Now is the time to invest in UK property, but as a South African how is it possible and how best can I make a good return?

2023 kicked off to a good start for the UK property investor market with the news that interest rates were coming down.  The Financial Times reported that TSB and other UK lenders had dropped their mortgage rates as confidence grew in the market and UK lenders fought for home loan customers, but in comparison to this time last year they still remain high.   A year ago an average 2 year fixed rate buy-to-let mortgage was 2.9% and now it is around 6%, which explains why there is some negative outlook regarding the UK property sector. 

“Historically the best time to invest is when people are the most negative”, as quoted in The Times by Rob Dix, co-founder of The Property Hub and this makes sense because buying a property now at today’s rates ensures your investment numbers work and takes away the uncertainty faced by investors who bought when rates were very low.  Furthermore, the UK continues to go through a rental crisis as rental prices soar; last year they increased by 7.9%.  My sister moved out of her London property last week and the landlady relisted the room to let, within 10 minutes she had received 15 enquiries and the lease was resigned that week.  Demand is high and buy-to-let investors are not seeing void periods.

Now is the time to invest in UK property, but as a South African how is it possible? 

Buying property in a foreign country can seem daunting.  From which area to choose, to legal processes, finances, tax and mortgages, there are many decisions to be made.  Many people never take the first step mainly due to fear of making a mistake or not knowing where to start.  Often investors deem it unattainable due to the cost and fear of the unknown, but the entry level for international real estate investors is much lower than people think.  With lending accessible to most investors, the minimum investment requirement is around R800,000, which would buy you an asset class around £120,000.

Below is a simple guide to the process:

  1. Prepare Finances: Getting your finances in order

The first step to buying a foreign property is to evaluate and prepare your finances.  If you are looking to make use of a mortgage, it is important to understand the obligations as well as benefits thereof.  In the UK, South Africans can borrow between 60% – 80%, with interest rates around 3-6%.  The current UK base rent is 3.5%.  Mortgage costs involve a broker and lender fee and total around £2000 approximately.  South Africans can access a mortgage in the UK relatively easily and due to the double taxation treaty between South Africa and the UK, any tax paid in the UK will not be paid again in South Africa.

  1. Property Selection

Do your research and due diligence and most importantly, know what the desired outcome is. If you are looking for a buy-to-let unit, then rental returns and capital growth are important.  Alternatively, if your goal is to acquire a second or holiday home, that will result in a very different purchase. At LIO Global Property our properties are carefully selected in specific locations focusing on stability, investment security and yields.

  1. Legal and Due Diligence

Once you have selected your property and are ready to proceed, a solicitor will need to begin the conveyancing process. The solicitor prepares a legal report, offering full due diligence.  This report includes local searches, rights of way, confirmation of title and planning consents, and raises any issues that you should be made aware of.  Solicitor costs vary from £900 – £1500.

  1. Exchange of Contracts

Once the solicitor is satisfied that due diligence is complete, the contracts are exchanged and the deposit is due.  Most developers request a 20% deposit and the remaining 80% balance is paid on completion.

  1. Completion

In the UK, completion equates to transfer in South Africa and this is when the remaining balance of the funds are due and when keys are ready to be handed over.  At this stage you will also be required to pay Stamp Duty Land Tax, which your solicitor will make you aware of early on in the process so you have an idea of the cost, but it is also advisable to speak to a tax specialist.

LIO Global Property’s team has been investing in the UK property market since 2003. We always prefer to take a long-term view on UK property investment because the market is constantly changing and buy-to-let is not a quick returning asset class.  With a long-term view in mind you have the potential for building a successful property portfolio and in doing so building generational wealth.  The UK provides a low-risk opportunity to property investors in that it is one of the oldest and most consistent markets in the world.

Featured Property this month: Brunel Place, Maidenhead.  Situated on The River Thames, 19 mins from London, Prices from £232,500, Yields 5.4%

Payment Terms: A reservation fee of £2,000.00 is payable on reservation. Exchange of contracts is expected 28 days later where 10% of the purchaser price (less reservation fee) is required. The balance (90% of the purchase price) is due on legal completion.

Payment Example for a 1 bed at £232,500 using a 70% UK mortgage:

(Exchange Rate as of 23 Jan 2023)

Reservation Fee: £2000 / R42,626

Exchange: £21,250 / R452,902

Completion – residual deposit: £46,500 / R991,057

Completion – UK Mortgage: £162,750 / R3,468,702

Cash Requirement: £69,750 / R1,487,054

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Now is the time to invest in UK property, but as a South African how is it possible and how best can I make a good return? | Download Program Factsheet

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With Sophie Gamborg, Chirag Lakhani & Greg Stockton. How South Africans are capitalising on UK buy-to-let opportunities.