Step-by-step guide to buying property in London for Chinese homebuyers & investors

Arranging your finances

Chinese citizens are subject to state-imposed capital controls, which limit foreign currency exchange to US$50,000 (£40,000) per year. As a Chinese national buying property in the UK, it is crucial to be aware and informed about the regulations imposed by the State Administration of Foreign Exchange (SAFE) and the People's Bank of China.

Organising your finances well in advance and being prepared to make any disclosures about the source of funds is necessary when buying property in London. Ensure you have the funds ready in a UK bank or an international bank capable of lending for property purchases in the UK.

Mortgage eligibility

While securing a mortgage from a UK lender as a Chinese investor is possible, your eligibility criteria will differ based on your finances and asset value. It's always good to consult with an expert mortgage advisor to check your criteria and get recommendations.

Most lenders will require a minimum 25% deposit from overseas borrowers. However, if you intend to offset mortgage payments with rental income, we recommend a Loan-to-Value of no more than 60-65%, as the average rental yield in London is between 3-5%.

Documentation

When buying a property in London as a Chinese investor, you will need the following documents:

• Proof of identity: Current Passport (a valid UK visa is not mandatory) .
• Proof of address: Provide any one of the following, dated within the last three months:
  • Utility Bill
  • Driver's License
  • Bank, Building Society, or Credit Union Statement
  • Tenancy Agreement
• Proof of funds: 3-6 months' bank statements of the account from which funds will be remitted for the property purchase.
• Supporting documents to show the source of funds: Evidence of accumulated income over time from sources such as salary, business income, gifts, fixed deposits, sale of property, sales or liquidation of an investment portfolio, company profits, dividend payments, inheritance, insurance policies or retirement income.
• All these documents need to be certified by a currently practising professional, such as:
  • Licensed Conveyancer or Solicitor
  • Chartered Accountant with a practising certificate
  • Qualified Lawyer or Attorney
  • Notary

Ensure that all the required documents are correctly prepared, certified, and available when engaging in the property purchase process as a Chinese investor.

Narrow down your search

While our local office in Shanghai, supported by our dedicated China Desk in London can assist you throughout the journey of purchasing property in the UK capital, we have outlined a few important parameters to help streamline the process further.

• Purpose of purchase: Determine if you are buying the property for personal use or as an investment.
• Consider property size: Decide the number of bedrooms and bathrooms you need. One and two-bedroom properties generally have higher rental demand and yield, making them appealing for investment.
• Identify the location: London has 32 boroughs, each with unique characteristics. Choose the specific area or borough where you want to buy, considering factors like proximity to amenities, transport links, schools, and neighbourhood qualities.
• Select property type: Choose between an older property with character, a new property purchased off-plan (to be completed in the future), or a recently completed property in a new development. Each type has its unique advantages and should be selected based on your preferences and investment goals.
• Understand leasehold: Many properties in London are leasehold, meaning you own the property but share responsibility for building maintenance and communal areas with other owners. Lease terms can vary, with newer developments typically offering leases ranging from 125 to 999 years.

Know your budget

Under the existing double taxation agreement (DTA) between the UK and China, rental income earned by Chinese residents from UK properties is subject to taxation in the UK. It is important to note that Chinese residents who are not UK residents are not eligible for a personal allowance in the UK.

Once you have determined your budget and the amount you intend to remit from your bank account for purchasing a property in London, it is essential to consider the additional costs associated with the purchase. These costs include:

Purchase price: This is the actual price paid for the property, taking into account any applicable discounts from the developer or seller.

Legal fees to the UK solicitor: Typically ranging from £1,800 to £4,000, depending on the property area and value. In London, property documentation must be prepared and reviewed by UK solicitors exclusively.

Property maintenance charges: Annual Service Charge: Estimated at £3-6 per sq ft, paid annually to the developer for property maintenance.

Annual Ground Rent: Estimated at £200-600, paid annually to the developer.

