With the pound performing at a 37-year low against the dollar, UK property could become even more enticing to investors from the US and the rest of the world.
This week has seen another slump in the value of the pound as the market reacts to Chancellor Kwasi Kwarteng’s budget announcement that revealed a raft of new tax measures on Friday (23 September). While the currency has since recovered slightly, the economic outlook remains uncertain at least in the near-term.
One of the knock-on effects of a weak sterling on the UK property market is that investors from overseas are able to maximise their budgets due to the favourable exchange rate. For investors from the US, £1 is currently worth $1.05 (as of 28 September), which is historically exceptionally low.
In one recent report from Solomon Investment Partners using Land Registry figures, it was revealed that investors from the US are in the top 10 list of where overseas investors in UK property are currently based. As of July 2022, it came in at ninth place with 1,428 property purchases.
As the UK housing market continues to perform well with high demand and rising prices, the latest news could see a rise in interest from overseas investors.
How is US property market performing?
Meanwhile, reports indicate that the property investment landscape in the US is currently uncertain. The Black Knight July Mortgage Monitor revealed that house prices had fallen for the first time in 11 years in the US, in what many are labelling the end of the “pandemic housing boom”.
The US has also seen mounting borrowing rates, which are currently well ahead of the UK. According to Mortgage News Daily, the average 30-year fixed mortgage rate hit 6.87% this week (on 26 September), which is the highest rate since 2002 and the largest annual increase since 1981.
Overseas investors get UK property discount
As the UK continues to try and get a grip of inflation and the cost of living crisis, the UK property market is reported to be continuing to perform well, and is attracting growing numbers of buyers from overseas. Investors from the US, China and the Middle East, as well as Europe, are currently able to get more for their money in the UK due to the pound’s performance.
The recent stamp duty cuts, which have significantly raised the thresholds for millions of buyers, are expected to play a part in keeping transaction levels and buyer interest high, while maintaining strong house prices.
For investors from overseas, a 2% stamp duty surcharge still applies. However, with the new threshold and rates announcement, the discount on UK property due to exchange rates currently outweighs the additional taxation.
Edgar Rayo, chief economist at London-based finance broker, Finanze: “The UK real estate market can be more attractive to foreign buyers.
“Expect wealthy foreign investors from China and the Middle East to flood the UK property market with enquiries for property bargains just like what happened in 2016 when the pound slid to a 31-year low after the Brexit vote.
“In fact, the country secured 14% of total worldwide commercial real estate investment deals back then because of the pound’s slump.”
Driving economic growth
The current climate is undoubtedly difficult for many and filled with uncertainty. The government’s aim with its latest raft of tax cuts and changes is to increase economic activity in a bid to spark growth.
While one of the government’s priorities is to increase the ability of UK citizens to buy local property, there is a financial argument for boosting foreign investment in the country, too.
According to research from Knight Frank in association with the Home Builders Federation in 2020, every existing residential property sale carries a net contribution to GDP of £9,559. This is spread across renovations, spending on household good, removals, surveys, agent and legal fees, and other expenses.
Every 100,000 transactions in the property market, whether from local or foreign investors, also supports more than 11,500 jobs linked to the sector.
Whether Prime Minister Liz Truss’s judgement call pays off will of course become evident over time. Tom Bill, Knight Frank’s head of UK residential research, says that nobody can accuse the new government of lacking an economic vision, at least.
“If its low-tax approach extends to stamp duty, recent history tells us it will trigger higher levels of demand in the housing market at a time when mortgages are getting more expensive, which will support social mobility.
“Prices could move higher in the short term if supply initially struggles to keep up but more balanced conditions will return provided the cut is immediate and permanent.”
