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What is the Cost of Property Investment in the UK?

Property ownership in the UK opens the door to many benefits for foreign nationals, whether providing a solid source of rental income or bringing highly-ranked educational institutions, popular retail and leisure facilities, renowned restaurants and great business and work opportunities to your doorstep.  Regardless of why you are looking to buy, you will be expecting your asset to appreciate.

Strong price growth forecasts (up to 21% over the next five years, according to Knight Frank) make London and the South of England attractive places to consider making an investment, but anyone who is thinking about purchasing property in London or the surrounding areas should first understand how much it could cost - after all, there are many other fees associated with the cost of property investment in the UK than just the purchase price. We’ve compiled a short guide of some of the costs you can expect when buying a home in the United Kingdom:

 

One-Time Costs

  • Stamp Duty Land Tax (SDLT)*

Stamp Duty Land Tax is payable on the purchase price of a property in the UK. What you pay will depend on the purchase price, as well as if you are an individual, company or a trust, if you own other properties, and whether or not you are a UK resident at the time of purchase. 

Learn what the standard rates you could expect to pay according to purchase prices here.

If this is not your first property investment in the UK, it will be classified as an additional dwelling (“second properties”) and you will need to pay an additional 3% SDLT, which will be added to the rate above.

However, as of April 2021, all non-UK buyers are required to pay a further 2% in addition to the SLDT and additional dwelling rate (if applicable). 

When purchasing any property, this tax is payable within 14 days of completion.

  • Legal fees

A solicitor is required to take care of all the legal and administrative paperwork associated with purchasing a property. Their responsibilities include handling contracts, providing legal advice, carrying out local council searches, dealing with the Land Registry and transferring the funds to pay for your property. 

The fees a solicitor will charge depends on the property value, but usually falls between £1,000 and £3,000**.

  • Valuation fees

The role of a property valuer is to conduct a detailed inspection of the property, both internally and externally, as well as examine all relevant data – such as zoning and planning restrictions and risk ratings – and compare the attributes of your property to recent comparable sales in the surrounding area to determine a market value. 

An accurate valuation of a property is usually needed when the buyer is taking out a mortgage, to calculate capital gains tax, or to ensure that you are paying a fair price upon purchase. 

  • Property survey

At first, a property survey might sound the same as a property valuation – but they are two separate things. Whilst a valuation determines the value of the property, usually, for the benefit of a mortgage provider, a survey is a detailed and thorough assessment of the condition of the property, used to highlight defects and the cost of repairs.

Put simply, a valuation report is prepared for your lender, and a survey report is prepared for you, the buyer.

The cost of a property survey in the UK depends on the purchase price, level of detail you require and the location of the premises, but on average can usually cost between £400 and £1,425***.

  • Land Registry fees

The Land Registry will register the purchased property under your name. However, they charge a fee to transfer their register into your name as the new owner of the property.

How much you will pay is dependent on the value of your property and is paid by your solicitor on your behalf, but can cost up to £910****.

 

On-going costs 

  • Mortgage repayments (if applicable)

In the past, non-UK buyers found it quite challenging to secure a mortgage to purchase a property in the country. Today, however, lenders are very much open to granting mortgages to non-residents and foreign nationals.

And if this is the route you choose to purchase a property, a monthly repayment will be an ongoing cost. The amount you will pay is determined by your lender and the interest rate. 

If you decide to rent out the property, some mortgage lenders will permit you to rent out your home with your existing rate and terms, however, others might charge a premium, require you to refinance or make you wait a certain period before providing you with the go-ahead.

  • Service charges and ground rent

This point applies if you choose to buy a leasehold property, where you do not own the land. The ground rent is what you will pay to rent the property from the freeholder for many decades. 

In addition, you will almost certainly pay a service charge to the freeholder for the upkeep of the property and shared areas.

