Guide to Buying UK Properties with Mortgage

UK Property

Britain, Canada and Australia are popular places for Hong Kong residents leaving the city. Since the British government announced the “BNO 5+1” immigrant visa policy, the number of immigrants to the United Kingdom has continued to rise. Britain is an international financial center. Many foreign-funded enterprises have taken root here. If you plan to move to Britain, don’t miss this article! We will introduce the process of buying UK properties and the procedures on applying for a mortgage.

The Major Cities in UK

The five major cities in UK are London, Birmingham, Manchester, Cambridge and Oxford. London, Birmingham and Manchester are hot spots for Hong Kong migrants to move in. Why are these cities popular?

London

London is the largest city in Britain. The local per capita income is the highest among the five major cities, with an annual salary of £38,429. Investors who plan to buy British properties in London have to bear the high prices at the same time. Property prices in central London are even more catching up with Hong Kong. The overall property price is about £72 million.

There are 33 boroughs in London. “Zone 1” to “Zone 6” are divided according to the local railway and “Zone 1” is considered to be the core area. If you do some research on UK properties, you will find that West London has the highest property price as this area is made up of financial industries and administrative offices.

East London is described by locals as an area with poor security. However, locals have gradually changed their minds after the 2012 London Olympics. Also, the new subway line “Elizabeth Crossrail” built by the government is opened this year. The development of the Canary Wharf business district is becoming more mature. Many developers have begun to plan the development of this area. 

Birmingham

Birmingham is the second largest city in Britain. It is located in the south-central part of the United Kingdom. Birmingham and London are 1.5 hours away by train. The British government has included Birmingham as a “big city plan” and hopes to make Birmingham one of the 20 largest cities in the world by 2030. In terms of population ratio, the proportion of local Chinese is quite high, accounting for 3.2% of the local population. In addition, the transportation hub is complete and there are many Chinese restaurants. Thus, many Hong Kong people choose to move to Birmingham. Among the overall British properties, Birmingham property prices are cheaper than London, with the overall local property price of £200,000.

Manchester

Manchester is located above Birmingham and is the farthest from London. It takes about 2.5 hours to travel to London. However, the proportion of local Chinese is the highest in the UK. Manchester’s property price is similar to Birmingham. It is about £190,000. However, the rental returns of Manchester City are considerable and the pre-tax return rate is as high as 4-5%. Therefore, many Hong Kong people will buy their first British property in Manchester.

In terms of transportation, Manchester has benefited from the development of the second high-speed railway in the United Kingdom which is more convenient to travel to London. There are 5 universities in the city, among which the University of Manchester is one of the “red brick universities”. According to the survey, 65% of British students successfully have a job after graduating. It means the local housing demand has increased accordingly. On the other hand, the average annual salary is about £31,338 which ranks the third place among these 5 cities. 

The above cities are the most popular places for Hong Kong migrants. Is your own British property located in the above cities? Click here to know more about UK properties.

Cambridge

Cambridge is located in the north of London, more than 80 kilometers away from London. The world famous university – Cambridge University is located here too. At the same time, it is one of the top five cities with the largest Chinese population. Cambridge’s property price is trailing behind London, with an average property price of £470,000. Some well-known companies such as Amazon, Apple and Microsoft are located in Cambridge’s Science and Technology Park. More than 1,500 technology companies are located in the area which attracts many foreign talents to work. As a result, local housing demand has risen. With high demand and limited supply, it explained why the property price is expensive here.

Oxford

Oxford is located in the upper left of the United Kingdom, more than 70 kilometers away from London. It takes about 1.5 hours from Oxford to London. Luckily, the M40 expressway connecting Birmingham and London will also pass through Oxford. It is one of the top ten safest cities in the UK. The property price in Oxford is similar to Cambridge,  around £470,000. Many immigrant families may consider moving here as many high-ranking public and private primary and secondary schools are located in this area.

Learn more: Introduction to UK properties and regions

Property Buying Process in Britain

The process of buying UK property is similar to Hong Kong, but the procedures and laws are different. Therefore, many Hong Kong people choose to hire an agent to assist in completing the transaction of buying UK property. A step by step guide will show below see it can help you to avoid unnecessary losses!

