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

According to the results of London Property Buying Agent Brick Weaver’s first quarterly report, average flat prices in Kensington and Notting Hill are 8.9% higher than they were 5 years ago.  

Prices per square foot have increased by 3.9% for flats in this area in the past year and have increased by 0.8% overall for houses. 

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.

The difference between realtors and UK estate agents

Can property investors get UK citizenship?

Until 2022, overseas investors did qualify for a UK Tier 1 Investor Visa if they had £2M or more to invest in the UK, which applied to buying real estate. However, this is unfortunately no longer offered. The Tier 1 visa formerly allowed investors to come to the UK for up to 3 years and 4 months, and those who are living in the UK on a Tier 1 Investor Visa can still apply for permanent residency until 2028.

But it's not all bad news - while this type of visa is no longer available, the UK is still growing in popularity for real estate investment due to its high property value and opportunity for rental income. You don't need a visa to buy property in the UK, and there are also few limitations to buying property in the UK from overseas.  

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.

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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.

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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.

Call us on +44 203 900 4322 or book a free consultation below.

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Our international mortgage service for US citizens buying in the UK