Buying Property in London as a US Citizen: 9 Things You Need to Know

If you're interested in buying property in London as a US citizen, you're not alone. And if you're wondering how easy it is to get a UK mortgage as a non-UK national, the good news is there are plenty of specialist lenders who will be willing to make you an offer.

The UK property market is the fifth most popular choice for US investors looking for an overseas second home or investment property. Regarding location, London remains a big draw with the most lucrative capital gains potential.

However, understanding the investment opportunity and securing a UK mortgage as a US citizen are two different things. There are several key differences in how the finance and buying systems work in the UK, and it's good to understand the basics before you start looking for a home to buy in London.

Key Takeaways:

Rental yields in London are attractive, with rental demand expected to rise in the next few years.
Homes in Prime Central London have shown significant price appreciation, with some areas seeing up to 78% growth over the past decade.
If you're aiming to buy in the UK, you'll need specialist tax support because the UK legal process is significantly different from the US.
It's possible to get finance as an overseas investor, but there can be some challenges. Working with a specialist broker can ensure the process goes smoothly.

Here's our guide to buying property in London as a US citizen:

9 Things You Need to Know

Why Buy in London?

London is considered a "safe haven" for investors.

Culture and lifestyle are all very well, but US buyers also want to know if the London property market is a good place to invest.

Yes, it is. London’s asset stability relies on English property ownership laws, which are probably the most robust in the world. And even when international markets feel a little shaky (such as now, after an international pandemic), London property prices are confident. The capital gain on a London property purchase drives strong demand from international buyers.
UK property finance is very affordable. Currently, exchange rates are on your side with the cheap pound in relation to the dollar. And the UK finance market offers comparatively cheap borrowing, even at the top end. The London market welcomes overseas buyers from what are considered to be not-high-risk-jurisdictions (such as US citizens).
The availability of prestige properties in the capital means that investors can put all their wealth into one high-calibre property rather than building a portfolio of properties (with the additional costs that entail) to gain the total asset value they’re looking for.

Demand for rental properties in central and wider London remains strong. Currently, 27% of Londoners are privately renting, with this figure set to rise to 40% by 2030. Rental yields are very attractive right now, and strong growth is predicted.

Is London property still worth investing in?

The Evening Standard recently reported that house prices in London are poised for a robust recovery - faster than any other UK region.Here’s a snapshot:

London house prices could grow by 11.6% over the next four years.
Partially because London has had lower growth over the past five years, so some respective catching up to do.
Potentially lower mortgage rates by 2025 could also spur further recovery, particularly in London, where homeowners tend to have larger mortgages relative to their income.

And what about UK interest rates? Are they still rising or going back down? Find out in our latest interest rate market commentary.

You may want to consider other areas in the UK to make a good return on your investment. Read our guide to the most expensive streets in the UK, including London's most in-demand street.

London Property Investment Potential and the Pitfalls

The Potential

You can expect to make a profit of around 50% over 10 years on prime London real estate.

No one will make you promises. But for London’s very desirable boroughs of Kensington and Chelsea, the UK House Price Index shows an average increase in value of 57.4% over the decade to January 2020 (based on land price registry data rather than real estate agents’ surveys).

If we look at the whole of London, house price growth has rocketed since 2012. The average price of a London property in 2012 was £292,000; 10 years later, it stands at £667,000, an increase of 78%.

According to the results of London Property Buying Agent Brick Weaver’s first quarterly report, average flat prices in Kensington and Notting Hill are 8.9% higher than 5 years ago.

Prices per square foot for flats in this area have increased by 3.9% in the past year and by 0.8% overall for houses.

What Are The Pitfalls of Buying Property in the UK as a US Citizen?

The pitfalls when applying for a British mortgage as a US citizen come down to this: The 2010 Foreign Account Tax Compliance Act requires you to report your non-US financial assets annually to the IRS. The extra paperwork involved in processing this is not a burden that many UK high-street lenders are prepared to take on, so they won't even consider an American mortgage application.

However, private lending institutions and specialist lenders are willing to submit the necessary disclosure agreements, even if your salary is paid in a foreign currency or if you want to leverage assets such as your investment portfolio, other property, and pension funds to negotiate more flexible lending criteria and interest rates.

It's advisable to work with a specialist mortgage broker with strong relationships with these lenders to get professional advice and access to the best UK mortgage deals.

