another risk associated with buy to let is legislation. The government is forever tinkering with policies that can impact buy to let ownership. Two recent examples, being the fact that mortgage interest is no longer deductible from rental income before tax, and stamp duty has been increased. (Both of which we discuss in more details below).

Though leverage can be great when prices go up it can cause chaos when the market turns. So it pays to fully understand the implications of the amount you borrow and to have a plan in place for the bad times if you decide to buy with a mortgage.

Summary of the disadvantages

• Costs
• Time
• Rental voids
• Problems with tenants
• Potential drop in property value
• Legislation
• Leverage

Landlord responsibilities

Landlords have many responsibilities. Even if you use a letting agent to handle everything for you, it pays to know what your responsibilities are. If for no other reason but to ensure you know why your agent keeps charging you for things! A landlords main responsibilities are listed below:

• Ensure the structure and outside of the property are in reasonable condition
• Ensure the water and heating systems are maintained in good order
• Ensure that gas safety certificates are available inside the property for every gas appliance
• Ensure any electrical appliances you provide in the property are safe. The most straightforward way to ensure compliance is via Portable Appliance Testing (PAT)
• Ensure all items of furniture within the property comply with fire safety and display appropriate labels
• Ensure there are fully functioning smoke alarms on every floor and that any room containing fuel burning appliances have a carbon monoxide alarm
• Ensure access to escape routes
• Ensure fire alarms and extinguishers are provided in large houses in multiple occupation (HMO).
• Ensure you have the relevant HMO licence where required
• Ensure your tenants deposit is protected via either 1. The Deposit Protection Service, 2. MyDeposits, or 3. The Tenancy Deposit Scheme
• Ensure your property has an Energy Performance Certificate (EPC) with a minimum rating of E
• Ensure your tenant has a right to rent (applicable to England)
• Ensure your tenant is provided with your full name and address or details of the letting agent managing the property on your behalf
• Ensure your tenant receives a copy of the Government’s How to Rent guide
• Ensure that reasonable notice is given to your tenants and a reasonable time for both parties is agreed when you or a subcontractor requires access to the property

Buy to let insurance

Buy to let insurance is one of those really important things that should be really simple but isn’t. It’s really easy to get totally confused really quickly. It doesn’t help that there are all kinds of scare stories on the internet about what can happen when you don’t have it. Even worse are the stories about those people who did have it, but somehow the insurance company wriggled out of actually paying up!

It’s no surprise then, that rumors perpetually circulate around the odd landlord that doesn’t have insurance at all. If they do exist, I can only assume they are so rich they don’t actually need insurance. Perhaps, if the worst came to the worst the only thing that would be affected is their bank balance.

The bottom line being, most landlords would be wise to take out at least some type of insurance cover.

The question then becomes what type of landlords insurance do I need? There are lots of them! See below for some of the common ones.

Different types of insurance

• Building insurance
• Contents insurance
• Loss of rent insurance
• Accidental damage insurance
• Emergency cover
• Public liability insurance
• Rent guarantee insurance
• Legal expenses

And it is worth diving into these in a bit more detail.

Building insurance covers the fabric of the building and includes permanent fixtures and fittings. It basically covers anything you can’t easily pick up and take away. In most cases, it is the sturdy long lasting stuff that costs a lot of money to repair if something goes wrong. Walls, roofs, kitchen cabinets for example.

Contents insurance covers all the stuff you can easily pick up and take away. Furniture, carpets and curtains would all be covered by this. (But note the tenant’s possessions won’t be covered though.)

Loss of rent insurance would protect your income if your tenant has to move out of your property due to an insured event like a flood or fire. Your rent would be covered by the insurance company, and the costs of arranging alternative accommodation for your tenants will also taken care of.

Accidental damage insurance would protect your contents if they get damaged accidentally. An example being your tenant spilling red wine on your buy to let’s carpet.

Emergency cover takes care of your property in the event that the plumbing, drainage, heating or power supply suddenly fails or the security is compromised i.e. there’s a serous problem with the doors or windows.

Public liability insurance covers compensation claims arising from accidents happening within your property. Though unlikely, there is a real risk that a tenant has a serious accident in your property so severe that you would be liable for a lifetime of medical bills.