Stamp duty land tax (SDLT):

Applicable for non-UK resident individuals:

• Property value up to £300,000: Tax rate of 6.67%, equivalent to £20,000.
• Property value up to £500,000: Tax rate of 8%, equivalent to £40,000.
• Property value up to £700,000: Tax rate of 8.57%, equivalent to £60,000.

Miscellaneous disbursements: Approximately £500 to £700, including miscellaneous transaction charges paid to solicitors or other parties. Examples include insurance fees, developer's solicitor engrossment fees, search or due diligence fees, and transaction handling charges.

Mortgage lender's fees: Approximately 1% of the loan amount, payable to the mortgage lender if financing is required for the property purchase.

Furnishings (Optional): Our in-house furnishings arm offers services tailored to various home design preferences.

It is crucial to be aware of these additional costs when planning to purchase a property in London. Our team is available to assist you throughout the process and provide further guidance as needed.

Viewing & shortlisting properties

When shortlisting properties and making informed decisions, viewings are crucial in the London property-purchase process. Our team is dedicated to assisting you throughout this stage and offers two options for viewings:

• Physical viewings:
  With 21 local branches covering all of London and a team of property experts, we can arrange in-person property tours for you. Once we receive your travel dates to London, we will create a tailored itinerary for guided physical tours of the properties you have shortlisted. These viewings will provide you with a firsthand experience of the properties, allowing you to explore their amenities and assess the surrounding areas.
• Virtual viewings:
  Our team can conduct detailed property discussions with you through video calls using platforms like Zoom or WhatsApp. We offer personalised one-to-one virtual tours of the properties you are interested in. During these virtual viewings, we will share photos, videos, floor plans, and layouts of the properties. Additionally, we can showcase strategic apartment selections and provide views from the apartments and the development, ensuring you have a comprehensive understanding of each property.

Making an offer & reserve

Once you have chosen the property you desire, we will assist you in presenting your offer to the developer or seller and guide you through the entire process.

Before making an offer, consider the following:

• Resale or completed properties: When making an offer on a resale or completed property, full payment is typically required upon making the offer and exchanging contracts
• Under-construction or off-plan properties: For under-construction properties, the payment structure is usually staged and aligned with the development timelines. To secure your preferred property, an initial reservation fee, often called token money, will be necessary. This payment reserves the property exclusively for you. After the reservation, there is typically a 28-day period to exchange contracts and make a payment of 10% of the property purchase price.

Our team is here to guide you through the offer and reservation process, ensuring that you are well informed and supported every step of the way.

Instructing your solicitor

In the UK, the involvement of a solicitor is essential for all property transactions. We have established connections with many independent lawyers who specialise in property transactions. We can provide you with a recommended list of experienced solicitors or conveyancers. Once you have reserved a property, your solicitor or conveyancer will handle all the necessary documentation and ensure your interests are protected throughout the purchase process.

List of documents required by your solicitor or conveyancer:

• Proof of identity: A valid current passport (a valid UK visa is not mandatory).
• Proof of address: You can demonstrate this through a utility bill, driver's license, bank statement, building society statement, credit union statement, or tenancy agreement. The document must be dated within the last three months.
• Proof of funds: You will need to provide 3-6 months' worth of bank statements from the account from which the funds will be remitted for the property purchase.
• Supporting documents to verify the source of funds: These documents should demonstrate the accumulation of funds over time, such as income from salary, business income, gifts, fixed deposits, sale of property, sales or liquidation of an investment portfolio, company profits, dividend payments, inheritance, insurance policies, retirement income, and other relevant sources.

Our team is here to assist you in selecting a solicitor and ensuring all necessary documentation is prepared for a smooth and secure property transaction.

Acceptance of the offer

Once the seller accepts your offer, the next step is to pay the reservation fee and sign the reservation form. After completing the reservation, your solicitor will begin preparing all necessary documents for the exchange of contracts.