International Property Market Update

The UK property market, particularly in London, has long been attractive to international buyers due to its stable political environment, robust legal system, and strong rental yields.

Many UK banks and specialist lenders offer mortgage products tailored to expats and foreign nationals. There are challenges surrounding getting an international mortgage, particularly because it can be difficult to get a clear idea of your UK credit footprint and overall financial circumstances if you have spent a significant period abroad.

However, as the international mortgage market becomes more competitive, the rates are coming down for individuals who have spent less than two years in the UK before purchasing a home, and additional eligibility requirements are becoming less stringent. Technology also has its role in expediting the process.

The Difference Between Realtors and UK Estate Agents

As a property buyer in the US, you'll be used to engaging a realtor to act for you and find the most suitable properties to view. And you’ll usually pay half the vendor’s realtor’s total fee of around 6%.

In the UK, estate agents act only on behalf of sellers (and charge them around 1 - 4%+VAT of the purchase price). As a buyer, you don’t pay any estate agent’s fee.

The downside is that most sellers only list their property with one estate agent to negotiate a lower fee, so you have to contact many agents to make sure you’re seeing all the properties that might suit you.

You’re going to be bombarded with property details. Estate agents will do very little "sifting" of what they send you, so you must do much more work as a buyer.

You can instruct a buying agent who will act for you in the same way as a US realtor, offering the level of service American buyers are looking for.

They may charge a flat-rate 'buying advice fee' and either a percentage of the purchase price or a substantially greater percentage of the difference between the original asking price and an agreed purchase price that they've negotiated for you.

Can Property Investors Get UK Citizenship?

Until 2022, overseas investors could qualify for a UK Tier 1 Investor Visa if they had £2M or more to invest in the UK, which applied to buying real estate. Unfortunately, this is no longer offered. The Tier 1 visa formerly allowed investors to come to the UK for up to 3 years and 4 months, and those who are living in the UK on a Tier 1 Investor Visa can still apply for permanent residency until 2028.

But it's not all bad news - while this type of visa is no longer available, the UK is still growing in popularity for real estate investment due to its high property value and opportunity for rental income. You don't need a visa to buy property in the UK, and there are also few limitations to buying property in the UK from overseas.

If you're a US citizen currently without a visa, an experienced mortgage broker can find a UK mortgage offer for you.

How The UK Legal System is Very Different from the US

The legal system for buying a house varies across the UK. Scotland has completely different property laws from England. In London, your legal representative will be referring to "English law" (rather than "British law", or "law in the UK").

In England, an accepted offer isn’t binding until almost the end of the legal proceedings when contracts are "exchanged".
At any time until then, the buyer can be "gazumped" by a higher bid (that’s not an official legal term), or the seller can be "gazundered" by the buyer reducing their bid just before the exchange.
You’re well-advised to choose a lawyer (a solicitor in the UK) who’s used to working with overseas clients and who’ll be aware of what you need to be briefed on, for example, the difference between buying a condo in the States and buying a leasehold apartment in England.

One of our US clients assumed there was the same legal "right of assumption" in the UK as in the US.

The couple were buying in the husband’s name only for the sake of convenience, assuming that the mortgage would pass to the wife in the unfortunate case of the husband’s death. It wouldn’t – in the UK, the property would go through probate, and then the wife would need to apply for finance in her own name and might not qualify. So, we needed to quickly restructure their borrowing.

How UK Property Finance Works

American buyers are used to getting loan approval before they find a property.
In the UK you can get a Decision in Principle (DIP) on your finance in advance to show to estate agents.
Your full mortgage approval will depend on the specific property you want to buy, and the final buying price you agree to. Before then you may have a number of DIPs as purchase details change.
Fixed or variable interest rates: many US buyers are used to having a fixed rate on their finance for the life of their mortgage. It comes as a surprise to many to learn that in the UK interest rates are usually only “fixed” for the first 2-5 years of a 20 or 25-year mortgage.
After that, you (or your broker) need to find a new deal to avoid reverting to your lender’s considerably higher Standard Variable Rate (floating rate).
The US tax-hunting law FATCA (the 2010 Foreign Account Tax Compliance Act) means that UK lenders have to do quite a lot more compliance work for US borrowers. And that does deter a few of them.

A good mortgage broker can find you a specialist mortgage lender who knows the ropes.