Rent guarantee insurance covers rental losses if your tenants stop paying their rent.

Legal expenses insurance has you covered in the event that there is a relationship breakdown between you and your tenants. Perhaps you need to pursue rental arrears or you need to evict a troublesome tenant.

As you can see there is a large selection of different kinds of landlord insurance. Some people may need all of them, some (extremely rich or risk taking) individuals may not need any of them.

It comes down to your own risk tolerance and how much money you have. Personally, I think it is extremely useful to think about it this way: You weigh up worst case scenarios against your personal ability to handle them. In other words, if something bad happened, however unlikely, could you personally afford the consequences?

I find asking a couple of simple questions helps to shed a lot of light on the situation.

1. What’s the worst that can go wrong?
2. Could I afford to put things right?

I like to set things out in what I call a buy to let insurance consequences table. See below:

Insurance assessment table

Landlord Insurance Type	What’s the worst that can go wrong?	Can I afford to put things right?
Building insurance	House burns down. Need to pay to build a new one.	No
Contents insurance	The tenant has a party and breaks all the furniture.	Yes
Loss of rent insurance	There’s a fire that destroys the property. It happens at the start of a one year tenancy so you are obliged to pay for the tenants’ alternative accommodation for the best part of a year, whilst at the same time they don’t pay you any rent!	Yes, I think so (but see comments below).
Accidental damage insurance	The tenant has a party and loads of things are accidentally damaged.	Yes
Emergency cover	A pipe explodes and water goes everywhere. Need to pay for a plumber to fix it a.s.a.p.	Yes
Public liability insurance	A tenant slips on a piece of loose flooring at the top of the stairs causing permanent damage, a lifetime of medical bills and total loss of earnings, which you become liable for.	No
Rent guarantee insurance	The tenant runs into difficulty and can’t pay rent for a few months.	Yes
Legal expenses insurance	A seriously troublesome tenant doesn’t pay rent and damages the property contents.	Yes, I think so (but see comments below)

Which type of buy to let insurance do you really need?

So I think it’s pretty clear to me that building insurance and public liability insurance are absolutely essential for almost everyone.

Yes, it is highly unlikely that you will encounter a situation where they would be needed, but if you did encounter such a situation and you weren’t insured the consequences could be devastating.

That said, if you own an apartment in a dedicated block, building insurance is usually included within your service charge, so you wouldn’t need additional building insurance.

The other types of landlord insurance will come down to your own personal situation. Somebody who lets out a luxury apartment filled with lots of expensive furniture and electrical appliances may need contents and accidental damage insurance, whereas somebody who lets out an unfurnished house probably won’t. A new build apartment may not need emergency cover, whereas a 100 year old house is likely to require it.

Rent guarantee insurance sounds great until you get more of an understanding of how it works. Basically, the background checks that are required to be done on potential tenants if this insurance is in place are so strict that the tenants would be highly unlikely to miss any rental payments anyway.

So a few thoughts immediately spring to mind about this. First, the insurance company is backing a winning horse. If the background check you do is just as strict as the one they do, you won’t need that insurance anyway.

Furthermore, let’s say you don’t do such a strict check, but you (or your letting agent) complete standard background checks that, I am led to believe, are still more than adequate, the risk of your tenant not paying rent has got be very low.

Additionally, the stricter the requirements, the less tenants there will be in a position to rent your property, which could increase your void periods, which of course aren’t covered by rent guarantee insurance any way.

I think what I’m really saying here, is that I don’t think rent guarantee insurance is worth it. In fact, in some situations it could be a negative.

Legal expenses and loss of rent insurance are probably the two that I’m a little on the fence over. On the one side, I do think they would be very useful if you needed them. However, on the other side, I feel that the probability of needing them is very low. And at the same time, though it would be expensive, I could afford it at a push. Yes, it would screw my finances up for a year or so but I feel like I could stretch that far if I needed to. The point is, I’m willing to take the risk with this, whereas I’m not with buildings and public liability.

