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Mortgage for Landlord living abroad

Mortgage for Landlord living abroad

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Old Dec 12th 2016, 6:52 pm
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Default Mortgage for Landlord living abroad

I moved to the US earlier this year (I was already approved for letting by my mortgage provider). But I did not tell the lender that I was moving abroad, as I knew I would be without income for several months and that they would not allow it.

As far as they know, I have been living in the UK this whole time. But I have been living in the US for almost a year now and have been working for almost 6 months.

It is more than likely that I now meet the requirements for an overseas landlord from this lender, but I'm not sure how to approach the subject as it will become evident that I have been lying for this past year.

I have never missed or been late with a payment though.

I would appreciate any advie. Thanks!
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Old Dec 12th 2016, 7:36 pm
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Default Re: Mortgage for Landlord living abroad

Your house is in the UK?

There was another thread on this topic very recently, and the consensus was that the borrower should stay quiet as there is very little likelihood of the lender noticing, and even less of them actually doing anything so long as you make your mortgage payment every month.

I concur with this recommendation.
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Old Dec 12th 2016, 9:05 pm
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Default Re: Mortgage for Landlord living abroad

Thanks, yes it is a UK property.

I would certainly prefer that option; however my reason for wishing to remortgage is that my fixed term has come to an end, and the cost of my monthly payment now exceeds my monthly rental income. While this isn't the end of the world, I would like to look at whether they offer Expat mortgages.

Having said that, I've realised they are pretty few and far between, and would welcome any advice on that.
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Old Dec 12th 2016, 9:12 pm
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Default Re: Mortgage for Landlord living abroad

Based on the discussions here on BE over the past 2-3 years I suspect that obtaining a new mortgage/ refi for an investor who lives outside the UK is practically, if not actually impossible. The last time the discussion came up someone noted that HSBC had an expat investor mortgage program, but IIRC the LTV was 50% and the interest rate was about 10%!

Unless you are likely to return to the UK to live in the house you are storing up a CGT time-bomb for yourself, and selling the property is probably the best financial decision.
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Old Dec 12th 2016, 9:36 pm
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Default Re: Mortgage for Landlord living abroad

Originally Posted by Pulaski View Post
Based on the discussions here on BE over the past 2-3 years I suspect that obtaining a new mortgage/ refi for an investor who lives outside the UK is practically, if not actually impossible. The last time the discussion came up someone noted that HSBC had an expat investor mortgage program, but IIRC the LTV was 50% and the interest rate was about 10%!

Unless you are likely to return to the UK to live in the house you are storing up a CGT time-bomb for yourself, and selling the property is probably the best financial decision.
Thanks. But wouldn't the sale of the house now cripple me tax-wise also in both countries?

Also, how does CGT for expats differ from CGT for UK residents?

Thanks.
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Old Dec 12th 2016, 9:47 pm
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Default Re: Mortgage for Landlord living abroad

Originally Posted by Kat88 View Post
Thanks. But wouldn't the sale of the house now cripple me tax-wise also in both countries?

Also, how does CGT for expats differ from CGT for UK residents?

Thanks.
If you previously lived in the house and only moved out of the house recently, in the past 18-36 months (at the date of sale), then there is likely no CGT due in either country. There may be a "gain" caused by the fall in the USD cost of repaying the loan because of the fall in the value of GBP since you took out the mortgage (that you were living in the UK at the time has no bearing on this matter).

Eighteen months after you moved out, if you sell the UK will want to assess CGT on the gain, and if you sell more than 36 months after you moved out, so will the US.

Where you live has no impact on UK CGT, but a US resident will have to calculate CGT for thr IRS too.

Last edited by Pulaski; Dec 12th 2016 at 9:49 pm.
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Old Dec 12th 2016, 10:02 pm
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Default Re: Mortgage for Landlord living abroad

Originally Posted by Pulaski View Post
If you previously lived in the house and only moved out of the house recently, in the past 18-36 months (at the date of sale), then there is likely no CGT due in either country. There may be a "gain" caused by the fall in the USD cost of repaying the loan because of the fall in the value of GBP since you took out the mortgage (that you were living in the UK at the time has no bearing on this matter).

Eighteen months after you moved out, if you sell the UK will want to assess CGT on the gain, and if you sell more than 36 months after you moved out, so will the US.

Where you live has no impact on UK CGT, but a US resident will have to calculate CGT for thr IRS too.
Thanks. I just wish the pound was better right now, this is not a great time to sell.

I am currently in the process of selling another UK property at a significant loss, and I really don't want to suffer a second loss. I don't make a lot of money, this is my grandmother's life savings that I inherited and now lost s ton of it. I just want to know the best place to keep it for my retirement.

