British Expat Money

British Expat Buy to Let Investment – Your Guide

james@britishexpatmoney

With over 15 years of buy to let investment experience that began the minute I became an expat, I think I’ve learnt a few things that anybody new to the space might find useful.

Of course, I’m not the only one. According to CBRE, 3% of London Property is owned by non residents and somewhere between 60 and 70% of those properties are let out.

And according to the Land Registry 280,021 homes are registered to people living overseas. So if those rental numbers still hold outside London that’s about 182,000 BTLs owned by non residents. Sure, not all of them will be British expats, but seeing as though there’s over 5 million Brits living abroad, my guess is, a lot of them will be.

And who can blame them. Buy to let is a proven investment strategy. It’s the original wealth builder. Dare I say, just as popular today as it was at the dawn of time! But that doesn’t necessarily mean its right for you.

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 expats in particular also need to consider the opportunity costs associated with buy to let when compared to other types of investments such as buying shares.

Let’s get into it.

Why buy to let

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.

According to the LSE, average UK house price inflation has been just under 4% annually (or about 1% above inflation) over the very long term.

Whilst those numbers don’t sound spectacular, that’s only the beginning. Rental income and leverage change the game.

Tenants pay you rent and you use that rent to pay your bills, while capital gains works in the background, juiced by leverage (a mortgage) to provide the big returns. More on this in a moment.

Expats can take a hands off approach and outsource just about everything to a letting agent.

Not only that but buy to let provides exposure to the UK market, which can be very useful for expats. If the pound strengthens, or there is a sudden boost to the economy, you won’t miss out if you have 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 housing market if you ever decide to permanently return.

Availability is also a big bonus considering that the majority of UK investment products and services aimed at UK residents just aren’t available when you move overseas. Just about anybody anywhere with the money can buy UK property.

Unlike many other types of investment, buy to lets are easy to understand and they are pretty much free of the volatile price movements you get with the stock market investment.

Some of those advantages are pretty self explanatory, but I always find a quick leverage recap helps to put things in perspective.

The joy of leverage

Let’s say I invest £100K and my investments go up 10%. I’ve now got £110K. Great! I’ve made £10K. But how about I borrow £300K to go with my £100K. Even though I still only put £100K 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 £40K return from a £100K investment is a 40% return. Borrowing money has quadrupled my gains!

Just before you get too excited, I should point out a couple of things.

There are a whole host of fees and expenses to knock off that, so you certainly wouldn’t get all of it, but you will almost certainly get a big chunk of it. And more importantly, a lot more, than you would without the mortgage.

There is also a chance this mortgage magic malarkey could happen in reverse meaning that the money you borrowed will magnify your losses to the same extent.

But just to be clear, for most people, most of the time it doesn’t have to be catastrophic. The vast majority of property investors don’t get into trouble. As long as you can meet your mortgage repayments you don’t need to worry. It’s not like borrowing to invest in shares where similar losses can be devastating.

The difference comes from the way in which the loan works. A loan for shares 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 BTL works for expats
British expat buy to let investment keys
Disadvantages

As with anything in life, its not all positive. There are a few disadvantages to buy to let that are worth thinking about. Starting with the fact that there are more than a few 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.

Whilst some of these costs don’t change no matter where you are located, others do. At the very least, expats will usually pay more tax and higher mortgage fees.

Not only that, but when you own investment property as a non resident you’ll need people to do everything for you and as we all know, people don’t do anything for free.

And 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 almost always 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.

And just because on average over the long term house prices tend to go up that is not always the case. From time to time 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 2007.

The greatest example of this is Northern Ireland, where house prices in 2019 were still 38% down from their 2007 highs.

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
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:

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!

This Is Money reports that figures from the UK Financial Conduct Authority show that major home insurers reject almost half of their claims!

It’s no surprise then, that rumors perpetually circulate around the odd landlord that doesn’t have insurance at all. If you are drowning in cash and can afford to pay claims out of your own pocket, then that approach may work. But in general, it probably won’t.

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.

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 TypeWhat’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 insuranceThe 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 insuranceThe 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 one hundred 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 paying a lot for, but it isn’t usually that expensive. If you are sure that your property is pretty easy to let out, it could be worth it just for piece of mind. But, unlike buildings and indemnity it is definitely not essential.

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).

According to brokers, Alan Boswell, the median average cost of landlord insurance in the UK in 2023 was £224.93.

Now here’s a quick warning for expats. Alan Boswell also say the median average cost of landlord insurance for studio flats is around £101.44. I pay more than that. Not only that, but from over 70 UK insurance providers I have a choice of one for the simple reason I live abroad.

Tax

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), but the headline being you’ll need to complete a self assessment tax return.

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. Expats cannot. However, as a non resident you do have some good options available. These days, there are some great software options that turn days of messing around with forms into an hour of being led through the process with tips. We’ve gone into more detail on this here.

Alternatively if you want everything done for you, you may want to find a tax accountant. We’ve talked about how you can find one 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

Building management fees, sometimes called service charges typically apply in apartment blocks.

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 20% of the monthly rent for this (because that’s what I always end up paying!). 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. Recent media coverage suggests people pay a lot more and in some horrible cases the ground rent doubles every 10 years or less. 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!

For your information a ground rent doubling 15 years or more may not be quite as big a problem. We’ve gone into a lot more detail on that here.

Are shares a good BTL alternative?

I’ve devoted an entire article to this here which you can read if you are interested but for what its worth my own quick 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, if you use a mortgage and then remortgage, 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.

What fees are there?

As you might expect there are lots fees to pay with property investment. We’ve already covered some of them (expats pay more in bold!):

And shortly we are coming to:

*bold indicates that expats may pay more

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

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?

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 house in multiple occupation (HMO) packed with tenants in Hull (see 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.

City UK RegionTotal score
ManchesterNorth West72
CambridgeEast72
LondonLondon71
OxfordSouth East70
BrightonSouth East69
NorthamptonEast Midlands69
BristolSouth West69
SwindonSouth West67
ReadingSouth East67
Milton KeynesSouth East64
Source: Aldermore Bank
Can I get a 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.

Here’s a quick tip: Don’t expect to secure a mortgage with a little deposit. 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 fees

In my experience buy to let mortgage fees are pretty much the same as standard mortgage fees but expats do pay more. 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 feeAnything from £0 to 7% of the mortgage value*
Booking feeAround £99-£250.
Valuation fee£150-£1,500 depending on the value of the property.
Telegraphic transfer feeTypically £25-£50.
Mortgage account feeTypically £100-300.
Missed paymentsThe 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 feeOn average £500 or a commission depending on the value of the mortgage.
Higher lending chargeIf applicable, this is usually 1.5% of the mortgage.
Fee for own buildings insurance arrangementsUsually £25.
Early repayment chargeTypically 1-5% of the value of the early repayment.
Exit/Closure feeTypically £75-£300.
Source: Money Advice Service (*Arrangement fees have recently increased according to the FT)
Should I set up a limited company?

Those changes related to mortgage interest discussed above have triggered a wave of new buy to let companies. In fact, according to Hampton’s, record numbers of landlord’s set up buy to let companies in 2023. And many of them were non residents.

Some expat 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. We’ve gone into a lot more detail on this here, but here’s the quick version. If you find yourself in one of the following groups, it may just make sense to set up a limited company for your properties.

Final thoughts

Here are my tips to ensure you have a successful buy to let experience from abroad.

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