It’s probably worth mentioning at this point that it is unlikely that you can purchase public liability insurance on its own. Instead, you usually buy it as part of a package with either contents or buildings insurance. Because of this it usually makes sense for apartment owners to package their public liability insurance with contents insurance (as buildings insurance will usually be included as part of their service charge).

Insurance premiums change from time to time. In my experience we are talking somewhere between £60 and £200 per property and this depends on exactly what your insurance covers, what kind of property you are letting out and the current situation.

BTL taxation

Unfortunately, buy to let investment isn’t exempt from tax even for expats. There’s tax to pay when you buy property, tax to pay when you rent out property, and tax to pay if you sell your property.

The tax you pay when you buy property is stamp duty. There have been some major changes to this recently, so this is covered under a separate heading below.

And you only need to worry about capital gains tax if you sell a property, which hopefully shouldn’t be very often. If you do plan on selling a property capital gains tax is covered in detail here.

Other than this, the key tax buy to let landlords need to pay is income tax. And that’s because it is applied to rental income.

It is also the most important tax to consider because unlike stamp duty and capital gains tax which are one offs, income tax is continuously applied to your rental income throughout.

In the good old days you could deduct mortgage interest and other allowable costs from rental income before calculating any tax liability. However, from 6 April 2020 that is no longer the case. Tax relief for finance costs is restricted to the basic rate of income tax (20%).

Essentially, relief is given as a reduction in tax liability instead of a reduction to taxable rental income. The bottom line being landlords now pay more, especially higher or additional rate tax payers.

And unless you want your tenant or agent deducting tax from your rent you really need to sign up to the Non Resident Landlord Scheme (which we’ve covered in more detail here).

The good news is, the old days of paper form filling, piles of receipts, the postal service and dealing with HMRC over the phone have been replaced with a totally online service i.e. the UK Government’s ‘Making Tax Digital’ initiative.

UK residents can use HMRC’s online portal for this. Non residents cannot. However, as a non resident you do have some good options available. These days, there are some great software options available that turn days of messing around with forms into an hour of being led through the process with tips. We like GoSimpleTax which you can try for free here.

Alternatively, if you are busy you can pay a tax accountant to do everything for you. Prices aren’t what they used to be. UK Landlord Tax offers a highly competitive service for non residents, so it makes sense to start with them. (In fact, you can contact them directly with any queries you have here).

Stamp duty

There were some major changes to stamp duty in 2020/2021, so much so that we’ve devoted an entire article about them which you can find here if you are interested. In short the rates expats pay went up. In most cases an expat buying a buy to let will pay 5% above standard rates.

To some people 5% won’t sound like a lot. However, trust me, to many it will be. As an example, an expat buying a £295,000 buy to let pays £19,500 in stamp duty, compared to £4,750 for a UK resident buying a house to live in. (You can see the calcs here).

Maintenance fees

Maintenance fees are another one of those troublesome costs that buy to let landlords have to deal with. There’s a rule of thumb that says assume 1% of the property price annually will be spent on maintenance. So a £200,000 property needs £2,000 allocating to maintenance.

Whilst that is adequate for working out whether or not a property is going to be a good investment or not, it doesn’t cover the practical matter of paying for maintenance work quite as well as it should.

That’s because, the biggest problem with maintenance is that you never know when you are going to need to pay it. Some properties go for a decade without needing any, whereas others need major work in the first year. Some of it is luck and some of it will depend on the kind of property you buy.

A brand new apartment bought off plan probably won’t need any maintenance for the first few years. But there’s nothing to stop all the appliances and pipework breaking down together in say year five. Believe me it happens and when it does you might just find you end up spending a lot more than 1% of your property’s price.

As a result, it pays to have some extra cash available for maintenance emergencies.

Agency fees

Buy to let agency fees vary depending on the service you require. These range from simply finding a tenant for you to full management, where just about everything related to the property is handled on your behalf. Some agents may offer something in-between where they just collect rent for you.

Believe it or not some expats do somehow manage to handle the day to day running of their properties themselves remotely, but generally the vast majority have no choice but to go for full management and in reality the price you pay is probably more than worth it.

Tenant finder fees typically range from 5 – 10% of the entire tenancy contract. If a tenant signs up for 12 months, paying £1,000 a month, expect to pay the agent somewhere between £600 and £1,200.

