The UK economy is slowing, Brexit has split the country, the pound is plunging and Boris Johnson is the new Prime Minister. Who would want to buy a property in a country like this?
Answer: you might.
For many UAE residents, now could be a once-in-a-lifetime buying opportunity, especially if you have always dreamed of a bolthole in London but been scared away by the sky-high prices.
House prices fell 4.4 per cent in London in the year to May, the largest drop since August 2009 when they fell 7 per cent, according to the Office for National Statistics, and with transaction levels also well down you might be able to negotiate a further discount.
Grainne Gilmore, head of UK residential research at global consultancy Knight Frank, says Boris Johnson’s to-do list may be dominated by Brexit, but addressing the pressing issues in the housing market across the UK will also be key.
“Housing delivery in England needs to rise by 25 per cent to meet the Government’s target of 300,000 new homes a year by mid-2020,' he says, adding that the new prime minister has made no secret of his desire to reform stamp duty, which could "help unlock some parts of the market where the fees to buy a new home have escalated rapidly in recent years".
For UAE residents, their US dollar-pegged UAE dirham earnings will travel much further, given current sterling weakness.
On June 22 2016, the day before the EU referendum, a London property costing £500,000 (Dh2.28 million) would have set you back $735,294 (Dh2.7m). Today, the same priced property would cost you $621,300. That’s $113,994 less, purely on exchange-rate movements.
It is hardly surprising that local banks and mortgage brokers report that UAE residents are targeting London again.
There are risks, though. Guy Foster, head of research at Brewin Dolphin, says the clock is now ticking on the October 31 deadline for leaving the EU. "Britain's great blonde hope in the Brexit battle has 100 days before one of three things must happen: a deal, a no-deal exit or no Brexit.”
He says Mr Johnson is playing the same thinly disguised game of bluff as predecessor Theresa May, albeit with more enthusiasm. “Sterling is clearly discounting significant woes ahead.”
Gaurav Kashyap, head of futures at EGM in Dubai, says the next few weeks could be quiet, as Parliament takes a summer break on Friday and does not return until September 3.
At time of writing, the pound trades at $1.244. “I expect it to trade between $1.2380 and $1.26 through the summer, although the dollar may weaken if the US Federal Reserve cuts interest rates by 50 basis points on Wednesday. The volatility will really kick off when the politicians return in September,” Mr Kashyap says.
If you fancy snapping up a London property, however, there are some things you need to know.
First, London isn’t exactly cheap, despite recent slippage. Second, you will face a hefty stamp duty bill, including a 3 per cent surcharge for overseas buyers, investors and second homeowners, which would total £30,000 on a £500,000 property.
Third, you need a decent deposit. Alina Yarovaya, marketing manager at Enness, a UK mortgage brokerage for high net worth clients, says UAE expats and locals typically need a minimum 25 per cent deposit to secure a mortgage. “If you can do that mortgage rates range from 2 per cent to 5 per cent, depending on your personal profile.”
You then need to sort out your mortgage finance; your choices include UAE banks such as Abu Dhabi Islamic Bank and Abu Dhabi Commercial Bank, international banks such as HSBC, Standard Chartered and NatWest International or UK-based lenders such as building societies Ipswich, Kent Reliance, Market Harborough and Skipton International, who all offer expat mortgages, as well as Islamic lenders such as Gatehouse Bank.
Donna Spencer, senior mortgage broker at Holborn Assets in Dubai, says you can fund your purchase with either a residential mortgage, or a buy-to-let loan. “With residential mortgages, lending is based on overall affordability. Lending for buy-to-let mortgages is usually calculated based on the yield from letting it out.”
Buy-to-let mortgages typically charge slightly more but you may also be able to borrow extra money because you can take rental income into account.
Ms Spencer recommends borrowing in sterling where possible, as this will shield you against future currency shifts. "Look beyond the headline interest rate as booking fees, early repayment fees and arrangement fees can all add up.”
Arran Summerhill, managing partner at mortgage broker Premier Property Finance in Dubai, says UAE banks moved into the UK buy-to-let market a few years ago, using branch locations in London. “Originally they focused on Greater London but will now lend in most major cities in England and Wales.”
Many lenders will only consider lending on buy-to-let investment properties. “Lending on self-use or vacation homes will be calculated on your provable UAE income,” Mr Summerhill says.
Typically lenders will have a minimum income threshold; this can vary dramatically between providers so a discussion with a broker about your requirements will simplify the process.
UK lenders will advance funds in sterling whereas the UAE lenders will lend in dirhams, Mr Summerhill says. “This is something to factor in as there could be major currency fluctuations as Brexit looms.
“With low variable rates, loan-to-values (LTVs) up to 75 per cent and the pound weakening there has not been a more accessible time to move into the UK property investment market.”
Tariq Abdulla, head of home finance at UAE Islamic bank Adib, says it offers UK home financing for Emiratis and expatriate residents for properties in Greater London of up to 65 per cent loan-to-value on terms of up to 20 years. "The application process is straightforward, you can use our website, call centre or branches. As part of our verification process, you will need to provide a valid salary certificate, copies of your IDs and recent bank statements.”
Applicants need a minimum monthly income of Dh50,000 or a minimum of Dh5 million turnover for self-employed customers.
Mr Abdulla says Adib provides finance in dirhams whereas the price of the property is valued in pounds sterling, so allow for currency risk.
ADCB International Mortgages Services, meanwhile, offers finance across London and surrounding counties Buckinghamshire, Hertfordshire, Essex, Berkshire, Middlesex, Surrey, Kent and Sussex. It may consider other areas in England and Wales on a case-to-case basis, but neither Scotland nor Northern Ireland.
HSBC Expat offers both residential and buy-to-let mortgages for Emiratis and expatriates, and Marwan Hadi, head of retail banking and wealth management in the UAE, says interest is growing. “International customers require a minimum salary of £50,000 equivalent and the maximum LTV is 75 per cent, subject to loan amount and a maximum buy-to-let lending limit.”
Aaron Strutt at UK mortgage broker Trinity Financial says some mortgage lenders charge arrangement fees of £999, while others will insist on a 2.5 per cent arrangement fee, so compare carefully.
He says Standard Chartered Bank will lend to UAE residents buying in the UK but the property must be in a prime area of London.
Mr Strutt adds: “HSBC has some great rates and they are available to UAE residents in Abu Dhabi, Ajman, Dubai, Fujairah, Ras Al Khaimah, Sharjah and Umm Al Quwain, provided your annual income is at least Dh1m or equivalent in an approved currency. Also, your net assets must be valued at a minimum of Dh5m or currency equivalent.”
Local UK lenders such as building societies tend to restrict their expat mortgages to British nationals or those with family in the UK, Mr Strutt says.
Ipswich Building Society, for example, offers decent interest rates with low arrangement fees, he says. “Kent Reliance often has more flexible acceptance criteria but its rates and fees are pretty high. We have arranged a lot of expat mortgages through Market Harborough as it will lend where others will not.”
Lenders tend to like UAE-based expatriates, Mr Strutt adds. “They like applicants to work for multinational firms so they can find them on their systems.”
UAE-based residents and expats have a great buying opportunity but like the Brexit-weary Brits themselves, they may need nerves of steel in the uncertain months ahead.
