Buy to let vs residential mortgage

[KCM5]

I’m American and my spouse is technically British, but we’re confused about the mortgage process in the U.K.

We currently live in the US and would like to move to Edinburgh in a few years. We are considering buying a flat there next year and letting it out until we are ready to move, then moving into it ourselves.

From my research it appears that most residential mortgages won’t allow renting out the flat full time, and buy to let mortgages definitely won’t allow you to live in the flat yourself. Is the only way to do this to get a buy to let mortgage, rent it out, then get a new mortgage once we move in? We’re going to be moving without jobs and don’t plan on making much money, so I didn’t want to have to try to qualify for a mortgage when we first move there. Are asset based mortgages a thing? I also don’t really want to pay off the flat as it makes more sense to hold a mortgage and have the investments and there would be pretty big tax ramifications to selling all the investments required to pay off the mortgage.

Are there other options that I’m missing? Thanks for any help!

[Manchester]

My understanding is the following:

Mortgages are offered in the UK based on earnings (usually you'll be asked for proof of earnings from the previous 3-6 months).  Multiply your joint annual income by 4.5 and that's usually the maximum figure you'll be offered.  Depending on the amount you'll put down as an upfront 'deposit', you'll reduce the interest you're offered on a fixed term, which usually lasts between 2-5 years (at which point you can either re-negotiate your fixed rate, transfer to a different mortgage provider or automatically move onto a variable interest rate).  I'm fairly certain you can't get asset-based mortgages unless you receive dividends from said assets, which you can provide in your proof of earnings.

You'll pay stamp duty, which you can read about here: https://www.gov.uk/stamp-duty-land-tax 

You can use this calculator which is quite useful: https://www.moneysavingexpert.com/mortgages/stamp-duty/ 

Being a landlord in the UK carries a few responsibilities and taxes/insurances.

https://www.gov.uk/private-renting

There's also some good information on a buy to let mortgage here:  https://www.moneysupermarket.com/mortgages/buy-to-let/  They're more commonly referred to as an 'interest-only mortgage', as you only pay the interest. 


My honest assessment is the headache of becoming a landlord from overseas will far outweigh any benefit in purchasing a buy to let property.  Tenants have numerous rights in the UK that US citizens don't possess.  You'll have to organise a company to manage your tenants presumably, which will eat up any profit.  Property in the UK is a reasonably safe investment though.  Our property market is more stable than the US.  Where I live in Manchester, house prices usually double every decade.  So buying isn't a horrible option - I personally just couldn't do with the stress of being a landlord, never mind being an overseas landlord!

Do you know Edinburgh well?  Do you know which areas to buy in etc.  I feel you'd be better moving and renting a property in the city and getting a feel for the place if not.  You'll find which areas you prefer, and when the time comes to buy a property you'll be flexible.

If you have queries about mortgages in the UK, moneysavingexpert is a really useful website.

:)

[KCM5]

Thanks, Manchester.

We’ve both lived in Edinburgh so we’re fairly comfortable choosing an area of the city. So that’s less of a concern, but things still could be quite different when we move back (like a working tram system!)

The thinking behind getting the apartment first wasn’t really to make money from renting it out but to avoid the hassle of finding a rental in the right school district that will take our pets while we get jobs making enough money to qualify for a mortgage so we can buy a place. If we were doing this here in the US it wouldn’t be a problem as other than having a higher down payment for rental properties, the mortgages are the same.

We’re just at the beginning of the stockpiling cash for the down payment part of this scheme, so maybe an alternative mortgage/loan arrangement will become apparent!

[Playing with Fire UK]

I agree with Manchester that this won't be straightforward. You'll struggle to get a mortgage based on US earnings or with limited UK earnings. Asset-based mortgages aren't a mainstream thing: FirevLondon did it via a margin loan (while still earning an income, not sure if this was necessary). You'd need to move over assets to the provider, I dunno if you can keep your US tax-advantaged status and it's generally more difficult to do anything financial in the UK as a US person due to the US tax regulations.

Have you looked into the requirements for bringing your pets to the UK? It's more difficult than finding a rental place that will accept pets.

Something else to consider is providers that provide "Consent to Let". This is generally intended for when you buy a place to live in but then need to rent it out - you might find a provider that will provide consent to let ahead of you moving in. Any chance either of you are in the armed forces? That makes it easier (for UK people, not sure if it'd help you moving to the UK but there are specific mortgage products that'd be ideal for you). Also, be aware that you'll need to give tenants up to six months notice to move out - search for "shorthold tenancy agreements" for more details.

[KCM5]

Ok - new plan: buy place with buy to let mortgage (if we find one we like/makes financial sense), rent out (researching all caveats - Scotland just changed their tenancy laws and I think they’re quite different from England’s now. 6 months notice won’t be a problem and I think we can get a company to manage Airbnb rentals as well for that last period), pay off mortgage, move into flat. Or just buy a flat outright when we move if we don’t find one we want to buy to let in the meantime.

Thanks for talking me through it!

Thanks, Playing with Fire, for the note on the pets. They actually changed the rules on this a while ago. As long as you get something like a pet passport (that’s an EU thing, not an American thing so we’d have to get the equivalent paperwork filled out - and barring any significant changes after Brexit) and they’ve been kept up to date on their shots (ie rabies) you can bring them in. I know someone that just brought her dog in from South Africa, so I think it should be fine and I’m really good at bureaucratic paperwork ;)

[KCM5]

Oh, and we’re not in the Armed forces so that won’t help. I thought about the consent to let, but I think the bank would look at it as fraud if we bought it as a residential place and almost immediately asked for consent to let. Maybe if we did it ahead of time. Something to think about, thanks!

[Playing with Fire UK]

Cool, that sounds like a solid plan. Pet passports should be the same for a year after Brexit day and if you're good with paperwork it should be fine (I have a low tolerance for such things).

Scotland is generally more sensible at house related things than England and Wales.

[Clodagh]

Hiya,
We bought our two dogs over from Canada (to Scotland) a bit over three years ago.  It was straightforward and we were guided well by our vet.  The Edinburgh airport people were wonderful and the dogs looked no worse for wear although they were mighty glad to see us (and we them).  We managed to buy a house here just before they changed the rules about overseas buyers so we were lucky.  We do have friends in Newtown who rent with their two dogs so if you need to go down the road it is possible.

Good luck with your move - Edinburgh is lovely.  Can I just throw in some advice?  I am also married to a UK (Scottish) national.  After the busyness of moving here I settled in really well and felt right at home so much so that I missed the deadline for my visa extension.  Cue the Hostile Home Office, 2 different lawyers, 2 different applications, having to leave my husband, house, job, kids and aforementioned dogs for 3 months, and a bank balance now devoid of almost £14,000.  To boot every time I leave and return I get detained by border guards because I am branded 'an overstayer' - and will be for 10 years.  Check your visa deadline (probably 2 and a half years) and diarize it!  Best of luck!

Clodagh

[KCM5]

Thanks, Clodagh, for the cautionary tale! £14k!? I’ll keep things up to date.

My spouse had similar issue with US immigration - he had to stay in the U.K. for an extra year. But it did not cost 14k, thanks goodness! And he went through an extra bit of security theater every time he came through customs for 5 years. Super fun.