Step-by-step guide to buying property in the UK for
Israeli homebuyers & investors

Arranging Your Finances

As an Israeli citizen looking to purchase property in the UK, it is important to consider the monetary aspects and plan your finances carefully. We highly recommend arranging your finances in advance and determining the amount of money you can allocate for the purchase within the fiscal year. By taking this proactive step, you will have a clear understanding of your budget and be better prepared to explore suitable properties.

To provide additional benefits to investors, Israel's liberal foreign exchange controls have eliminated numerous restrictions on overseas transactions that were previously in place. These include:

Foreign investments by individuals: Israeli individuals are now free to invest abroad without significant restrictions, including investments in land and real estate. Previously, such investments were primarily limited to time-sharing projects.

Managing bank accounts: Both individuals and companies can now manage bank accounts abroad, denominated in either NIS or foreign currency. Previously, this privilege was largely limited to exporters.

Unilateral transfers: All quantitative restrictions on unilateral transfers abroad have been abolished. These include support payments, gifts and transfers made by residents who have emigrated from Israel.

Holding foreign currency in cash: The restriction on holding foreign currency in cash has been lifted. Payments in foreign currency can now be made in cash or by cheque, not only between Israeli residents but also between residents and non-residents. However, it is important to note that as of January 2019, Israeli law prohibits cash payments in Israel over certain amounts when conducted between private individuals (currently set at up to NIS 50,000).

Activities in foreign currency: Engaging in activities involving foreign currency or conducting transactions with foreign financial intermediaries is no longer limited solely to authorised institutions within Israel, such as authorised dealer banks, brokers, moneychangers and credit-card companies. This change aims to enhance competition within Israel's financial sector and improve its overall efficiency.

These progressive measures have opened up new possibilities for Israeli individuals and businesses to engage in international financial activities with greater ease and flexibility. However, it is advisable to stay updated with any relevant legal provisions and consult professional advisors to ensure compliance with current regulations.

Mortgage Eligibility

Mortgage eligibility criteria for Israeli residents looking to buy property in the UK are subject to specific regulations and considerations. Here is an overview of the key points to keep in mind:

• Mortgage loan duration: In Israel, mortgage loans can typically be obtained for up to 30 years, with the condition that the loan is fully amortised by the time the buyer reaches around 75 years of age. However, the specific terms can be negotiated, as various mortgage loan packages are available, each with different complexities and interest rates.
• Mortgage package options: The mortgage package offered to buyers depends on their circumstances at the time of application. Below are some common mortgage products available:
  • Shekel-based fixed-interest loan: This type of loan features a fixed interest rate throughout the loan term, providing the buyer with the advantage of consistent monthly payments. As the loan principal decreases over time, the overall payment reduces.
  • Shekel-based variable interest rate loan: With this loan, the interest rate fluctuates based on the Prime Lending Rate set by the Bank of Israel every six weeks, rather than being tied to inflation.
  • Foreign currency-based loan: Israeli buyers can also opt for a mortgage in a foreign currency, such as Dollars, Sterling or Euro. The interest rate for these loans is typically based on the LIBOR (London Inter-Bank Offered Rate) of the respective currency, plus a fixed premium set by the lender.
• Deposits, Mortgage Payments, and Mortgage Brokers: The lender determines whether the buyer is eligible for a mortgage and the associated terms. For Israeli residents, a minimum deposit of 25% of the property purchase price is generally required, while foreign residents may need to provide a minimum of 50%. The lender assesses various factors based on a point system, including the buyer's age, marital status, family size, and the availability of a guarantor or co-buyer.

Engaging a mortgage broker who specialises in international mortgages can be advantageous to navigate the process effectively and secure the most suitable mortgage arrangement.

Documentation

As an Israeli investor purchasing property in the UK, it is important to have the following documentation ready, including the names of all buyers involved:

• Proof of identity: A valid current passport (A valid UK visa is not mandatory).
• Proof of address: Provide one document dated within the last three months, such as a utility bill, driver's license, bank statement, building society statement, credit union statement or tenancy agreement.
• Proof of funds: Include three to six months' bank statements from the account that will be used for remitting funds for the property purchase.
• Supporting Documents for Source of Funds: Provide documentation demonstrating the accumulation of income from various sources over time, such as salary, business income, gifts, fixed deposits, property sales, investment portfolio liquidation, company profits, dividend payments, inheritance, insurance policies, retirement income and more.

All these documents must be certified by a currently practising professional, such as a licensed conveyancer, solicitor, chartered accountant with a practising certificate, qualified lawyer or attorney or a notary.

It is crucial to ensure that all the required documents are properly prepared, certified, and readily available when engaging in the property purchase process in the UK. This will help facilitate a smooth and efficient transaction.

