Overseas investors buying up UK property have been benefiting from more favourable exchange rates in recent years, but is this set to continue?
The pound to dollar exchange rate experienced multiple ups and downs over the course of 2023, mirrored in the general economic uncertainty that came with stubbornly high inflation and interest rates and wider global issues affecting market confidence.
When exchange rates favour dollar-pegged currencies, this can be an opportune time for international investors looking at the UK property market to secure their investments. When the pound is weak, buyers get more for their money when investing from overseas, making the UK property market especially appealing.
Investors from Hong Kong are among the most prolific within the UK property market, with figures last year showing that Hong Kong investors own almost £11bn in property in England and Wales. At present, the Hong Kong dollar remains pegged to the US dollar, making these exchange rates significant.
At the moment, according to figures from xe.com, the British pound is at 1.27 against the US dollar. Despite several ups and downs, the latest trend is that the pound is gaining in momentum and getting stronger, and this could spur on more overseas investors to act now to secure the best exchange rates to purchase UK property.
Interest rates and exchange rates
The Bank of England, like the Federal Reserve in the US and institutions in other parts of the world, has kept interest rates higher after a series of hikes. At the moment, this sits at 5.25%, although the markets expect the Bank of England to begin to bring this figure down over the course of 2024.
Often, higher interest rates increase the value of a country’s currency, yet at the same time high interest rates in a country tend to attract overseas investment.
One prediction on Capex.com is that, over the next five years, the UK will avoid an official recession, but inflation could continue to be an issue. Therefore, exchange rates between the pound and the dollar could resume a “downtrend after the peak in late 2024, and trade as low as 1.10”.
However, if the economy continues to improve and the pound strengthens, this could provide further impetus for overseas buyers considering UK property investment to take action now.
The outlooks of other economists vary when it comes to exchange rates for the UK. Wells Fargo, for example, is bearish, hinting that the pound will once again fall against the dollar early this year, while the European economic forecast by the financial services company is downbeat.
By contrast, the more bullish outlook from Goldman Sachs is that exchange rates will improve for the pound, although it also believes the dollar will “maintain a strong tone in 2024, especially against the euro”.
Where are overseas investors buying?
Overseas investors have been particularly keen on snapping up UK property in Manchester and Sheffield, according to recent statistics from IP Global. Looking at searches from international buyers in 2023, it found that 21.2% of searches were for buy-to-let property in Manchester, and 20.6% for Sheffield.
Both of these cities have long since been extremely popular with property investors from across the globe, with both experiencing strong capital growth above average for the UK, and high rental demand and yields.
In terms of where investors are coming from, the biggest share is from China, making up 40% of the total, although this was down on 55% in 2022.
Investors from Hong Kong have increased in number since the British National (Overseas) visa was launched in 2021, providing a new route for immigration to the UK. This also coincided with a weakening pound, drawing more investors in thanks to the effective discount it created through exchange rates.