It might seem like just another expense, but it can, in fact, be a benefit - especially when buying a property from a developer, like Berkeley Group. Many of our new-build developments offer shared resident-only areas and facilities, with some even providing luxury 5-star amenities, such as private cinemas, landscaped gardens, world-class spas and state-of-the-art gyms. 

  • Management fees

If you do not intend on taking up the role of a landlord after purchasing your property, you will need to hire an investment property manager. They will vet tenants, get them moved in, conduct property inspections, compose property inventories, maintain the property, and chase and collect the rent. 

A property manager will take care of the day-to-day duties while you reap the rewards of your property investment in the UK. And it will typically cost you between 10% and 15% of your gross rental income. 

  • Maintenance, utilities and repair costs

Your property surveyor would have alerted you to any repairs or problems that needed to be attended to when you purchased the property initially. However, as the years go on, you will have to conduct regular maintenance and see to repairs that pop up later to keep the property in good condition. 

Gas, electricity and water will be running costs that will need to be paid each month, as well as charges for landline phones, TV packages and broadband. Not to mention that when letting your property, you may need to replace carpets and furniture, re-paint and tend to any other issues around the home more frequently to ensure it remains tenanted. 

  • Insurance

Homeowner’s insurance is a necessity you need to have whether you’re planning on living in the home or letting it. However, if you plan on doing the latter, you will also need landlord insurance as an investor who’s renting out their property. And if you have a mortgage, your lender will require you to take out insurance. 

The former insurance covers the contents of the property against loss, theft or damage. The latter can cover defaulted rental payments, damage caused by tenants and public liability insurance. Renting can be a risky business at times, so it is always wise to protect yourself from lawsuits, legal disputes and property damage. 

  • Council tax

England, Scotland and Wales use a local taxation system known as Council Tax, a monthly fee that the local council charges you for the local services it provides. The amount you pay is dependent on the location and value of your property. However, if you are renting your property, this cost can be transferred to the tenant’s expense.

  • Income tax

As an owner of a rental property in the UK, you are required to pay rental income tax. The rates of tax applicable vary depending on your status as a property owner. For an individual, the rates are progressive and cost anywhere from 20% to 45%* of the total rental income.

 

Word of advice

This article is not a definitive list of all the costs of property investment in the UK. We strongly recommend consulting an experienced broker or market expert who can assist you in your property purchase before buying real estate.

 

Buying a property in the UK with Berkeley Group

Now that you are aware of some of the costs of property investment in the UK, there is only one thing left to do – start looking for a great development. And where better to begin than with the UK’s premier property developer and FTSE 100 listed company?

Founded in 1976, Berkeley Group builds homes and neighbourhoods across London, Birmingham and the South of England to create welcoming, sustainable and nature-rich places where communities can thrive and people of all ages and backgrounds can enjoy a great quality of life.

The award-winning developer has a passion for quality, and design underpins everything that they do. All Berkeley homes are created with care, expertise and relentless attention to detail. With a strong focus on green living, Berkeley was awarded the Queen’s Award for Enterprise in Sustainable Development twice.  All developments by Berkeley Group homes are built to enhance the communities in which they are designed through outstanding sustainability, landscaping, key design and sympathetic restoration. From our office based in Downtown Dubai, Berkeley Group MEA and India provides easy access to our broad portfolio of best-in-class UK properties, offering local expertise to those looking to invest from this region. Our local team of experts speak Arabic and English and offer face-to-face support to our clients and partners across the Middle East, Africa and India to ensure an exceptional purchasing experience.

Learn more about the Berkeley Group developments.

 

* Enness Global
** Track Capital: https://www.trackcapital.co.uk/news-articles/how-much-money-do-i-need-to-invest-in-property/
*** SDL Surveying: https://sdlsurveying.co.uk/news/how-much-does-a-house-survey-cost/
**** UK Government official site: https://www.gov.uk/guidance/hm-land-registry-registration-services-fees

 

Disclaimer: all information was correct at the time of publication.

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