Promise amid pain in the UK property market for expats

The Bank of England raised the base rate by 0.75 percentage points to 3 per cent on Thursday

'For sale' signs in Islington, north London. PA
Powered by automated translation

Predictions of double-digit house price falls should not deter expatriate investors from the UK’s property market which still presents opportunities despite rising interest rates.

The Bank of England raised the base rate by 0.75 percentage points to 3 per cent at its meeting on Thursday.

This may at first sight suggest it is not the best time to invest for expatriates.

But other dynamics in the market, such as the weak pound and a predicted fall in prices, still make it attractive, according to experts.

“While [another] rise in Britain’s interest rate — the eighth since December last year as the Bank of England strives to contain runaway inflation — might not seem like good news for expatriates with an outstanding mortgage on a UK property, increasing borrowing costs can also present some opportunities,” said Alice Haine, personal finance analyst at Bestinvest, the DIY investment platform and coaching service.

The cost-of-living crisis, driven by inflation and soaring interest rates, is expected to precipitate a “significant” fall in house prices next year.

House prices are expected to drop significantly next year following more than two years of bumper growth, with some anticipating a double-digit drop as the squeeze on domestic spending power tightens even further,” said Ms Haine.

Savills is predicting an average fall in prices of 10 per cent, but they could slump as much as 12.5 per cent in London and 11 per cent in the south-east and east of England.

Lender Nationwide has warned they could fall as much as 30 per cent in a “worst-case scenario”. It believes a fall of 8 to 10 per cent is more likely, however.

Experts have said the crisis for the pound is now over, having recovered somewhat from its record low below $1.04 on September following the destabilising mini-budget. But it remains about 15 per cent down year-to-date. And analysts are predicting further weakness ahead over the next 12 months.

Deutsche Bank vice president and FX strategist Shreyas Gopal said: “The UK’s external financing needs remain large and, on current market pricing, real yields are still too low compared to other major currencies. As long as the global risk environment remains weak this leaves the pound vulnerable and the likely trend lower.”

That presents opportunities for expatriates who are paid in currencies pegged to the dollar, like the Emirati dirham.

“A weaker pound means their income will stretch much further, so now might be a good time to overpay on a mortgage to reduce the monthly repayments ahead of a fixed-rate deal expiring,” said Ms Haine.

“While prices are already on the turn, with a drop of almost 1 per cent in October compared to the previous month and slowing annual growth, the market will quickly switch to a buyers’ market as domestic buyers retreat amid higher living and borrowing costs, leaving a window for UK expatriates and foreign national buyers to swoop in,” she said.

Prime central London homes at bargain-basement prices post-Brexit — in pictures

The weaker pound increases expatriate deposits and buying power, with cash-rich buyers in the strongest position as they can snap up deals very quickly, said Ms Haine.

“First-time buyers will benefit even more because of the reduced stamp duty land tax charges outlined by former chancellor Kwasi Kwarteng in September, with no levy liable on the first £250,000 (£286,883) of the purchase price — softening the blow of the 2 per cent surcharge for overseas investors imposed last year.

“Beware, however, this measure may get ditched in the November 17 budget by Chancellor Jeremy Hunt in his bid to balance the books, so don’t rely on that staying in place.”

“However, waiting a few months for the market to fall further, as the myriad of local and global challenges facing the UK economy lead to more distressed sales, might be wise for those looking to secure a killer deal.”

So, if you do decide to buy, where should you look?

According to Savills, the prime property market, which represents the top 10 per cent of property by value, may prove more resilient, due to its lack of reliance on mortgages and more foreign buyers capitalising on the weak pound.

Prices are expected to fall by 7 per cent in prime outer London and just 2 per cent in prime central London, it says.

“The rarefied market in central London’s top postcodes continues to look good value in historical terms, particularly when seen in the context of the weaker sterling and strong dollar,” Frances McDonald, a Savills research analyst told The Times.

According to CMC Markets, an online trading platform, Waltham Forest in London has seen the biggest increase in prices over the last decade, of 113.6 per cent.

Thanet in Kent posted the second biggest rise, followed by Barking and Dagenham in third place, and then Hastings in East Sussex, according to analysis of Office for National Statistics data.

Hackney in London came in fifth place.

Other areas may represent more of a bargain for expat investors.

The city of Aberdeen in Scotland is reportedly the only place in the UK to have registered a fall in prices over the past 10 years.

In 2012, the average house price in the city, where prices are tied to the fortunes of the oil industry, stood at £160,525, but it is now £144,614, representing a fall of almost 10 per cent.

Updated: November 04, 2022, 7:34 AM