Prospective property investors based overseas could benefit from the latest fall in the pound against the dollar, as the lower exchange rate makes UK property cheaper.
Yesterday (21 September) saw the Bank of England hold its interest rate at 5.25% in a move that surprised many investors. The decision was made based on the UK’s economic outlook, as well as encouraging inflation figures from August that showed the CPI hit 6.7%, down from 6.8% and a better result than expected.
The announcement also coincided with a drop in the value of the pound, which fell by around 0.9% to its lowest rate in six months of 1.2292 against the dollar. The exchange rate had been progressing in the opposite direction since July, with the pound climbing against the dollar to around 1.3132 on 13th July.
Eagle-eyed property investors based overseas in countries whose currencies are pegged to the dollar will likely see the latest news as a positive trend, as it makes investing in the UK from overseas cheaper than when the exchange rate is more competitive and the pound is performing more strongly.
How the exchange rate affects investment
Recent statistics show that Hong Kong buyers continue to be some of the most prolific investors in UK property. Research from Benham and Reeves earlier this month found that Hong Kong nationals actually own around 10% of UK buy-to-let property.
In recent years, activity in the UK housing sector has been spurred on by the property market’s sheer strength and resilience through turbulent times, while Hong Kong buyers have also increased significantly in number since the rules changed on British Nationals (Overseas) visas.
However, the exchange rate seems to have almost certainly played a part. Back in September 2022, in the aftermath of then-Prime Minister Liz Truss’s mini-budget, the pound fell against the dollar to a level not seen since 1985, to 1.0697.
This meant overseas buyers looking to benefit from the exchange rate could secure hefty discounts on their purchases. While the exchange rate now is much stronger towards the pound, it is still seen as a positive position for buyers from abroad, including Hong Kong, to secure UK property.
A strong housing market
The Bank of England’s decision to maintain the existing interest rate is certainly an encouraging sign for borrowers, and many mortgage lenders have actually been reducing their fixed rates for a number of weeks, as well as adding more deals to their offerings.
While most economists acknowledge that the future remains uncertain in terms of the UK’s financial outlook and interest rates, with some still predicting a further hike from the Bank of England in the autumn, there are plenty of signs that the housing market is holding strong.
The latest house price index from the Office for National Statistics (ONS), which looks specifically at sold prices, revealed earlier this week that house prices in the UK increased by 0.6% in the year to July. While this is a slowdown from past results, it still demonstrates a modest rise in the market.
The north of England experienced the biggest price rises overall, with the north east leading the way with a 2.7% year-on-year house price increase. Yorkshire and the Humber followed with a 2.5% rise, while the north west’s prices increased by 1% – all above the national average.
Commenting on the ONS’s figures, Nigel Bishop of buying agency Recoco Property Search, said: “Although July’s market activity didn’t quite compare to that of July 2022, we were still seeing buyers determined to find a property as soon as possible.
“The market has been particularly driven by cash buyers who are not faced by higher interest rates but we have also seen house hunters who adjusted their budget or search criteria in order to find a suitable property. Sellers, on the other hand, who have been eager to part from their property have also been more open to price negotiations.”
If you’d like more information about how the exchange rate could affect your property investment, get in touch today. You can also browse some of our current property investment opportunities here.