Rent collection will typically cost 8 – 14% of the monthly rent. So based on the above example expect to pay somewhere between £80 and £140 a month or £960 to £1,680 a year.

Full management typically costs 10 – 16% a month. Expect to pay somewhere between £100 and £160/month or £1200 to £1,920 a year for a £1,000/month property.

Agents also charge a tenancy renewal fee. Again this is one of those fees that varies. I assume £150.

Yes, you can save a little money by opting for one of the lesser services, but for sure, with full management you are getting a lot more for your money. This is especially true for expats who manage to find a good agent.

(It’s possible you may need to pay a bit more in certain areas like London or certain tourist destinations.)

Management fees (Service charges)

There are two types of buy to let management fees you may pay. The first is a letting agent’s full management service as discussed above (Letting agent fees).

The second type of management fee you may pay is building management fees. These typically apply in apartment blocks. Lots of people call these management fees, as you pay a property management company. However, they are more correctly termed service charges.

These tend to cover buildings insurance, lighting, cleaning, maintenance of common parts, gardening, and any staff required for the daily operation of the building.

The actual costs can vary depending on the property but I like to assume 15% of the monthly rent for this. That said, I’ve seen instances where the amount you pay is much greater and equally I’ve seen plenty of apartments with lower service charge rates.

Apartment and leasehold ground rent

All land in the UK has a freeholder. When you buy most types of property, you own the freehold for the land. However, when you buy an apartment you don’t. Instead you lease the ground the property is built upon and as such must pay the freeholder to occupy the land.

Typically this isn’t very much in the scheme of things. A bit of research for this article suggests 1% of monthly rent may be a good assumption.

But make sure you are clear about how much you pay before you purchase a new property. I’ve heard of people paying a lot more and in some horrible cases the ground rent doubles every so often. As I understand it the UK government is looking into stopping this, but it makes a lot of sense to find out what the ground rent is before you buy. And please make sure it isn’t going to double every few years!

Expected investment returns

One of the benefits of property investment is that your returns come from two sources: Capital gains and rental yield. In an ideal world, the price of your property shoots up, whilst you collect monthly rent from your tenant. Combine these two for long enough and you might just become rich.

Different kinds of properties bought in different areas at different times can have very different returns. Buying at the bottom of the housing market cycle in an up and coming area should have better returns than buying at the top of the market in an area that is on its way down!

Some types of properties like houses of multiple occupancy (HMO) tend to have a higher rental yield. And whenever I’ve looked over historic data semi-detached houses look like they have the best capital gains. So buy a semi-detached HMO in an up and coming area and hey presto!

In reality it’s not that simple. Many people avoid HMOs because they usually require more work, and if picking the next up and coming area was really that simple everyone would be doing it. Oftentimes, a lot of landlords simply prefer buying property in areas they are familiar with. That includes expats, who like to buy property in the areas they once lived.

Depending on where you look you can get a wide range of expected rental yields and property price growth. If you are just getting started in the absence of anything better you can assume gross rental yields range from around 3% in central London to 6% in the North (but again these could be much higher or lower depending on exactly what kind of property you buy and when).

And remember these gross yields are your returns before you subtract all your costs. As a rule of thumb, I assume I’ll keep two thirds of my rent after all costs, so a 6% yield becomes a 4% real.

Similarly house price growth differs from one year to the next but over the last decade many parts of the UK have increased by 4% a year and that might not be such a bad assumption going forward. That’s because according to Credit Suisse Global Investments Return Yearbook 2018 historic real returns are 1.8% for UK property.

That analysis was carried out by some pretty esteemed finance academics so I think it’s probably as good as anything out there. Add that to the Government’s inflation target of around 2% and 4% does look like a good assumption over the long term.

Again, buying and selling costs, taxes and the like are going to reduce this a little, so assuming 3% growth over the long term is probably a good bet.

Total return

Taking my 4% net rental yield and adding it to 3% growth means we are talking about a 7% return.

If that doesn’t sound quite as high as you’d like, don’t forget it is possible to juice your returns by simply taking out a mortgage. Remember the leverage example I talked about above (under British expat buy to let investment advantages).

