Surge in demand for UK property by foreign investors
The UK has always been popular with foreign property investors – especially London. We explore why, including laying out some key points of attention for foreign investors thinking about buying in London. We’ll also consider if the new tax on foreign buyers will dampen foreign investors’ appetite for London property.
Why is London so popular for foreign investors?
There were worries about what impact Brexit would have on the London property market, but the city remains a winning location for foreign property investors. London’s fabulous infrastructure, safety record, political stability and history of welcoming foreign investors means that the UK was never really going to be out of consideration for foreign investors for long.
The pound also decreased after Brexit, and foreign investors looked to take advantage of the lower exchange rate. While the lower exchange rate wasn’t necessarily good news for businesses, foreign investors could effectively get more for their money, and many looked to purchase a property.
The Stamp Duty Holiday
Unsurprisingly, the UK’s stamp duty holiday fired both foreign and domestic demand for London properties. Foreign investors looked to profit from the possible savings on London and UK property purchases.
The Hong Kong British National (Overseas) (BN0) visa scheme launched in January this year. If granted to individuals, the visa will allow Hong Kong citizens with British National (Overseas) status to live in the UK for up to five years. Dependent family members will also be able to come to the UK under the scheme.
After five years, they can apply for permanent settlement in the UK and later apply for British citizenship. The scheme has been highly popular, with unprecedented numbers of applicants and passports issued to Hong Kong British Nationals (Overseas). Hong Kong buyers have snapped up UK property as a result.
Has COVID-19 affected foreign interest in UK property?
COVID-19 certainly affected foreign investors looking to buy properties in London. There was an initial pause at the start of 2020 when foreign investors (especially those in China, Hong Kong and other Asian countries that were hit by the pandemic first) regrouped and worked out how they would respond to global economic uncertainty. What quickly became clear was that London was becoming a global frontrunner for property investments with rocketing demand for homes, record transactions and rising house prices. As a result, foreign investors looked to get back in the frame, although travel bans made visiting London a challenge, and there was a slowdown in transactions as a result.
What to consider before buying property in the UK as a foreign investor?
London properties remain sound investments. However, you’ll still need to make sure you make a good purchase in the right part of the city. Understanding your goals is an important part of the process and will affect your search and the property you buy. For example:
- Do you want to invest in a buy-to-let in prime central London?
- Would you be comfortable renting to students?
- Will you keep the property for a long time, or is it a medium-term investment?
- Would you consider commercial property, or do you only want to buy residential?
- Are you open to redevelopment, or do you want to buy something ready to rent or already occupied?
London FS would be happy to talk you through any of the above. We can help you identify the types of property, location and renters that will likely be a good match for you and will help you secure the returns you want.
Why mortgages for foreign investors*?
For many people, there’s an impression that if someone is looking for an ‘investment property’, they have bucketloads of cash just sitting in the bank. This isn’t necessarily the case. While you are likely to be in a good financial position and maybe have more than one income stream, your cash is likely to be tied up in investments, or it might not be easy to access at the moment you want to purchase your property.
Mortgages are ideal for these kinds of situations. They allow you to buy an investment property without having to sell important investments or assets to access cash.
Many foreign investors find a mortgage is actually more advantageous than buying in cash. Mortgages allow you to keep hold of your assets rather than selling them to buy the property outright. You may find purchasing a property with a mortgage offers some taxation benefits, too.
With record low mortgage rates, mortgages can make a lot of sense from a financial perspective, too. And because London is such a magnet for foreign investors, it’s usually easy to secure a mortgage from lenders, even if you’re not based in the UK.
Mortgages can also be a great option if you’re looking to renovate or develop an investment property as you’ll have more of your own funds to spend on refurbishment. Alternatively, you can borrow to cover part (or the entire cost) of the project.
Overseas Buyer Surcharge
We can’t talk about London as a magnet for foreign property investors without talking about the Overseas Buyer Stamp Duty (also known as the Overseas Buyer Surcharge). The surcharge came into force in April this year and effectively means that foreign buyers will pay additional stamp duty on any UK property they purchase. The Overseas Buyer Surcharge will cost the equivalent of 2% of the property price.
The Overseas Buyer Surcharge comes in addition to the Stamp Duty on Second Home surcharge. If you already have a property in the UK (i.e., you’re buying a second property or have several investment properties), you’ll now need to pay an additional surcharge on every additional property you buy. The stamp duty rate on second homes depends on the purchase price of your property and is due in addition to the overseas buyer’s surcharge.
London has shown that it continues to be a strong and appealing location for foreign property investment. While the overseas buyer’s surcharge (and second property stamp duty) is hardly something to celebrate, the returns on London property and the outlook for the city make a convincing case for continued investment.
The duties will certainly put some foreign investors off. Still, we don’t believe it will discourage most overseas property investors: London is just too attractive as an investment location, especially for investors looking to buy in the prime areas of the market.
How can we help?
If you’re a foreign investor looking to buy a property investment in London, the London FS team would be delighted to help you. Get in touch to discuss your needs, options or to ask us any questions about mortgages or the property market.
You can send us an email at firstname.lastname@example.org or give us a ring on +44(0)2084275057.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
Nothing contained within this communication should be construed as advice. Please seek individual professional advice relating to your personal circumstances.