Step 1 – Searching UK property

There are off-plan properties in Britain, but it doesn’t have key dates for it. Only the expected completion date based on the current season will be shown. Overseas or UK real estate agents will come to Hong Kong to hold trade fairs to promote UK properties. Existing buildings are more popular in the market as buyers can move in immediately after purchase. Therefore, the property prices of such British properties are relatively high.

Due to the restrictions of the epidemic, Hong Kong people may not be able to fly to the local area for viewing. However, investors interested in buying UK properties need not worry. Since reference show units or models are available at the fair. Buyers looking to buy a second-hand UK property can browse the UK property website, view photos of the property or view it in virtual reality (VR). If necessary, you can ask the agent to conduct a remote video real-time inspection of the building.

Step 2 – Signing the “Sale and Purchase Agreement” and paying the deposit

If the buyer has chosen a UK property already, they have to sign a “sale and purchase agreement” with the owner or developer and pay a deposit. The deposit is about 1,000 to 5,000 pounds. If buying a second-hand British property, the buyer can try to make a bid and negotiate the price with the seller. After the two parties have negotiated the price, the buyer can immediately sign  “the memorandum of sale” with the seller. Then, entrust a lawyer or agent to start the sale and purchase procedures. Buyers who intend to buy a second-hand UK property can also hire a real estate appraiser to make a detailed structural and architectural report on the property.

Step 3 – Apply for a mortgage

Before undertaking a UK property mortgage, the property needs to be appraised. The appraisal will directly affect the approval result of the loan and the loan-to-value ratio. Buyers of first-hand British properties only need to hold a “reservation letter” to apply for a mortgage from the bank. While buyers of uncompleted properties can apply for a property mortgage 6 months before moving in. As for second-hand British property buyers, they need to hold “the memorandum of sale” before you can apply for a mortgage.

Types of UK Property Mortgage

There are two types of mortgages, namely fixed-rate mortgages and variable-rate mortgages. The mortgage repayment plan has both capital & repayment mortgage and Interest-only mortgage. According to market statistics, one-third of the owners choose the Interest-only mortgage plan.

Fixed Rate Mortgage

Fixed-rate mortgage means that the payment will not change with the increase in the interest rate of the Bank of England within a certain period of time. Generally, the fixed-rate mortgage is two to five years. The bank will first charge the buyer “arrangement fee” and “mortgage fee”. At the end of each fixed interest period, the buyer has to pay the above mentioned fees again. After applying for a fixed-rate mortgage for 3 years, buyers can re-select a new fixed-rate mortgage plan or choose a variable-rate mortgage.

Variable Rate Mortgage

The interest rate of a variable rate mortgage is determined by Bank of England’s benchmark interest rate. When the bank raises interest rates, the benchmark interest rate will be raised and the real estate interest rate will be raised simultaneously. If you choose a variable rate mortgage, the interest rate may increase or decrease with the economic environment and resulting in different payment.

Interest-only Mortgage

Regardless of whether they choose a fixed-rate mortgage or a variable rate mortgage, buyers can also choose to pay interest only. Interest-only mortgage only applies to rental properties with investment components, and the mortgage-to-value ratio must also be tightened by 5% compared with the original regulations. Buyers only need to repay the interest on the monthly payment. In order to maintain sufficient cash flow, some owners may choose to apply for an interest-only mortgage.

UK Property Mortgage Term

Generally, Hong Kong people can undertake up to 70% of the mortgage, and the mortgage term is mostly 20 years. Most UK property mortgage plans only accept sterling payments, and Hong Kong owners are exposed to exchange rate risks in disguise . At the same time, the Bank of England will conduct a stress test for buyers to raise interest rates by 2%. The monthly contribution of the owners shall not account for 50% or more of their income.

In fact, many UK banks have a mortgage term formula. It is based on the retirement age minus the age at the time of contribution. If a buyer applies for a mortgage at age 30 and retires at age 60, the maximum payment term is 30 years. However, most mortgage applicants have a repayment period of 20 to 25 years.

Banks providing UK property mortgage services

HSBC, Bank of China and Bank of East Asia can apply for UK property mortgages. However, the three banks only provide mortgage applications in some UK cities, with a maximum mortgage-to-value ratio of 80% and a maximum payment period of 30 years. The mortgage conditions of these three banks are different. Compared with UK banks, the threshold for applying for UK property mortgages through local banks is higher.

