Financial Considerations when you are ready to purchase a home
When it comes to planning for a home purchase in the UK, there are many factors and aspects of your financial life to consider. First there are the traditional things to consider:
How much can I put down?
When considering how much to put down on a home purchase, you need to think about what you have in the way of existing liquid assets versus what you will pay off over time. The more you put down up front the more equity you are putting into the property as you move forward. Frequently, the larger the deposit, the greater the choice of mortgage deals. The exact amount of deposit will depend on individual facts and circumstances.
Have I taken into account any Stamp Duty Land Tax (SDLT) and Conveyancing Fees that will be payable?
It is easy to forget about how much SDLT and Conveyancing Fees amount to when you are purchasing a property. When looking at how much you have available to allocate towards a deposit you also need to consider the cash outlay for these. SDLT in particular has now become even more important if the property represents a second home as the SDLT rates at all price bands are 3% more than that for a first property.
What kind of mortgage do I want to secure?
Knowing whether it is beneficial to secure an interest only loan or a principal repayment loan as well as looking at the appropriate repayment period are all important things to understand and give consideration to. The decisions made here will first and foremost impact monthly cash flow. Thinking through how the property will be used now and in the future and knowing how long you may own the property are factors to take into account.
In addition to the traditional things to consider, when you are American, there are a few other considerations:
When you are looking at your sources of capital for a deposit, will you be bringing any assets onshore from the US?
Remitting assets into the UK for a home purchase is often a large planning point of discussion for American clients. It is important to understand whether assets held offshore are considered ‘clean’ from a remittance standpoint or whether you will need to pay a tax charge in the UK upon bringing that money in. Understanding any tax charges that might be applicable is extremely important as you definitely do not want to be surprised to find out that a chunk of the assets that you thought were available to put towards a deposit are actually going to go towards paying a UK tax bill.
Have you thought about the appropriate ownership structure if you are married and one spouse is not American?
The sale of a main residence has tax implications for an American individual whereas it is tax free from a UK perspective. When one spouse is not American, it can often be beneficial to think about the ownership structure of the property and determine whether it is in the family interest to consider Joint Tenants in Common or ownership in the non-US spouse’s name. The amount a mortgage lender will lend will also be based on who is going to own the property.
Planning ahead and knowing how to approach the above questions will help ensure that you don’t get adversely surprised as you embark on a very large financial purchase.
For more wealth planning tips and tidbits from MASECO read our 39 Steps to Smart Living in the UK.