Real Estate Investor Magazine South Africa July 2016 | Page 57

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Sourcing mortgage finance

This has to be one of the most daunting
challenges for a foreign investor and can become
a barrier to entering the London property market.
Following the 2008 global financial crisis, UK lending
criteria have tightened up considerably, especially for
foreign buy-to-let buyers. Lenders typically want rent
to cover at least 125% of the mortgage repayment and
require a 50% deposit from buy-to-let buyers. If you
are not sure which financial institutions to talk to
obtain finance, there are companies in South Africa
that specialize in assisting their clients to source
reliable finance for London buy-to-let properties.

5

Cash flow evaluation – Focus on rental
yield and covering operating costs

While you may expect long-term house price
rises, for cash flow management, invest for income,
not short-term capital growth.

Calculating the yield:

To compare different London property’s values
use their yield: that is the annual rent received as a
percentage of the purchase price. For example, a
London property delivering £15,000 worth of rent
that costs £350,000 has a 4.3% yield.
Rent should be the key return for buy-to-let as you
want the tenant to pay off your bond.

Calculating the return on your investment:

Remember, if you are buying with a mortgage,
calculate all your annual cashflow to ensure that the
investment is cashflow positive.

6

Pay the correct taxes

As a foreign investor in UK property, you will be
required to register with the UK Tax authority
(HMRC) and submit an annual UK tax return for
your UK property taxable income. However most
of the time the net “profit” will fall below the UK
threshold resulting in no UK taxations being payable.
On top of this you are required to include your UK

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property taxable income in your annual South African
tax return. Under the double tax agreement between
the UK and South Africa, you may deduct any UK tax
paid from your South African tax due, with certain
limitations.
You are also required to show your foreign asset
value and foreign liability value in the statement of
assets and liabilities that forms part of your annual
SA tax return. Speak to your tax advisor for specific
guidance.

7

Maintain a float

Factor in a small float to cover unforeseen
spends. It is possible to take out an insurance
policy against your tenant failing to pay the rent,
usually known as rent guarantee insurance. This can
cost as little as £50, and is available as a standalone
product from a specialist provider, or as part of a
wider landlord insurance policy.

8

Hire a property letting & managing
agent

Buying a London property is only the first step.
Will you rent it out yourself or get an agent to do
so? For foreign owners, I recommend you appoint a
reputable agent to let and manage your property.
Agents will charge you a management fee, but will
deal with any problems and have a good network of
plumbers, electricians and other workers if things go
wrong. They also should know the laws that London
landlords and tenants need to comply with, and this
will reduce your risk significantly.

9

Get expert advice

Finally, to reduce the inherent risk associated
with stepping into the unknown, you may want
to work through experts that specialize in sourcing
good quality buy-to-let London stock and who
facilitate the purchase, financing and management
thereof.

RESOURCES

Inventure
JULY 2016 SA Real Estate Investor

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