 

 

City

Annual Salary

Nature

Mortgage-to-value Ratio

Payment Term

HSBC

England & Scotland

£50,000-75,000

Live in / rent out

75%

25 years

Bank of China

London, Birmingham, Manchester

/

Live in / rent out

Live in – 80%

Rent out – 75%

30 years

Bank of East Asia

London, Birmingham, Manchester

£72,000

Rent out

70%

20 years

Stress Test 

Buyers who apply for UK property mortgages through local banks must pass the stress test. The exchange rate of sterling is included in the risk of overseas property purchases by the HKMA. Therefore, buyers who apply for UK property mortgages through local banks will be more difficult to pass the stress test. Some buyers rather choose to apply for a mortgage from a local bank in the UK, and their buying conditions will be more flexible than those in Hong Kong.

Applying for a mortgage through a UK bank mainly depends on the contribution-to-income ratio, and the UK bank will increase the mortgage interest rate to hedge risks when applying for a higher income ratio. The income ratio has been difficult to pass. In addition, British banks will also pay attention to contributors’ expenses and debts when approving. Buyers can first review their own expenses when applying for a mortgage, but British banks will not review the credit database for mortgages, commonly known as TU.

Learn more: Provide professional services

Step 4 – Sign a formal sale and purchase contract and pay the down payment / deposit

When the buyer successfully obtains the mortgage approval for the property, the down payment can be made to the developer. At the same time, buyers of second-hand UK properties can pay a deposit. The down payment of a first-hand UK property is about 10% to 30% of the property price. Some buyers may also be required to pay before applying for a mortgage. For second-hand UK properties, the deposit is around 10% of the property price. The buyer must pay the deposit to the owner when the contract is signed. Deposit will be forfeited if the buyers terminate the contract. 

Step 5 – Delivery of possession

Owners who buy off-the-plan properties may be required by the developer to pay part of the property price 6 months after signing the contract. Therefore, buyers should pay attention to the payment time specified in the sale and purchase agreement. After the project is completed, the lawyer will notify the buyer to conduct a building inspection and inform the exact delivery date. On the day for delivery of possession, the bank will remit all the mortgage loans to the developer and the entire process is completed.

The Costs of Buying UK Property

The cost of buying a UK property is divided into two major parts, namely the daily expenses when buying a UK property and after buying a UK property. There are 6 major costs when buying a UK property, including stamp duty, lawyer fees, survey fees, arrangement fees, agency fees and real estate agency fees. There are five major expenses for daily expenses after buying a British property, including ground rent and maintenance fees, municipal tax, personal income tax, property management fees and building insurance.

Costs when Buying UK Property

The fees included will fluctuate due to market factors and legal influences. The stamp duty will be charged at a rate. The following list is for reference only, if you want to get the latest information, please contact UK property agent!

Stamp Duty

Charged at the rate of property price

Lawyer Fee

around £1,500

Measurement Fee

around £200 to £500

Arrangement Fee

up to £2,000

Agent Fee

around £500 to £800

Real Estate Agency Fee

around £1,000-£4,000

Stamp Duty

The UK government will charge stamp duty to each property buyer based on the value of the property. Properties under £125,000 are exempt from stamp duty, while the tax rate for properties over £125,000 ranges from 2% to 15%. 

Property Price (£)

First-time Buyers

Next time Buyers

< 125,000

0%

3%

125,000 ~ 250,000

2%

5%

250,001 ~ 500,000

5%

8%

500,001 ~ 925,000

5%

8%

925,001 ~ 1,500,000

10%

13%

> 1,500,000

12%

15%

Daily Expenses after Buying UK Property

The table below will list the daily expenses of UK property owners. The price will be affected by local policies. If you want to get the latest information, please contact  UK property agent!

Council tax

The council tax is to be paid annually.  It costs about £1,500 to £2,000 a year for a general property. If the property is rented out to a tenant, the council tax will be paid by the tenant.

Ground rent

Buying a property in the UK requires an annual landlord rent of around £400.

Personal income tax

If the UK property purchased is for rental purpose, the buyer is required to pay personal income tax on the rental income. Non-UK citizens pay personal income tax on 20% to 45% of their annual income, while UK citizens can enjoy an allowance of up to £12,500.

Property management fees

If the UK property is for rental purposes, a management fee must be paid to the property management company. It is about 10% of the monthly rental income.

Building insurance

First-hand property will include 10 years of insurance. If it is a second-hand property, they need to buy building insurance which costs around £100 to £500.

