The new landscape for UK property investors – still good value
A new landscape for UK buy to let property investors
As the Brexit trigger is pulled, the reaction of many expats to last year’s UK Brexit vote was to stay on the sidelines, avoid committing to any major new purchases and take the view they wanted to “see what would happen to UK house prices” according to expat mortgage brokers, Offshoreonline.org.
However, an equally if not larger number of investors took the view that with Sterling sliding a significant 10% to 15% against the US dollar and therefore against any currency pegged to the US dollar, such as the currencies of the Middle and Far East, this was a once in life time opportunity, with prices effectively reduced by up to 15% for overseas UK buy to let investors. How does this work? If yesterday the pound was trading at $1.46, as was the case in May 2016 and in March 2017, it is trading at $1.24, that is a 15% reduction or put another way, an overseas holder of US dollars or any US dollar linked currency, e.g. UAE Dirhams now needs 15% less to buy the same amount of sterling to invest in UK buy to let property.
At the same tie time, the UK economy has continued to grow at rates which have surprised commentators and markets alike, suggesting domestic demand, for the moment at least, is still strong. Certainly the UK economy looks to be in better shape than many others, with UK house prices growing 6.2% in the year to January 2017 or 0.8% for the month, according to the UK Land Registry. Compare those figures to the returns available on sterling deposit accounts and other lower risk investments and it is easy to see why UK buy to let property remains a very attractive option for many, with capital gains and a running rental yield of around 4% in the better towns still widely available.
Other headwinds include new UK buy to let rules introduced in January 2017 by the UK Financial Conduct Authority, which now oblige buy to let lenders to “stress test” loans on the basis of higher notional interest rates. The net effect of this has been to drive down the amounts expat buy to let investors can borrow or to oblige them to increase deposit contributions to something between 25% and 35% of the purchase price, depending upon the type of property being bought. That said, interest rates remain very attractive, with lifetime tracker rates from 2.49% available and expats are canny enough to know that by making significant deposit contributions, they will access the best interest rates.
The other change to affect the market has been the number of lenders picking and choosing the countries abroad where they want to lend to expats. The Middle and Far East both remain well served, as does Europe, but other areas, such as Australia and India are more problematic, but not impossible. This growing complexity and apparent inconsistency underlines the value of using a UK regulated buy to let mortgage broker when buying from abroad to guide buyers through the new UK property landscape.