US Citizens Buying London Real Estate: 9 Things You Need to Know

If you're a US citizen looking to invest in London property, you're certainly not alone. And if you're wondering how easy it is to get a UK mortgage as a non-UK national, the good news is, there are plenty of specialist lenders who will be willing to make you an offer.

The UK property market is the 5^th most popular choice for US investors looking for an overseas second home or investment property. And in terms of location, London remains a big draw with the most lucrative capital gains potential.

However, understanding the investment opportunity and actually securing a UK mortgage as a US citizen, are two different things. There are a number of key differences in how the finance and buying systems work over here, and it's good to understand the basics before you start looking for a home to buy in London.

Here's our guide to buying a London property as a US citizen 

# 9 Things You need to know

• Why buy in London right now?
• London property investment potential and the pitfalls
• The difference between realtors and UK estate agents
• Investing in London property can help you get a UK visa
• How the UK legal system is very different from the US
• How UK property finance works?
• Can you lease your property if you’re not living in it?
• Hidden fees to be aware of with a UK mortgage
• How long will it take to seal the deal - A quick guide to securing UK property finance

Why Buy in London?

London is considered a "safe haven" for investors.

Culture and lifestyle are all very well, but US buyers also want to know if the London property market is a good place to put their money.

• Yes, it is. London’s asset stability relies on English property ownership laws, which are probably the most robust in the world. And even when international markets are feeling a little shaky (such as now, after an international pandemic), London property prices are confident. The capital gain on a London property purchase is driving strong demand from international buyers.

• UK property finance is very affordable. Currently, exchange rates are on your side with the cheap pound in relation to the dollar. And the UK finance market offers comparatively cheap borrowing, even at the top end. The London market welcomes overseas buyers from what are considered to be not-high-risk-jurisdictions (such as US citizens).

• The availability of prestige properties in the capital means that investors can put all their wealth into one high-calibre property, rather than having to build a portfolio of properties (with the additional costs that entail) to gain the total asset value they’re looking for.

• Demand for rental properties in central and wider London remains strong. At present 27 per cent of Londoners are now privately renting, with this figure set to rise to 40 per cent by 2030. Rental yields are very attractive right now, with strong growth predicted.

What about UK interest rates? Are they still rising or going back down? Find out in our latest interest rate market commentary. 

You may want to consider other areas in the UK to make a good return on your investment. Read our guide to the most expensive streets in the UK, including London's most in-demand street.

London property investment potential and the pitfalls

You can expect to make a profit of around 50% over 10 years on prime London real estate.

No one will make you promises. But for London’s very desirable boroughs of Kensington and Chelsea, the UK House Price Index shows an average increase in value of 57.4% over the decade to January 2020 (based on land price registry data rather than real estate agents’ surveys). 

And if we look at the whole of London, house price growth has rocketed since 2012. The average price of a London property in 2012 was £292,000; 10 years later this stands at £667,000, an increase of 78 per cent.

In terms of the pitfalls when applying for a British mortgage as a US citizen, it comes down to this - The 2010 Foreign Account Tax Compliance Act requires you to report your non US financial assets annually to the IRS. The extra paperwork involved in processing this is not a burden that many UK high street lenders are prepared to take on, so they won't even consider an American mortgage application.

However, there are private lending institutions and specialist lenders willing to submit the necessary disclosure agreements, even if your salary is paid in a foreign currency or if you want to leverage assets such as your investment portfolio, other property, and pension funds to negotiate more flexible lending criteria and interest rates.

It's advisable to work with a specialist mortgage broker with strong relationships with these lenders to get professional advice and access to the best UK mortgage deals.

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The difference between realtors and UK estate agents

Investing in London property can help you to get a UK visa

Overseas investors qualify for a UK Tier 1 Investor Visa if they have £2M or more to invest in the UK, and they meet the other very straightforward eligibility requirements. And that sum can be invested wholly in the property.

The Tier 1 visa allows you to come to the UK for 3 years and 4 months. You can then apply to extend this visa for a further 2 years, and then apply for permanent residency.

If you’ve got £10M to invest, you can apply for the permanent right to reside after just 2 years.

If you're a US citizen, currently without a visa, an experienced mortgage broker will be able to find a UK mortgage offer for you.

