Buy to let as an overseas retirement strategy

If investing in buy-to-let is part of your overseas retirement strategy, checking out the new rules may save you money.

Buy-to-let mortgage rules are now tightening up for seasoned investors as well as new expat buy-to-let landlords. They apply to refinancing as well as initial purchasing and, especially for experienced expat landlords, may well affect profitability. The post-referendum fall in the value of sterling has encouraged expats working overseas to invest in UK property for letting purposes, but the government is making sure it gets its pound of flesh.

If you’re looking for a mortgage, your available deposit is the key to the interest rates you’ll be offered, as the more capital invested the less the financial risk for the lender. The minimum allowed is around 20 per cent of the full purchase cost, with 40 per cent getting you the best available rates. You’ll need to pay an arrangement fee on completion, with some mortgage providers also charging booking fees for fixed rate deals. Costs vary between mortgage lenders, with applicants advised to factor the charges into their full purchase cost.

Landlords are forced to pay stamp duty at three per cent higher than the rate paid for private purchases. Online stamp duty calculators are your friend, allowing you to see exactly what’s due. If you’re attracted by an interest-only mortgage and are a higher rate taxpayer, you should note HM Revenue and Customs is phasing in restricted mortgage interest relief for this sector. By 2020, you’ll no longer be allowed to offset all your mortgage interest against tax, as landlords will be restricted to a 20 per cent allowance regardless of their tax rate.

As regards income assessment, this is dependent on whether you’re a portfolio landlord or an amateur with one or two properties, or are renting out your UK home until you return. If you’re not a professional landlord with four or more properties, mortgage lenders will look at affordability against income rather than at total rental income. Rent cover is another aspect of buy-to-let mortgages, calculated on mortgage interest paid and the likely rent charged on the property. Cover rates vary between mortgage lenders, but are typically 140 per cent of annual interest calculated using the standard variable rate.