In part four of our expat mortgages Q&A with Stuart Marshall, we look at the pros and cons of buying in cash compared to taking out a buy-to-let mortgage and the advantages of buying through a limited company.
Buy-to-Let or Buy In Cash?
Q: ‘I’ve worked across most of the Middle East for the last 10 years and I’ve been hoping to invest in UK property for a while. I have saved up enough money to buy cash. But am I better buying a property in full with cash or splitting up the money I’ve saved to fund a few different property ventures through buy-to-let mortgages?’
A: ‘At the moment, there’s far fewer landlords buying with cash. House prices are flying high and interest rates are incredibly low which means 52% of landlords are currently buying with cash. But it all depends on your circumstances. Obviously, buying more property will carry more risk with it, but it could always exponentially increase your rewards. It can depend on where you’re looking to buy. For example, if you have enough to make a cash purchase in London, this money might be better spent on several properties in somewhere like the North West.
Rental growth is high across the country and continues to rise, with the shortage in available property also transferring to the rental sector (there were 14% fewer rental properties available in January 2021 compared to January 2020). However, you also need to consider the changes to mortgage interest tax relief in the last few years and how this might affect your investment if you are buying a few properties with buy-to-let mortgages.
Ultimately, building a strong portfolio of property is going to be a great investment if you put your money in the right places. This is a great tool for long-term saving and retirement planning. However, if you are looking for a more immediate return on your investment, then buying a property in cash will allow you to start taking a profit from your rental property right off the bat. As always, it’s best to speak with a specialist broker and that way you can discuss matters in greater detail.’
Buying Through a Limited Company.
Q: ‘I have lived in Abu Dhabi for 15 years and, after saving some money, I’m finally about to take the plunge into the world of UK property. I’ve been doing some research and I’ve read a lot about the benefits of buying property through a limited company instead of in my personal name. Am I right in thinking that I’d be better off buying in this way?’
A: ‘Investing in a buy-to-let property through a limited company is certainly a good way to go about buying property. In fact, 41,700 new buy-to-let limited companies were formed in 2020 alone. The long and short of it is that over the last few years, the rental sector has seen a whole host of tax and regulatory changes which have really affected private/individual landlords. April 2020 saw the introduction of more new legislation which means that individual landlords can no longer claim mortgage interest as an expense. This removal of tax relief means that landlords will have to increase their declared income which then becomes subject to personal tax.
Whilst this is one of the more recent changes that is prompting investors to look towards limited companies for buying a property, there are other benefits through buying in that manner too. An obvious one is inheritance. If you are planning to leave your investment portfolio to your children, there are ways to mitigate inheritance tax within a limited company. Further, limited companies give you much more opportunity to build your property portfolio compared to those available as a private landlord. The reason for this is that not only are you allowed to borrow a larger sum than as a private landlord, but you will also not pay income tax on any retained profit, meaning there is more available to re-invest.
With a limited company, there also comes reduced liability. Since you do not own the property yourself, you aren’t liable for tenant debts like outstanding council tax or utility bills. This differs to a private landlord who can be pursued for the outstanding amount owed by the tenant which can lead to a damaged credit score.
So, there are many benefits to buying through a limited company and you are wise to consider this as a potential option. However, there are other requirements and obligations that come with a limited company and you need to make sure you’re aware of these and able to handle them alongside your existing workload and life.’
If you are a UK Expat or foreign overseas buyer looking to buy property in the UK Liquid Expat mortgages are specialist brokers with over 13 years in finding the best funding solution for your property transaction.
Click the links below for parts one, two and three of our Liquid Expat Mortgages Q&A:
Digging Deep With Liquid Expat Mortgages: Q&A With Stuart Marshall (Part One).
Digging Deep With Liquid Expat Mortgages: Q&A With Stuart Marshall (Part Two).
Digging Deep With Liquid Expat Mortgages: Q&A With Stuart Marshall (Part Three).
Liquid Expat Mortgages
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