Won't CGT only affect any money I make on the property at time of sale? (Sorry for dumb questions.) i.e. Even if I pay my mortgage off using rental income, won't I only pay tax on anything above the price it was sold to me at when I come to sell it? Or will I have to pay tax even if it sells at the same price, because the tenant has been paying and not me?

e.g. If I buy a house for £100,000 with a £70,000 mortgage. I let it out and in 25 years the mortgage is paid off (let's assume all by the tenant, indirectly). I then sell the house for £100,000. What CGT do I pay?

Last edited by Kat88; Dec 12th 2016 at 10:09 pm.
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Old Dec 12th 2016, 10:34 pm
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Default Re: Mortgage for Landlord living abroad

I don't know about you, but it is scaring me that you are asking these questions now, about things that you should have thought about before.

For starters, the method of financing the purchase has no bearing on the tax calculation for the property. Under US CGT there is also a possible taxable "gain" on the loan.

Under US tax law you are required to depreciate the property each year - by 2.5% of the value of the building (but not the land - a starting point to estimate this given that the land is not typically valued separately in the UK, is that the building is worth 80% of the purchase price, but less if the land has redevelopment potential) each year over the first 40 years of ownership. The effect of depreciation is to reduce the purchase price in the CGT calculation, so if you bought the property for £125,000 and owned it for ten years you would have depreciated £25,000 off the value (2.5% x 10 x 80% x £125,000), so if you sold for £125,000 after 10 years you would pay CGT on £25,000 (i.e. the amount depreciated) less any CGT paid to HMC&R which calculates CGT in a VERY different way.

Then the matter of US CGT on the loan. Suppose you borrowed £100,000 when the exhange rate was $2:£1 and over ten years paid off £20,000. When you sold after 10 years the exchange rate is $1.25:£1. The £80,000 left on the loan was originally worth $160,000, but at $1.25:£1 will only cost $100,000, to pay off, so from the perspective of the IRS you have profited by $60,000!

I strongly recommend that you find yourself an experienced tax accountant PDQ, and one who understands the tax issues of international real estate investments.

Last edited by Pulaski; Dec 12th 2016 at 10:38 pm.
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Old Dec 13th 2016, 4:03 am
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Default Re: Mortgage for Landlord living abroad

Originally Posted by Pulaski View Post

Eighteen months after you moved out, if you sell the UK will want to assess CGT on the gain.....
One additional detail I understood, only on the gain in value since April 2015, when CGT was introduced in the UK for non-residents.
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Old Dec 13th 2016, 4:34 am
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Originally Posted by Mercury39 View Post
One additional detail I understood, only on the gain in value since April 2015, when CGT was introduced in the UK for non-residents.
Yes, that is correct. .... I knew I was forgetting something when I posted earlier. ....The US goes after the whole gain though, and there's no indexation allowance either.
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Old Dec 13th 2016, 4:56 pm
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Default Re: Mortgage for Landlord living abroad

Do you get double taxed even with the tax treaty - or do you just end up paying the higher of the 2 rates?
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Old Dec 13th 2016, 5:13 pm
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Default Re: Mortgage for Landlord living abroad

Originally Posted by H Bomb View Post
Do you get double taxed even with the tax treaty - or do you just end up paying the higher of the 2 rates?
Effectively the higher of the two rates - you pay who has first dibs, which is now the UK, then get a credit to set against what the US charges. For the foreseeable future, I would say at least five years, the US CGT is likely to be the larger amount but eventually it will be much more evenly balanced between what the two countries levy as CGT - sometimes the UK will charge more, and sometimes the US.
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Old Dec 13th 2016, 5:15 pm
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Default Re: Mortgage for Landlord living abroad

Originally Posted by H Bomb View Post
Do you get double taxed even with the tax treaty - or do you just end up paying the higher of the 2 rates?
I'm not tax professional, and do suggest the use of one in such matters. But no you shouldn't end up paying tax twice, you will be able to make a claim for a foreign tax credit. Complexity comes, as previously mentioned in the thread, that calculations differ between the US and the UK on how to work out the gain. But that a side you will just end up paying the higher of the 2.
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Old Dec 13th 2016, 5:18 pm
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Default Re: Mortgage for Landlord living abroad

That's not too bad then.

We kept our house in the UK in case we went back, however going back is now looking unlikely (at least for the foreseeable future). So we are just leaving it sitting there with tenants paying our mortgage.

We remortgaged to a better rate last year - but that only involved clicking a few buttons online with our current bank. They do know we no longer live in the house and that we do not even live in the country - but it seems departments do not speak to each other and as you say as long as you make the payments each month they do not really care.
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Old Dec 13th 2016, 6:43 pm
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Default Re: Mortgage for Landlord living abroad

Some States will also charge CGT and may or may not give you an allowance for taxes paid elsewhere. Most States , maybe all , do not have a tax treaty with the UK
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