Let’s do a similar example but based on our 7% return assumption this time.

If you invest £100,000 in property returning 7% annually you make £7,000. However, if you add a £300,000 mortgage to your £100,000. You essentially reap the rewards of a 7% return on £400,000 which is £28,000. And remember you’ve still only invested £100,000. The rest of the money was borrowed. That’s a 28% return!

Yes you’ll have to knock fees off that and you’ll be lucky to get quite that much, but you get the picture. The real money in buy to let is made on mortgaged property. Even if you only make half of that i.e. 14% that is still a great return.

£100,000 growing at 14% a year would grow to over £2.6 million during a typical 25 year pension savings period. I best most people could live off that!

But remember from time to time housing markets crash. It’s not beyond the realms of possibility to loose your job, loose your tenant, but still need to find cash to take care of your mortgage payments. Many people who didn’t plan for the worst became bankrupt and lost their property in 2008.

It pays to do your due diligence, understand the risks involved and ensure you have a plan in place for the next property market crash that will inevitably come at some point in the future.

Buy to let investment vs shares

I’ve devoted an entire article to but to let investment vs shares here which you can read if you are interested but for what its worth my own take on the matter goes like this.

Property is definitely more hassle. Even if you go for a fully managed approach you still have unforeseen problems to deal with and there are always a steady stream of small issues that need your input related to things like maintenance and tax.

On the other hand you can expect pretty decent returns over the long term by simply investing in a global index fund and forgetting about it.

The bottom line is, with a mortgage I would expect the right buy to let to make greater returns than investing in shares.

However, without a mortgage, it’s not clear that that would be the case, and the fact that investing in shares can be done totally online these days means it is easy for expats to invest from wherever they are. (I’ve compared some investment platforms open to expats here if you are interested).

What fees are there?

As you might expect there are lots of buy to let fees to pay. We’ve already covered some of them:

• insurance
• tax
• stamp duty
• maintenance fees
• agency fees
• management fees (buy to let service charges)
• ground rent

And shortly we are coming to:

• buy to let mortgage fees

But there are also a few other hidden costs to consider that people often forget about. These are:

• Tenancy Deposit Fees
• Gas safety certificates
• EPCs and Landlord Licenses

And it is worth taking a look at these in a bit more detail.

Tenancy Deposit fee: Typically you’ll pay somewhere in the region of £40 every time you get a new tenant. Then you’ll need to spend around £80 a year for a gas safety certificate for properties with gas and once every 10 years you’ll need to spend another £80 or so for an Energy Performance Certificate (EPC).

And in certain areas you may require a Landlord License. Typically this will be for HMOs and in the region of £50 for a 5 year period.

What is the best type of property for buy to let?

As we’ve already talked about above, there’s no one size fits all solution here. Different types of properties, bought in different areas, at different times, can have very different returns, and have very different landlord requirements.

An HMO in Hull (see best buy to let areas below) might give you a very high rental yield, but it will almost inevitably require more work on your behalf.

On the other side of the coin, a luxury apartment in the centre of London might not have anywhere near as good rental yield, but at the same time, will more than likely require minimal input from your side and do better in terms of capital gains.

It will come down to what you want from your buy to let investment experience.

What are the best buy to let areas?

According to research done by Aldermore Bank, the best area for rental yield is Hull with a whopping 9.2% yield, but combining rental yield alongside capital gains takes Manchester to the top of the rankings where 31% of the population are private renters, and vacancy rates are low.

The top cities for buy to let are given below:

City	UK Region	Total score
Manchester	North West	72
Cambridge	East	72
London	London	71
Oxford	South East	70
Brighton	South East	69
Northampton	East Midlands	69
Bristol	South West	69
Swindon	South West	67
Reading	South East	67
Milton Keynes	South East	64

Can expats get a UK mortgage?

Though the options aren’t as extensive as those for UK residents, British expats do have mortgage options. The best thing to do, is get in touch with a mortgage broker that deals specifically with expats. There are some good ones located in the UK that do just that which we’ve covered in a bit more detail here.

