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United Kingdom (UK) - Mortgages and Other Financial Issues

Mortgages have been a sensitive subject in the UK since the implosion of the housing market. Application restrictions are quite severe, and the likelihood of being awarded a mortgage is not guaranteed. The United Kingdom has spent the last decade going from recession to recession, which has strongly affected the financial industry. In the UK the banks and building societies provide mortgages, loans, and other financial products to clients.

In the case of foreign nationals it is possible to receive a mortgage from a bank or building society. Even though lenders advertise financial packages for foreign nationals, it does not mean the process is simple. Many factors enter into the approval of your application. Your credit history, finances, buying history, and reason for being in the UK will make a difference. Many expats come to the UK as students or for work. Work is often classed as a temporary situation, which can be undesirable from the bank’s point of view. Someone who has transferred to the UK from a company in which they have been working for a number of years will be seen as more financially stable than someone moving to a new company.

Mortgages approved for expats are typically 85% loan to value, which requires at least 15% of the purchase price in a down payment. For expats who have previously purchased a home with a mortgage there is a possibility of remortgage at 80% loan to value. The mortgage process takes two to three months for all the paperwork to be filled out, and for the underwriters and solicitors to complete their jobs.

Tax Details for Mortgaged Properties

Expats do not obtain any tax advantages in buying a house. There are taxes and fees associated with buying and selling a property, including the Stamp Duty Land Tax and Capital Gains Tax. The Stamp Duty Land Tax (SDLT) is paid for by the buyer if a home price is above £125,000. The percentage owed is between 1% and 7%. The SDLT is like a property tax during the initial purchase. The UK does not have annual property taxes based on housing value. The residential property tax was unfavourable and instead a separate local government tax was introduced.

There is now a Council Tax that includes property and poll taxes. There is also a capital gains tax (CGT) which is paid by sellers. A seller has to pay for any income they gain during the course of a tax year. Unless the house was sold in a negative equity situation, there is usually a CGT tax applied. Inheritance taxes apply if the house was sold by a beneficiary receiving funds from the sale. Businesses do pay business property taxes, however certain businesses are exempt.

The UK governments, particularly in Scotland, are constantly under pressure to once again enforce a type of land value taxation, however this has not yet come to fruition.

Mortgage Fees

Mortgage fees are broken down into three categories: legal, lender, and broker.

1. Legal fees besides the Stamp Duty include search fees and solicitor fees. A solicitor is usually required for the paperwork to ensure that the buyer is represented.

2. Lender fees include an arrangement fee, booking fee, and valuation fee. An appraisal is done by the mortgage company to ensure the house price is within its valuation. It is a way to determine the amount of the loan a lender is willing to offer. These fees differ greatly from lender to lender, and may include some legal costs.

3. Broker fees are through the buyer’s agent when you are purchasing and through the selling agent when you are selling. The broker has to set the charges for administration and any mortgage process they might be involved in, therefore these fees are also very variable.

Insurance Requirements with Mortgages

There is no specific law in the UK stating that an individual must have content and building insurance, unless you are letting the property as the landlord. In a letting situation where you are the renter, the landlord may require content insurance. Homeowners’ insurance often comes down to whether you have a mortgage on the property, in which case the lender will require you to either buy insurance through them or buy a policy from a company of your choice. The lender will want to protect their investment.

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