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Expat landlord guide: renting property while living abroad

Expat landlord guide: renting property while living abroad

It’s been estimated by the IPPR that around 5.5 million British nationals live abroad permanently. 1

Man on beach

For working people, the decision to relocate is often associated with an exciting new job opportunity while for those at the end of their career, the move is more likely to be driven by the desire for a change of pace in retirement.

Whatever the reason, these global adventurers often choose to keep a foothold in the UK property market whether by renting out their former UK residence or purchasing property to let.

Before taking on the role of expat landlord, there are several factors to consider. Here’s some of the most important:

The right mortgage

If you plan to move abroad and rent out your former home in the UK, it’s essential that you speak to your existing mortgage provider and check if this is allowed under the conditions of your mortgage.

Your lender may specify a time limit for your return if you wish to retain your current mortgage, apply additional fees, a higher interest rate or request that you convert the mortgage to a consumer or regulated buy-to-let mortgage product.

Landlords who are already abroad and want to buy additional property will need to look for an expat buy-to-let mortgage from the outset.

Several lenders offer expat buy-to-let mortgage products and, encouragingly, there’s been an increase in competition from specialist lenders like Paragon in recent years.

However, an expat mortgage can be more difficult to source directly than a standard residential mortgage, so it may be helpful to approach a mortgage intermediary to research the best product for your needs.

Landlord insurance

There is no legal requirement for landlords to take out insurance.

However, if the property is mortgaged, the lender will usually require the landlord to take specialist insurance before letting begins. At a minimum, this should cover the cost of potential structural damage to the property, but enhanced policies may also offer cover for things like liability for accidents in the property causing injury.

Not all insurers will contract with a UK non-resident, so landlords should look for insurers who offer expat cover.

Managing your property

Dealing with tenants and maintenance issues can be time-consuming and sometimes stressful – even more so for landlords who live in a different time zone.

While some expat landlords may find it possible to manage their UK property portfolio successfully from a distance with the help of family and close friends, for many it will be easier to engage the services of a suitably qualified lettings agent. In fact, at Paragon, we think it’s essential that expat landlords employ a managing agent to oversee the property.

Agent fees can be expensive, typically between 10-15% of the monthly rent, so it’s important for landlords to take time and find someone they will be comfortable working with.

Currency and foreign exchange

Tenants will pay their rent into a UK bank account in pounds sterling.

Landlords who plan to use rental income to cover expenses in their new geography should therefore be mindful that adverse exchange rate movements and transfer fees will cut into their spending power.

During 2018, for example, landlords who converted pounds to US dollars at the lowest point suffered a 12% reduction in spending power compared to those who converted at the annual high.

Keeping a close eye on the exchange rate and acting at an opportune moment is one way to reduce the impact.

Landlords might also want to consider foreign currency accounts that allow them to make and receive payments in a range of currencies or currency specialists who offer contracts to protect against volatile currency fluctuations.

Let’s talk tax

Landlords who live abroad and rent property in the UK need to pay tax on their rental income in the UK.

Landlords can either collect their rent in full and pay tax through self-assessment (provided their tax affairs are up-to-date and HMRC allows them to do this) or collect their rent with basic rate tax already deducted by their letting agent or tenant. If landlords sell their property, they may also need to pay capital gains tax.

Online self-assessment is not currently available for expats. This means that expat landlords who manage their tax affairs personally need to fill out a paper form and return it to HMRC in time for the 31 October postal deadline.

For a full briefing on tax rules for expat landlords, visit the gov.uk website.

Paragon’s expat landlord mortgages are available via mortgage intermediaries. To find out more information, visit our intermediary page for buy-to-let mortgages.

1 IPPR: Brits Abroad: Mapping the scale and nature of British emigration, 11/12/2006

Paragon Banking Group PLC.  Registered in England number 2336032.  Registered office 51 Homer Road, Solihull, West Midlands  B91 3QJ.