Deposits

Don’t expect to secure a mortgage with a 5% deposit as is often the case for UK residents buying property. Standard buy to let mortgage providers typically require a 25% deposit, and oftentimes you will be expected to stump up 40% of the asking price as an expat.

Mortgage rates UK

Expat buy to let mortgage rates vary all the time. At the time of writing they typically range from 5 to 8%.

Early repayment charge

When you think about it, mortgage companies make money from mortgages so it isn’t in their interest for you to pay off your mortgage early. As a result there are usually charges applicable in the event that you do make early payments.

Early repayment charges usually range from 1-5% of your outstanding mortgage balance. Typically, they reduce the longer you have the mortgage for. As an example, you could pay 5% in year one, but only 1% in year 5.

That said, you are usually permitted to pay 10% of your outstanding loan annually without charge. And if you were to over pay, the overpayment charges should only apply to amounts above and beyond this 10%.

You can usually avoid early repayment charges by simply waiting until you come to the end of your current mortgage deal and letting your lenders’ standard variable rate kick in. These tend to be more expensive than rates you pay as part of a deal, but should come without repayment charges.

Mortgage fees

In my experience buy to let mortgage fees are pretty much the same as standard mortgage fees. It’s the rates (discussed above) that are usually higher. The Money Advice Service has a good article about this here with a detailed table of fees which are summarized below:

Fee or charge?	Typical costs
Arrangement fee	Anything from £0 to over £2,000.
Booking fee	Around £99-£250.
Valuation fee	£150-£1,500 depending on the value of the property.
Telegraphic transfer fee	Typically £25-£50.
Mortgage account fee	Typically £100-300.
Missed payments	The penalty for missed payments depends on each lender’s rules. Failure to keep up with mortgage repayments could also result in your home being repossessed.
Mortgage broker fee	On average £500 or a commission depending on the value of the mortgage.
Higher lending charge	If applicable, this is usually 1.5% of the mortgage.
Fee for own buildings insurance arrangements	Usually £25.
Early repayment charge	Typically 1-5% of the value of the early repayment.
Exit/Closure fee	Typically £75-£300.

Should I set up a limited company for my property investments?

Those changes related to mortgage interest discussed above have triggered a wave of new buy to let companies. Some buy to let landlords were right to take the limited company approach, but equally some weren’t. Running a buy to let portfolio through a limited company is definitely not appropriate for everyone.

As always do your own research, but my take on it goes a little something like this. If you find yourself in one of the following groups, it may just make sense to set up a limited company for your properties.

• Flippers – If you buy property with the intention of selling it for a quick profit as an individual you usually pay income tax. However, if you do the same thing within a company structure you pay corporation tax, which is lower, particularly if you are a higher rate tax payer.
• High income tax payers – If you pay the higher rate of income tax packaging your property investments in a limited company so that you pay corporation tax instead is usually going to save you money.
• Those with a lot of mortgage interest – If you have multiple buy to lets with multiple mortgages being able to claim mortgage interest as an operating expense could be a major advantage.
• Those who want to pass on a sizeable inheritance – If you intend on building a large property portfolio that will be inherited by your offspring, wrapping them in a limited company structure could provide sizeable tax savings.
• Those who don’t need to take money out of their business – If you can leave your property business to grow, without needing to take money out of it, the company structure makes sense. (On the other hand if you need to take the money out i.e. to fund your lifestyle you’d need to pay income tax anyway so its not worth the hassle. In fact you may end up paying even more tax this way, with a lot of hassle to boot).

Tips

Here are some great tips to ensure you have a successful buy to let experience.

• Save up a big deposit
• Keep a few months cash in reserve to ensure your outgoings will be covered in times of trouble
• Don’t over extend yourself with a mortgage
• Research the area where you intend to buy thoroughly
• Choose the type of property that is suitable for your needs
• Do your sums
• Shop around to get the best mortgage deal
• Only set up a limited company if you really need to
• Don’t forget about tax
• Don’t chase yield at the expense of other things
• Choose a good letting agent.

British expat buy to let investment – The bottom line

British expat buy to let investment is a great way to build wealth, especially if you plan to return to the UK in the future. Just make sure you do your due diligence.