Investing in student housing: 20 years of growth
For native British people buying houses in the student districts of university towns and cities has generally been seen as a strong investment over the last twenty years. Students from the local university provide a virtually guaranteed supply of tenants, as living with friends in a shared house has traditionally been a favoured option for native second and third-year undergraduates. Equally, there are numerous letting agents who can manage the property on the owner’s behalf, and the trend for rising house prices in the UK property market has meant the value of the investment has appreciated reasonably well over time.
An investment and family base
Although recent tax and regulatory changes have meant that many large portfolio landlords are now investing more cautiously in the rental property market, buying single houses for student accommodation as a long-term investment is still a viable financial proposition. For international students and their families, owning a house in the UK can be a useful resource for longer holiday visits, or as a base for brothers, sisters or cousins to live whilst pursuing their studies, and can provide a degree of security and reassurance to parents at home. The purpose of this blog post is to introduce the reader to some of the context around buying and renting houses in the UK and present some of the problems and potential solutions.
International students and finding a mortgage
The central problem that foreign nationals have when trying to purchase property in the UK is the difficulty of obtaining a mortgage from a lender such as a high street bank or building society. To receive a mortgage offer from these lenders, the mortgage applicant must provide evidence of: a UK bank account, permanent residence rights in the UK, a permanent job, and been resident in the UK for more than two years. The reason for these requirements is the need for the lender to see the credit history of the applicant. Obviously, students are not going to meet all these criteria, and therefore won’t be eligible for a mortgage offer.
Solutions to the mortgage problem: consulting specialist brokers
However, there are other mortgage providers who may consider offering a mortgage without the need to meet all these requirements. A non-status mortgage is one where the lender doesn’t offer the mortgage of the basis of annual income, and this kind of mortgage is more appropriate to an international student. However, finding a lender who offers non-status mortgages is difficult as they provide a niche service and are often private banks. So, the advice of a specialist and experienced mortgage broker, who is licensed to sell mortgages on behalf of the full range of mortgage lenders in the UK, is essential. Also, these specialist brokers deal with the non-status mortgage providers on a regular basis, and so are familiar with the players in the market. In general, a non-status mortgage will require a large deposit, say 25% of the overall value of the property, and may request legal guarantees on the mortgage from parents or family. There are links below to examples of specialist mortgage brokers in the UK.
Rental income and Tier 4 visa restrictions
Another problem is the working and employment restrictions of a Tier 4 student visa. Essentially, owning a house from which rental income is derived counts as ‘business activity’ under the terms of a Tier 4 visa, and is illegal. So, for a student to own a house in which others rent rooms and pay the owning student rent, is not allowed. This is particularly a problem in the long-term once the student is no longer living in the property. However, there are other ownership options for non-EU nationals, such as the property being registered as owned by the student’s parent overseas, or for the property to be registered as owned by a trust or company. Specialist advice is needed here, as there are different tax situations for every ownership arrangement. There is a relevant link at the end of the article.
Taxation issues and property ownership
The tax environment for buying and selling property is also an important factor. The most significant tax is Stamp Duty, and this is paid by the buyer when they purchase the property. Stamp Duty is 2% of the value of the property if the property is worth £125,000 to £250,000, and 5% if the property is worth £250,000 to £925,000. However, since November 2017 the tax laws have changed for first-time buyers, and first-time buyers now pay no tax on the first £300,000 of the property, and 5% on the £300,000-£500,000 part. Equally, income tax on the rent income derived from the property can be taxable, depending on who the registered owner is. Specialist advice from a tax accountant is always a good idea.
In conclusion, buying residential property in the UK is possible, but not by following the conventional paths which the average British citizen would use. To buy property with a mortgage, a non-EU national needs a non-status mortgage from a specialist lender, and the best way to apply to these lenders is via an independent, licensed, mortgage broker. Equally, receiving rental income breaks Tier 4 restrictions, so a legal arrangement would be required to counter this problem. Finally, any non-EU property buyer needs to seek tax advice on the tax payable, and on the most appropriate ownership structure.
Relevant links and further information:
Specialist Mortgage Brokers:
Ownership and tax advice
General information on British mortgages