 Property Traps

Trap 1: The unfinished business of British property projects

Off-plan property only has the estimated completion date and It only provides the year and quarter. This issue has often caused uncompleted projects to occur. Developers have been delayed in handing over the properties and the completion date has fallen significantly behind. Buyers of uncompleted properties should note that only the “Long Stop Date” in the contract protects the buyer. It is usually 12-18 months after the expected completion date. The developer will hand over the property during this period and the buyer will not receive any compensation. Therefore, buyers who buy off-plan properties should plan for a longer time.

Trap 2: Is the agent/developer with a good reputation?

Developers often use the deposit of off-plan property buyers as the construction cost, while some small developers pre-sell without obtaining government approval. In case the developer’s asset turnover is not efficient, prospective buyers need to bear the risk on their own. Therefore, we suggest buyers choose some reputable large-scale developers.

In addition, buyers of UK properties should note that real estate agents selling UK properties in Hong Kong are not regulated and do not hold any licenses. Therefore, buyers should do some research about the agency before making any decisions.

Trap 3: Guaranteed Return

There is no guaranteed return on any investment and buyers should not be misled by these words. If the developer sells the real estate on the condition of charter, the developer will actually outsource the leasing to the charter company. Once the charter company goes bankrupt, the buyer will not be able to pursue it. In the charter conditions, the tax payable by the buyer is not included in many cases, so there may be some unknown fees in the middle. If the buyer intends to entrust a charter company to rent out properties in the UK, it is recommended to choose a charter company regulated by the government.

FAQ about Buying UK Property

What documents do I need to apply for a UK property mortgage?

UK mortgage property applicants are required to provide British Citizen or BNO Visa identification documents, address proof, three-month bank account statement and proof of first cash bank records.

What income proof documents are required to apply for a UK property mortgage?

Applicants for UK property mortgages must be employed persons and provide a pay slip for the last three to six months. Also, a letter from the employer to prove the applicant’s income.

What is “Freehold” and “Leasehold”?

Freehold is owned by the owner forever. They can choose whether to sell it to you together with the property. Certainly, properties with freehold ownership are generally more valuable.

Leasehold is mainly divided into 90 years and 120 years. The holder is required to pay ground rent and maintenance fees every year. There is a risk of repossession of the land when the lease term expires.

What is the “Help to Buy Scheme” ?

Help to Buy Scheme allows British citizens and people with legal residence visas to pay a 5% down payment when buying a home for the first time. The British government will provide 15% to 40% of the housing loan and the buyer will not pay interest for the first 5 years. Rest of the loan amount can be mortgaged by the bank. This scheme is only available for first-time buyers or replacements. The property price is capped at £600,000.

Britain is an international financial center, and people from different countries come to work to develop their careers. The population flow is quite high. In addition, the British government’s “BNO 5+1” immigrant visa policy has made many Hong Kong people consider immigration again. It undoubtedly increases the demand for housing in the United Kingdom. Buying a property in the UK will be a good choice whether you live in the country or invest for rent.

After a detailed explanation, I believe you have a deeper understanding of the process of buying UK property and details of applying for a mortgage. However, the above information is subject to change with UK policy and market factors. If you want to keep abreast of the latest UK property information, please leave your contact information and let us send you the latest UK property information!

Ashton Hawks is founded by a group of senior property investment experts which provides professional real estate consulting services to investors who intend to invest in overseas properties. At the same time, Ashton Hawks will formulate a diversified real estate investment portfolio for reference in order to provide customers with the latest property information to help customers seize every opportunity.

 



Disclaimer:The information, text, photos contained herein are provided solely for the convenience of interested parties and no warranty or representation as to their accuracy, correctness or completeness is made by Ashton Hawks or the sellers, none of whom shall have any liability or obligation with respect thereto. These offerings are made subject to contract, correction of errors, omissions, prior sales, change of price or terms or withdrawal from the market without notice. Information provided is for reference only and does not constitute all or any part of a contract. Ashton Hawks and its representatives work exclusively in relation to properties outside Hong Kong and are not required to be nor are licensed under the Estate Agents Ordinance (Cap. 511 of the Laws of Hong Kong) to deal with properties situated in Hong Kong. Digital illustrations are indicative only. *Rental yield is projected by the agency and not guaranteed by the developer.

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