How the UK legal system is very different from the US

The house buying legal system varies across the UK. Scotland has completely different property laws from England.  In London, your legal representative will be referring to "English law" (rather than "British law", or "law in the UK").

• In England, an accepted offer isn’t binding until almost the end of the legal proceedings when contracts are "exchanged".

• At any time until then, the buyer can be "gazumped" by a higher bid (that’s not an official legal term), or the seller can be "gazundered" by the buyer reducing their bid just before exchange.

• You’re well-advised to choose a lawyer (a solicitor in the UK), who’s used to working with overseas clients and who’ll be aware of what you need to be briefed on, for example, the difference between buying a condo in the States and buying a leasehold apartment in England.

How UK property finance works 

• American buyers are used to getting loan approval before they find a property.

• In the UK you can get a Decision in Principle (DIP) on your finance in advance to show to estate agents.

• Your full mortgage approval will depend on the specific property you want to buy, and the final buying price you agree to. Before then you may have a number of DIPs as purchase details change.

• Fixed or variable interest rates: many US buyers are used to having a fixed rate on their finance for the life of their mortgage. It comes as a surprise to many to learn that in the UK interest rates are usually only “fixed” for the first 2-5 years of a 20 or 25-year mortgage.

• After that, you (or your broker) need to find a new deal to avoid reverting to your lender’s considerably higher Standard Variable Rate (floating rate).

• The US tax-hunting law FATCA (the 2010 Foreign Account Tax Compliance Act) means that UK lenders have to do quite a lot more compliance work for US borrowers. And that does deter a few of them.

A good mortgage broker can find you a specialist mortgage lender who knows the ropes.

View our guide to mortgages for non UK citizens.

Can you lease your property if you’re not living in it?

It's certainly possible to get UK mortgage finance which will enable you to rent out your property purchase in London if you're not going to live in it. You'll need to state this intention from the start when you begin the process of finding a suitable lender.

If you're using the services of a UK mortgage broker, they will be able to find a lender which will grant "permission to let".

If you're buying an apartment or house primarily as a rental property with the aim of leasing it (in the UK, known as "letting") to generate rental income, it should be purchased on a different type of finance; a "buy to let" mortgage instead of a residential mortgage.

Some London borough councils do charge empty property premiums on uninhabited homes – usually, only those that have been empty for more than two years.

Hidden fees to be aware of with a UK mortgage

• Many US buyers do their online research and come to us with an idea of the interest rates they want us to find for them.

• If you're using a UK mortgage broker, it's their job to factor in additional costs and fees and to find the mortgage deal that actually works out cheaper for you overall.

• There will be a mortgage application fee (usually around £999), legal fees and the surveyor’s valuation fee (which varies according to the price of your property). You'll also need to factor in stamp duty and land registry fees.

• You’ll also want to know if there’s an Early Repayment Charge (ERC) from the lender if you might want to sell the property sooner than 2-5 years.

• There’s also a mortgage broker fee (which will be the lowest of all the professional fees you’ll pay). The cost of this fee should be more than covered with the savings you'll make in finding the best finance available - as well as time and stress.

• A specialist UK mortgage advisor will talk you through all the costs of buying UK property so you're fully aware.

How long will it take to seal the deal?

Securing a UK mortgage when you're a US Citizen will usually take about 6-8 weeks to finalise, from the point of finding a good UK mortgage broker and getting the funds into your bank account.

Some lenders require more information than others, and it can depend on how complicated your income is and the currency you earn in.

A good UK mortgage advisor will save you time at the outset with their wide knowledge of the market; they'll take your mortgage application straight to a suitable lender who they know will look at your circumstances favourably.

Get the finance you need to buy property in London

Mainstream UK lenders (often referred to as the "high-street banks") have largely stepped back from offering mortgages to property buyers with US citizen status. 

But there are private banks and lenders who are prepared to take on the additional administrative and regulatory work that’s required.

To get access to them, you’ll need experienced, highly qualified, and regulated professional support from a UK finance broker.

At Clifton Private Finance we can identify the lenders who are ready to work with your particular criteria. And we’re delighted to work alongside your tax adviser to help you minimise the tax burden of property ownership in two countries.

Book a telephone consultation with one of our expert brokers at a time that suits you best:

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Our international mortgage service for US citizens buying in the UK