Mortgage Differences Between the UK and the USA

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Both the USA’s and UK’s mortgage systems have similarities. They are well-planned, complex, and trillion-dollar markets. But not entirely, as they still differ. Enough to put you in a bad mortgage.

So, are you a UK resident and planning to buy a house in the USA or vice versa? And you don’t want to become another victim of a high-interest mortgage rate? Then you must know how the two mortgages differ. Don’t fret; you’ll learn the top five mortgage differences between the USA and the UK in this post.

But the critical question is, can you buy a house in the UK if you’re a US resident? Or vice versa? 

In a word, yes. You can, but you must know about the country’s mortgage system and have the required documents. 

So, here are the top mortgage differences between the UK and the USA.

Fixed-Rate and Variable-Rate Differences

The fixed-rate mortgage system is standard in the American market. 

But, what is this system? A fixed-rate mortgage is a home loan system whose interest rate remains constant throughout the loan term. You set a fixed rate, and it stays the same until you have paid the total amount. 

People prefer fixed-rate mortgages because they are more predictable. They know what they will pay every month.

But in the UK, variable-rate mortgages are widely bought. 

In variable-rate mortgages, the interest rate varies with the market. That means it’s never constant but changes as the market changes. This makes it riskier because it makes the monthly payment if the interest rates go up. On the other hand, these can be beneficial if the rates drop. 

These days, many variable-rate mortgages set an SVR (standard variable rate) which is a rate set by the lenders. However, this can also change at any time.

While in the long term, variable-rate mortgages are more affordable than the fixed rate. But, the monthly payment is less in the fixed-rate mortgage system.

Long and Short Interest Tenure Differences

US citizens like long tenure mortgages. The two most popular mortgage products are 15-year and 30-year fixed-rate mortgages. The average maturity age of a mortgage is over 23 years. Because of the popularity of fixed-rate mortgages, Americans like to pay small monthly payments, even if it’s for years. However, the loan term is generally not stretched this long.

When compared with the UK, the results are shocking. The respective average mortgage term of the UK is only 3.5 years, and the USA’s is 23.3 years. 

Differences in the Credit Scoring Processes

Unfortunately, your credit score calculated in the USA is not valuable in the UK because both countries follow different processes. Here are the top two things that differ:

  • Lenders use the electoral register to extract and validate your information in the UK. In contrast, the SSN (Social Security Number), a nine-digit code given to each individual in the United States, is used for verifying your identity.
  • Lenders in the UK use their process to calculate credit scores and do not rely on agencies, while in the USA, the scores provided by the credit agencies hold the most value.

Capital Gains in the US, not in the UK

Americans have to pay capital gains (the maximum long-term rate is 20%) on the sale of a principal residence. When the net investment income tax is also included, which is 3.8%, the overall tax rate for Americans becomes 24%. Interestingly, UK citizens do not have to pay any tax.

But, the Americans living in the UK are not free. They still have to pay this American tax with a unique “citizenship-based” approach. Most of them have had a bad experience; the reason is silly, though – they learned about it after selling the property.

UK Agents Represent Sellers, USA Agents Represent Buyers

In America, people (buyers) prefer to work through a real estate agent who shows the properties in an area. Not so in the UK; real estate agents like working with property owners. If UK buyers want to buy a property, then they should make an appointment with the agent for him to show the properties listed.  

This is why Americans don’t hesitate to hire an agent to simplify and explain the home buying process in the UK. 

So, the mortgage systems of the USA and the UK are similar and yet noticeably different. But if you’re determined to buy your dream house, then you must keep these differences in mind. At the same time, do your research.  

Make sure you don’t live that nightmare. Instead, you live in a beautiful house by getting a sweet deal on the mortgage interest rate. 

Ref : THSI-2699 / ZD.24176

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