Many expatriates rent out their UK property when they move abroad, attracted by the income stream and the ability to maintain a base in the UK. At the same time, many British nationalsliving abroad are keen to invest in UK property. However, being an expatriate landlord isn't always straightforward.
Your biggest challenge may be to get a mortgage. If you already have one and plan to let your property while you live abroad for a year or two, obtaining "consent to let" from your existing mortgagelender might be your best option.
"Anyone planning to move abroad should inform their lender and ask for permission to let, which, providing the applicant has a good payment history, will normally be granted," says Ray Boulger of mortgage broker John Charcol. "Lenders' policies vary, but it's normal for the lender to give permission for a limited time, say two to three years." Some lenders will let you retain your current mortgage interest rate while others might increase the interest rate by about one percentage point or charge an administration fee, he adds.
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But for those borrowers looking to live abroad for longer or for expatriates looking to buy in the UK, options are more limited. Most high-street banks will be reluctant to approve a mortgage for an expatriate, although smaller building societies, banks with international arms and private banks will be more amenable.
"There's still... a gap in the market where expatriate mortgages are concerned, especially after the European Mortgage Credit Directive, which meant certain lenders pulled out of providing loans to those with income earned in a foreign currency," says Andrew Montlake, director of mortgage broker Coreco. "As a result of this and because of a change in the risk appetites of many lenders, expatriate buy-to-let mortgages are not as widespread as they once were."
"How difficult it is to get a mortgage depends on where you live eastern Europe, India and Australia tend to be hard, while the Middle East, Europe and the US are easier," says Guy Stephenson, of expatriate broker Offshore Online. "The know your customer' side is very important. Banks are very strict about getting your passport certified, income verified, employer references and bank details. The standard of documentation is much higher than in other markets."
Problems don't stop once you've arranged a mortgage. You'll usually need a letting agent to manage your property while you're away. Letting agents tend to charge 12% to 15% of the monthly rent for a full management service. In return the agent should find and manage tenants, collect rent and deal with any maintenance issues.
It can be tempting to cut out the middleman to save money, but dealing with problems can be a big hassle from another time zone. Look for a letting agent who already has experience in handling lets for non-resident landlords.
Lastly, be aware that expatriate landlords are classed as "non-resident landlords" by HMRC and you'll need to pay UK income tax on the rent you receive (even if you don't pay UK tax on other income).
By default, your letting agent must deduct basic-rate tax from the rental payments, after allowing for any expenses, and pay this to HMRC. (If you don't have a letting agent and the rent is more than £100 per week, your tenant must do this.) However, you can apply for approval to receive your rent without tax being deducted. Whichever option you use, unless HMRC tells you otherwise, you will need to complete a self-assessment tax return to declare your rental income, and pay any further tax due or receive any refund.
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Emma Lunn is a multi-award-winning journalist who specialises in personal finance and consumer issues. With more than 18 years’ experience in personal finance, Emma has covered topics including mortgages, first-time buyers, leasehold, banking, debt, budgeting, broadband, energy, pensions and investments. Emma’s one of the most prolific freelance personal finance journalists with a back catalogue of work in newspapers such as The Guardian, The Independent, The Daily Telegraph, the Mail on Sunday and the Mirror. As a freelancer she has also completed various in-house contracts at The Guardian, The Independent, Mortgage Solutions, Orange and Moneywise.
She also writes regularly for specialist magazines and websites such as Property Hub, Mortgage Strategy and YourMoney.com. She’s particularly proud of her work writing about the leasehold sector and a Guardian front-page story about a dodgy landlord. She has a real passion for helping people learn about money – especially when many people are struggling to get by in today’s challenging economic climate – and prides herself on simplifying complex subjects.
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