Key Points to Consider:

• Adhere to the timeline: The exchange of contracts typically must occur within 28 days from the date of reservation, or as mutually agreed upon during the reservation process.
• Ensure deposit availability: As the buyer, it is your responsibility to ensure that the deposit amount is easily accessible and readily available for the exchange of contracts.
• Final payment: Upon completion of the property transaction, or at a later agreed-upon possession date for properties under construction, you will need to have the funds readily available to cover the total purchase amount, minus the deposit already paid

Conveyancing

Conveyancing is a crucial process overseen by a lawyer or solicitor that facilitates the buying and selling of properties in the UK. The typical conveyancing process includes the following steps:

• Title deed: The seller's solicitor provides your solicitor with a copy of the Title Deed, which contains the property's legal terms and conditions.
• Documentation and safeguarding interests: Your solicitor or conveyancer will handle all necessary documentation and ensure your interests are protected throughout the purchase of your new home. They will address any queries or concerns on your behalf.
• Local searches: Solicitors can conduct local searches to gather relevant information about the property and its surroundings. They can also inquire about the furniture, fixtures, and facilities provided within the development or property.

Exchanging contracts

Up until the exchange of contracts, the buyer and seller are not legally bound to the transaction. However, once the contracts are exchanged, both parties are legally obligated to fulfil the agreed-upon terms and conditions.

Key points to remember:

• Timeline: The exchange of contracts usually occurs within 28 days from the date of reservation.
• Deposit payment: During the contract exchange, the agreed deposit, typically ranging from 10% to 20% of the property purchase price, is paid.
• Off-plan or under-construction properties: Payments are usually made according to pre-established timelines that have been mutually agreed upon.

Snagging or inspection of the properties

For first-time snagging or pre-inspection, ensure that any outstanding issues or defects get addressed before you receive the property.

Snagging process:

• Inspection meeting: An inspection meeting is scheduled with the developer, during which a snag list is provided. This list details items requiring attention or rectification, covering a range of issues from minor paint splatters to significant concerns like faulty doors or leaks.
• Property features demonstration: During the inspection, the developer will demonstrate all the features of your new property, including the functionality of central heating and hot water systems, lighting, switches, electrical consumer units, and more.
• Identifying deficiencies: If any lapses or shortcomings are identified during the inspection, they can be brought to the developer's attention for prompt resolution.

Completion of purchase

Completion marks the final stage of the property purchase process. At this point, you will make the remaining payment to your solicitor, calculated as the Total Purchase Price minus the Deposit paid at the exchange. Your solicitor will then transfer this balance to the seller's solicitor.

Congratulations on completing your purchase and officially becoming the legal owner of a property in London!

Stamp duty

After completing the property purchase, it's crucial to fulfil your obligation of paying Stamp Duty, a percentage of the property value. This payment must be made within 14 days of exchanging contracts. Your solicitor will assist in calculating the exact amount of Stamp Duty and handle the preparation of your stamp duty land tax return (SDLT).

One stop service

At Benham & Reeves, we offer a comprehensive one-stop service tailored for overseas property buyers in London. Our range of essential solutions ensures your investment journey is seamless:

• Furnishing & refurbishment: Our sister company, InStyle Direct, specialises in furnishing and interior design solutions for both investment properties and self-use properties. From cost-effective designs to complete interior design solutions, InStyle Direct handles everything, including refurbishment services such as painting, bathroom or kitchen upgrades, and full renovations.
• Lettings: Our top-notch lettings services ensure we find high-quality tenants willing to pay competitive rents. With 21 strategically located offices throughout London, we have extensive coverage of all desirable investment areas.
• Management: Our dedicated team takes care of rent collection, promptly depositing it into your account. We also handle any maintenance issues and ensure tenants responsibly maintain the property.
• Bill Payments: We eliminate the hassle of managing service charges, ground rent, and utility bills by handling the payments on your behalf. Rest assured; these essential expenses are taken care of without inconvenience.
• Tax return service: As part of our comprehensive services, we offer assistance with the preparation of personal tax returns for our overseas clients. Our expert team understands the complexities involved and ensures your tax obligations are met efficiently and accurately.