The growth prospects for the UK property market mean it offers excellent possibilities for overseas investors looking to add to their portfolio. The current economic climate, strong dollar and sliding pound mean the UK has some excellent investment property opportunities compared to alternative countries.
The Market Position
The UK property market offers the potential for around 15% price growth by 2025, and rental yields are also on the rise. Buy-to-let and investment property purchasers have seen the market’s resilience. With all that has been thrown at it, including Brexit, extensive tax changes and a global pandemic, have only sought to show the strength and resilience of UK properties to withstand volatile times and come through them.
With growth forecasts showing a strong trend of rising property prices, and higher rental yields set to continue, the UK property market certainly offers the firm foundations essential to attract overseas investors.
The end of the stamp duty land tax (SDLT) holiday in September 2021 has not dampened the investment opportunities as the demand for UK property continues. On top of the SDLT, since April 2016, a further stamp duty levy of 3% on the total purchase price is payable if the second property is not your principal residence. And more recently, since April 2021, an additional 2% stamp duty levy became payable on UK property purchases for non-resident buyers came into effect in April 2021. Yet, there remains a strong incentive for overseas seeking UK property in the short term.
Investment property opportunities
The dollar’s strength against the pound means exchange rates alone provide many opportunities for anyone holding their wealth in US dollars to buy prime investment properties in the UK. However, there is more to it than simply making good savings. Investment timing and knowing when to buy and sell to maximise returns are crucial to USD buyers. It is a balancing act of rising interest rates against the exchange rate to maximise the investment potential, and something worthy of professional advice to get right.
A recent study by a leading high-value international finance brokerage, has shown the potential of a £10 million central London prime property, secured with a £6 million mortgage (60% LTV mortgage) to offer a staggering £3 million plus savings over the coming five year period to 2027. The figures account for inflation-adjusted debt and property values rising in line with expectations for the period. The calculation assumes property prices rise from 2023, high inflation will remain over the next few years, and the current USD/GBP exchange rates will remain stable for four years before reverting to historically standard levels from 2027. The scenario allowed for a five-year interest-only fixed-rate mortgage paid off at the end of the five-year term. From this we are confident that there is strong evidence supporting our conclusion that now is a good time for overseas investors to buy a property in the UK.
So, it is well worth considering finance options, as you can make good money doing that. For example you could secure a bridging loan from a top international broker, which then gives you the ability to buy such property.
Savings evidence in numbers
Exchange rates show substantial savings over the coming months, benefitting from the current low exchange rates. Based on a £10 million property purchased in October 2022, it will cost US dollar investors $11.2 million at current rates. This immediately highlights the power of the strong dollar, whereby a year ago, the same property would have equated to £13.5 million. Exchange rates are predicted to hold current levels through some of 2023, with the GBP recovering against the dollar afterwards. Of course, to benefit from these market factors means acting fast. The benefits of favourable exchange rates for US dollar investors show concrete savings. However, the relatively short window is ebbing away.
In addition to favourable exchange rates, competitive mortgage interest rates currently available add further benefits. The deposit requirement also equates to a drop from $5.4 million a year ago to $4.8million as of October 2022, further supporting the value of prime UK property as an investment vehicle for overseas investors. Our hypothetical situation of a buyer with the ability to place a 40% cash deposit and 60% LTV, securing a five-year fixed rate deal, further cements this belief.
Over the five-year mortgage period, favourable exchange rates also make it possible for USD buyers to secure further savings on paying a UK mortgage in USD. Monthly savings amount to more than 1 million dollars over the five years.
Mortgage debt caveats
USD buyers can only benefit from the mortgage repayment savings if the property is not rented out, as they lose the benefit of the favourable exchange rate on monthly repayments. Yet there remains room for considerable savings on buy-to-let properties as the current low exchange rates are still beneficial at the time of purchase and the lower deposit. They benefit from the ROI generated by the appreciation of the assets over the period. The possible rental value rises in a buoyant market and strong demand for quality rental properties in prime locations also make UK property attractive currently.
USD buyers are also well placed to benefit from the UK’s high inflation rate, although these should be considered nominal compared to the concrete benefits already mentioned. Rising inflation, whilst it will not translate to hard cash, does reduce the value of the debt, worth of being considered a saving.
Inflation is predicted to remain over 9% for the next five years, meaning inflation-adjusted debt would see a USD buyer taking on a £6 million mortgage, equivalent to £6.048 million at today’s inflation. In 2027 the mortgage is worth $7.8 million, giving buyers a saving in excess of $1.3million when the inflationary impact of sterling over the 5-year property period is considered.
Whilst the future is never guaranteed, there are undoubtedly indications that the UK property market could be considered a worthwhile investment for overseas investors. However, whilst buying property is rarely a bad investment, the current economic opportunities won’t be around for long, and the window of opportunity is getting shorter.
The UK property market is ripe with opportunities for overseas investors to add investment or buy-to-let properties to portfolios. However, there are many valuable opportunities for high-net worth overseas investors to secure competitive mortgages against UK property.