The rules to obtain a buy-to-let mortgage for investment in the UK
Investment property in the UK has been a good hunting ground for overseas investors. Recently, investment news has provided evidence that property prices, tenant demand, and expat property investment are all up. However, many foreign investors, including expats, worry about how they can finance property investment in the UK.
In this article, we’ll look at why the UK property market is so attractive to foreign investors, and how to buy property in the UK.
Why UK investment property is so attractive
Demand for homes in the UK continues to outpace supply. UK housebuilders are building around 170,000 new homes every year, but this falls way short of the 212,000 per year that the government estimated would be needed over the next 25 years.
Buy-to-let investment property returns will be underpinned by generation rent. The UK used to be a nation of home buyers. There’s a cultural shift taking place in the UK. Recent surveys and forecasts suggest that the UK population is now more likely to rent and continue to do so for longer. PwC has forecast that the number of households in the private rented sector will increase from around 5.3 million currently to more than 7 million by 2025.
Demand is greater than supply, the rental sector is growing rapidly, and infrastructure spending in the UK (such as Crossrail and High Speed) is prompting huge regeneration projects.
The buy-to-let mortgage rules for foreign investors
The requirements for foreign investors to get a buy-to-let mortgage in the UK are not much different to those for UK residents. The most important considerations are:
- Rental income – you’ll need to show that your rental income more than covers the mortgage interest payments. Most lenders require a rental income of 140% of mortgage interest.
- Deposit – the larger the deposit you can pay, the more favourably you’ll be viewed by mortgage lenders. You should aim for a deposit of 30% to 40%.
- Your income – some lenders will include your income when calculating what they will lend.
Essential requirements when you finance UK investment property
When you finance investment property with a buy-to-let mortgage in the UK, all your documentation must be in English. It includes bank statements and payslips, which could take a week or two to order from your bank and employer. Be prepared to move quickly on property investment opportunities by keeping on top of all your paperwork, and ensuring they are available in English.
Many foreign investors are self-employed. It presents a different challenge, as income will need to be evidenced. Lenders are very unlikely to accept evidence of income from a local accountant, so have your accounts made up by an accountant with an international presence. Again, documentation will need to be in English.
Always use a buy-to-let mortgage broker
The usual suspects on the list of lenders are unlikely to provide the best mortgages, especially when you are buying an investment property in the UK. It’s essential that you connect with a mortgage broker with expertise in buy-to-let mortgages, and one who has experience with foreign investors. If you don’t, you could find yourself paying higher fees, non-preferential interest rates, and suffering from unnecessary early repayment penalties.
The mortgage broker you work with should know which lenders are happy to lend to expats and foreign investors. It is the key to finding the best financing deal.
The bottom line
Arranging your mortgage to finance the purchase of a UK investment property doesn’t need to be difficult. The absolute essential is to work with the right mortgage broker. They will guide you through the buy-to-let mortgage minefield, and give you access to the best financing products. With the right mortgage broker as one of your property partners, you could have a wide range of investment financing options. With the wrong one, you might not be offered a single mortgage.
The best way to ensure your money is working for you and not others is to invest in property. The dynamics of the UK market make it a great place to buy investment property. Contact one of our team today on +44 (0)207 923 6100, and we’ll help you find the best places to invest in property UK and the best mortgage brokers to work with.
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