Narrowing Down Your Search

While our local office in Tel Aviv will assist you throughout the process of purchasing property in the UK, we have outlined a few important parameters that will help streamline the process further:

• Purpose of purchase: Determine whether you are buying the property for your personal use or investment purposes.
• Consider property size: Define the desired number of bedrooms and bathrooms. Note that one and two-bedroom properties often have higher rental demand and better rental yields, making them attractive for investment purposes.
• Identify the location: London consists of 32 boroughs, each offering its own unique characteristics. Pinpoint the specific area or borough where you wish to purchase the property, considering factors such as proximity to amenities, transportation links, schools and desired neighbourhood attributes.
• Select property type: Decide whether you prefer an older property with character, a brand-new property purchased off-plan (with completion in the future), or a recently completed property within a new development. Each option has its advantages and considerations, so choose based on your preferences and investment strategy.
• Understand Leasehold: It is important to note that many properties in London are leasehold. However, this does not mean you do not own the property. Leasehold properties often exist in shared buildings, where owners collectively share responsibility for building repairs, maintenance and communal areas. Lease terms can vary, but newer developments typically offer leases ranging from 125 to 999 years.

Know your budget

Under the existing double taxation agreement (DTA) between the UK and Israel, rental income earned by Israeli residents from UK properties is subject to taxation in the UK. However, Israeli residents are generally exempt from further tax liability in Israel, subject to specific exemption conditions. It is important to note that Israeli 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 the UK, it is essential to consider the additional costs associated with the purchase. These costs include:

• Purchase price: The actual price paid for the apartment, 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 the UK, 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 the UK. Our team is available to assist you throughout the process and provide further guidance as needed.

Viewing & shortlisting properties

When it comes to shortlisting properties and making well-informed decisions, viewing plays a crucial role in the process of purchasing a property in the UK. Our team is dedicated to assisting you throughout this stage and offers two options for viewings:

• Physical viewings: With 21 local offices 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 that you have a comprehensive understanding of each property.

Making an offer & reservation

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

Before making an offer, it is essential to consider the following factors:

• 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. In contrast, for under-construction properties, the payment structure is usually staged and aligned with the development timelines.
• Under-construction or off-plan properties: To secure your preferred property, an initial reservation fee, often called token money, will be necessary. This payment serves to reserve 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 navigate 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 a range of independent lawyers who specialise in property transactions. We can provide you with a recommended list of experienced solicitors or conveyancers to choose from. Once you have reserved a property, your solicitor or conveyancer will handle all the necessary documentation and ensure that your interests are protected throughout the purchase process.

To assist your solicitor or conveyancer, you will need to provide the following documents:

• 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 be required 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.

Acceptance of the offer

• Once the seller accepts your offer, the next step in the property purchase process is to pay the reservation fee and sign the reservation form.
• Following the completion of the reservation, your solicitor will commence the preparation of all necessary documents for the exchange of contracts.
• It is crucial to adhere to the timeline for the exchange of contracts, which typically must occur within 28 days from the date of reservation or as mutually agreed upon during the reservation process.
• As the buyer, it is your responsibility to ensure that the deposit amount is easily accessible and readily available for the exchange of contracts.
• 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 that has already been paid.

Conveyancing

Conveyancing is a vital 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:

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

Exchanging contracts

Until this point, the progress made by the buyer and seller was not legally binding. However, once the exchange of contracts takes place, both parties become legally obligated to fulfil the agreed-upon terms and conditions.

• The exchange of contracts usually takes place within 28 days from the date of reservation.
• During the contract exchange, the agreed deposit, typically ranging from 10% to 20% of the property purchase price, is paid.
• For off-plan or under-construction properties, payments are typically made according to pre-established timelines that have been mutually agreed upon.

Snagging or inspection of the properties

When it comes to off-plan properties, particularly for first-time owners, it is vital to inspect before taking possession. This process, commonly known as snagging or pre-inspection, ensures that any outstanding issues or defects are addressed before you receive the property.

• Typically, an inspection meeting is scheduled with the developer, during which a snag list is provided. This list comprises a detailed inventory of items that require attention or rectification. It covers a range of issues, from minor concerns like paint splatters to more significant matters such as faulty doors or leaks.
• During the inspection meeting, the developer will demonstrate all the features of the purchased property to you. This includes showcasing the functionality of central heating and hot water systems, lighting, switches, electrical consumer units and more. If any deficiencies or shortcomings are identified, they can be brought to the developer's attention for prompt resolution.

Completion of purchase

Completion is the final stage of the property purchase process, where you make the remaining payment to your solicitor. This payment is calculated as the Total Purchase Price minus the Deposit paid on exchange. Your solicitor will then transfer this balance payment to the seller's solicitor's account.

Congratulations are in order as you complete your purchase and officially become the legal owner of a property in the UK!

Stamp duty

Once the property purchase is finalised, it is important to fulfil your obligation of paying Stamp Duty, which is a percentage of the property value. This payment should be made within 14 days of exchanging contracts. Your solicitor will assist in calculating the precise amount of Stamp Duty and will handle the preparation of your stamp duty land tax return.

One-stop service

At Benham & Reeves, we provide a comprehensive one-stop service for overseas property buyers in the UK, offering a range of essential solutions to make your investment journey seamless, these include:

• Furnishing & refurbishment: Our sister company, InStyle Direct, specialises in furnishing and interior design solutions for 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 who are willing to pay competitive rents. With 21 offices strategically located 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. You can have peace of mind knowing that 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.