Falling house prices, high mortgage rates – should UK expats buy a house now?

With UK Base Rate currently at 5% (July 2023) and house prices apparently falling in the UK, is now a good time to invest in a buy to let UK mortgage, if you are an expat? First the facts – house prices are falling, if only relatively, but it also depends over which time period you look. The data on UK house prices, like any statistic, can be manipulated to fit more or less any argument, so it pays to look over a longer period, as that should give a more helpful picture.

Have UK house prices fallen? The UK Government Office for National Statistics (the ONS) has just published its latest report on UK house prices. The report states that prices have both fallen and risen, so in the nine months to June 2023, they fell on average against the most recent peak, September 2022, but over a longer period, the year to June 1st, they still rose by 1.9% on average.

Rents rising fast

For the UK expat buy to let buyer who is looking at long term UK property investment, one that will yield both a good rental income and the prospect of long term capital growth, the news is positive. Average rental rates have risen by 5.1% in the 12 months to June, according to the latest ONS Index of Private Housing Rental Prices. Rightmove estimate rents have risen on average 33% in the last 5 years. Check the rentals listings on Rightmove.co.uk, a property portal and you will see one bed flats in London renting at over £3000 per month in popular areas, such as Wandsworth. Whilst that might be extreme, there are many listings for two and three bed homes all over London which now start at £2500 and range to £3500, substantially higher than in the pre pandemic period, for example.

Is now a good time to take on an expat buy to let in the UK?

Most agree, it is impossible to try and time the market, but what is certain is that with UK house prices falling over the last few months, many sellers are prepared to take lower offers and that can help offset higher short term mortgage costs. Take the example of a 70% mortgage on a £400,000 property. That’s a mortgage of £280,000, not unusual in our experience as UK expat mortgage brokers. Twelve months ago, the interest rate for a 5 year fixed rate expat buy to let mortgage could have been 3.75%, now it is likely to be just over 6%. Put another way, that has potentially added just over £550 per month to a typical expat interest only mortgage bill. Over the full five year term, that is just over £34,000 you could pay in extra interest.

Discouraging, for sure. But look at this in the context of falling house prices and sellers desperate to find a buyer. In the current market, we see clients offering 10% and sometimes 15% less than the asking price. Eventually buyer and seller might agree on a discount closer to 7% or 8%, but on a house priced initially at £400,000, the buyer has just recouped all that extra interest he might have to pay, thanks to a lower sale price.

And at the same time, the rental income on their expat buy to let is likely to be over 5% higher than it was 12 months ago.

If you are an expat in the USA or Hong Kong, or an expat in Dubai or Saudi Arabia or anywhere else in the UAE, you will not be subject to the same pressures as UK buyers, so once the numbers have been crunched, now could be very good time indeed to buy.