Non-resident buy-to-let mortgages

A non-resident buy-to-let mortgage is a loan for someone who lives outside the UK to buy or refinance a UK property let to tenants. Lenders assess the expected rent first, then the borrower's income, nationality, country of residence and deposit. The property is usually let on an assured shorthold tenancy and managed by a UK letting agent.

Non-resident buy-to-let lending is usually unregulated, because the property is let to tenants rather than lived in by the borrower or a close relative. The term is used for both foreign nationals and British citizens abroad, though expat lenders often treat British nationals separately.

Lenders check that the expected rent covers the mortgage interest by a set margin, worked out at a stressed interest rate that is usually higher than the rate charged. The valuer or a letting agent gives the expected rent, and that figure, rather than personal income, normally sets the largest loan available on the property.

Some lenders add a minimum personal income on top of the rent test, and a few let personal income top up a weaker rent figure. The margin and stressed rate differ between lenders and between individual and company borrowers, so the same property can support different loans.

How the rent test works for landlords in the UK is set out in the buy-to-let mortgages section, which covers rent cover, portfolio rules and letting in more depth.

Many overseas buyers hold UK rental property through a UK limited company set up only to own property, often called a special purpose vehicle. Lenders that accept these look at the directors and shareholders, their country of residence and their income, and they usually ask for personal guarantees from each director with a significant shareholding.

Company structures change how rental profit is taxed, and moving an existing property into a company counts as a sale, which can bring stamp duty and capital gains tax. The structure is easiest to settle before the purchase, with advice from an accountant who knows UK property tax.

Rental income from UK property is taxable in the UK even when the landlord lives abroad. Under the Non-Resident Landlord Scheme, the letting agent, or the tenant if there is no agent, deducts basic rate tax from the rent and pays it to HMRC, unless HMRC approves the landlord to receive rent without deduction.

Non-resident landlords can also be liable for UK capital gains tax when they sell UK property. Stamp duty on the purchase includes the non-resident surcharge and, for most buyers, the higher rates for additional dwellings. Tax in the country of residence may apply too, depending on any double taxation agreement.

Deposits for non-resident buy-to-let mortgages are often at least a quarter of the price and can be higher for some nationalities, countries or property types. Standard houses and flats suit most lenders, while new-build flats in large blocks, studio flats and houses in multiple occupation are accepted by fewer lenders, often at a lower loan-to-value.

Off-plan purchases are common among overseas buyers, but mortgage offers have a limited life, so a completion date far in the future can leave a buyer without an offer. Checking how long an offer lasts before paying a reservation deposit avoids that risk.