Buying property in the UK
By Peter Brooke - Topics: Investments, mortgages, Property
This article is published on: 21st July 2014
Many crew like the idea of investing in UK residential real estate, not just Brits. The strong legal system, common language, lending availability (although this has changed somewhat) and large population, make property ownership in the UK an attractive option for growth and income investors alike.
The obvious risks are currency, liquidity and “arms-length management.” If you don’t earn in sterling, then owning a large sterling asset can mean large swings in value due to exchange rate changes. Annual liabilities can change dramatically too, so consider this.
Like property everywhere, it’s a highly illiquid investment. If you want to sell quickly, you may lose a lot of value, and it may still take months to get your money out. Although it’s an excellent part of a portfolio, property needs to be just that and not the entire dossier.
Managing a property (or portfolio of them) in the UK when you are based on a yacht in the Med or Caribbean can be very difficult unless you employ a good agent to manage any works or changes in tenants. This cost needs to be built into the figures as to whether or not to buy.
Having said that, if the rental yield is good (and therefore someone else is going to pay off your mortgage or give you a good income), then UK property can be an excellent choice, especially if you know the market. Big student towns still seem to offer excellent yield opportunities, but management costs tend to be high. The UK market is steady in terms of growth potential, but the Southeast and London are described as a “bubble” risk.
Buying property in the UK:
Be aware of the different types of ownership (freehold and leasehold) when researching property; they can have far-reaching consequences and costs. There will be Stamp Duty Land Tax (SDLT) to pay on the purchase, which is on a sliding scale from zero to seven percent for properties more than £2 million. Be aware of the brackets, as a slightly lower offer could save you thousands in stamp duty. On top of this, you will pay some legal fees for conveyance advice and services.
Borrowing in the UK:
It’s still possible for yacht crew to borrow, but it’s getting a little harder as banks tighten their rules, and the UK government may further legislation to tighten this more. Banks prefer that the property be rented out, as the income can help secure the loan. Interest rates for non-residents, especially yacht crew, also tend to be higher than those for residents. Generally, crew can borrow around 75 percent of the purchase price, and will have to fund the SDLT and legal fees as well. Any rental profit is taxable in the UK, whether you are resident or not, as is capital gains tax and inheritance tax.
There are many considerations when buying property, so good, qualified advice should be sought, especially if it’s part of an overall plan; a mortgage broker should also be able to find the best terms for you.