Can You Lease Your Property if You’re Not Living in It?

It's certainly possible to get UK mortgage finance that will enable you to rent out your property purchase in London if you're not going to live in it. When you begin the process of finding a suitable lender, you'll need to state this intention from the start.

If you use the services of a UK mortgage broker, they can find a lender that will grant "permission to let."

If you're buying an apartment or house primarily as a rental property with the aim of leasing it (in the UK, known as "letting") to generate rental income, it should be purchased on a different type of finance: a " buy-to-let" mortgage instead of a residential mortgage.

Some London borough councils charge empty property premiums on uninhabited homes—usually only those that have been empty for more than two years.

Hidden Fees to Be Aware of with a UK Mortgage

Many US buyers do theironline researchand come to us with an idea of the interest rates they want us to find for them.

If you're using a UK mortgage broker, their job is to factor in additional costs and fees and find a mortgage deal that is actually cheaper overall.
There will be a mortgage application fee (usually around £999), legal fees and the surveyor’s valuation fee (which varies according to the price of your property). You'll also need to factor in stamp duty and land registry fees.
You’ll also want to know if there’s an Early Repayment Charge (ERC) from the lender if you might want to sell the property sooner than 2-5 years.
There’s also a mortgage broker fee (the lowest of all the professional fees you’ll pay). The cost of this fee should be more than covered with the savings you'll make in finding the best finance available - as well as time and stress.
A specialist UK mortgage advisor will explain all the costs of buying UK property so you're fully aware.

How Long Will It Take to Seal the Deal?

Securing a UK mortgage when you're a US Citizen will usually take about 6-8 weeks to finalise, from the point of finding a good UK mortgage broker and getting the funds into your bank account.

Some lenders require more information than others, depending on how complicated your income is and the currency you earn in.

A good UK mortgage advisor will save you time at the outset with their wide knowledge of the market. They'll take your mortgage application straight to a suitable lender who they know will consider your circumstances favourably.

A Quick Guide to Securing London Property Finance

1. You get a Decision in Principle on finance from a property finance lender.

2. When the seller accepts your offer on a property, you (or your mortgage broker) submit a full mortgage application. At this point, you pay any broker fees and start incurring legal and valuation costs.

3. The finance company appoints a surveyor to assess the value of the property – they’ll pass on the costs for this and for their legal work to you. Solicitors for the finance lenders, you, and the vendor get to work.

4. After the survey valuation is accepted, the legal advice and searches are complete, the contracts are finalised, and a completion date is agreed upon, then contracts are "exchanged".

5. At this point, a deposit– usually 10% of the purchase price – is paid into the solicitor’s escrow account, and the contract is binding.

6. The deposit is paid, usually paid directly by you, the purchaser, rather than your finance company. If you’re getting a 95% mortgage and only have 5% of the funds available as a deposit, your solicitor will usually negotiate the exchange deposit down to 5%. Any other outstanding fees are usually also paid by this point.

7. On the "completion date," your finance company deposits the mortgage funds into the vendor’s solicitor’s account, and the purchase is "completed."

Old or New?

One sticking point for many international buyers looking at London property is whether to buy an old, historic property or a new build.

London is rich in historic properties seeped in culture and character. And these are characteristics that add to their prestige and value.

But as London property consultancy Tyburn reports, these properties have become less popular for international buyers recently due to:

more rigorous planning requirements
and rising expenses associated with building

Instead, cash-rich, time-poor property investors are choosing to purchase move-in ready, newly-constructed homes that come equipped with cutting-edge facilities and security features.

However, the supply of these remarkable properties is limited, which is creating a surge in demand, pushing up prices while also reducing the number of available options.

If you're looking for expert guidance on the right type of property for you, speak with our London property consultants today.

Get The Finance You Need to Buy Property in London

Mainstream UK lenders (often referred to as the "high-street banks") have largely stopped offering mortgages to property buyers with US citizenship.

However, some private banks and lenders are prepared to undertake additional administrative and regulatory work.

To access them, you’ll need experienced, highly qualified, and regulated professional support from a UK finance broker.

At Hilo Finance, we can identify the lenders ready to work with your particular criteria. And we’re delighted to work alongside your tax adviser to help you minimise the tax burden of property ownership in two countries.

Call us on +44 7387 594 274 or book a free consultation below.