Is buying an investment property in the UK still attractive for overseas investors?

We ask if buying an investment property in the UK is still an attractive option for overseas investors.

Reasons to invest…

There are many pros to buying an investment property in the United Kingdom.

The country’s transparent property laws and attractive yields are just a few reason why many overseas investors lean towards the market.

Undersupply of property

There is a distinct lack of property available in the UK and, with the supply of new housing falling behind demand, this problem will not be solved any time soon.

According to the government, a target of 240,000 houses should be built per year in the UK however, only 141,000 homes were build last year.

What’s more, official household growth projections show that an additional 230,000 households are created per year. With the government unable to keep up with house building targets, the imbalance between supply and demand is widening.

Check out this UK property investment infographic for more information.

Rising population

The UK’s current population stands at 64.1 million and this number is expected to exceed £70 million in 12 years.

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As the UK’s population continues to rise, the demand for property will increase. And it’s not just traditional buy-to-lets which are required to keep up with the country’s needs.

New-build care homes, student accommodation and commercial property are all needed if the country wishes to correctly accommodate its residents.

A high demand for rental property has allowed many landlords to reap the benefits of the UK’s property market.

High yields and capital growth prospects

High rental returns and strong capital growth prospects are two main reasons behind overseas investment in the UK.

For a long time London has been the top choice for overseas investors buying an investment property.

According to CBRE, foreign investment accounted for 70% of all Central London investment in 2014-2015. However, rising property prices in London have shifted investor attention to prosperous regional markets.

Overseas investment outside of London has increased from 20% to around 32% in 2015.

Miles Gibson, head of UK research at CBRE UK, said: “After several years of strong investment and capital growth, 2016 will offer steadier and more sustainable returns for the commercial property market. The UK economy remains strong, underpinning the rental value growth which will form a much more important part of investor returns than in the last few years.

“Overseas investment will remain strong and increasingly diversified as London maintains its status as the global centre for property investment.”

Market changes…

UK’s buy-to-let market experienced a massive shake up in 2015.

The changes to stamp duty on buy-to-let and second homes could add up to £15,000 to the price of a property purchased by a landlord. The new rate of stamp duty will be enforced in April 2016 and will affect UK and overseas buyers.

Investors could look to reduce the amount they pay in stamp duty tax by purchasing a lower entry level property. The below table outlines the changes to the stamp duty rate.

Property value  Stamp duty rate for owner-occupiers  Stamp duty rate for second property/buy-to-let 
(No duty payable properties costing under £40,000)
Up to £125,000 Zero 3%
The next £125,000 (the portion from £125,001 to £250,000) 2% 5%
The next £675,000 (the portion from £250,001 to £925,000) 5% 8%
The next £575,000 (the portion from £925,001 to £1.5 million) 10% 13%
The remaining amount (the portion above £1.5 million) 12% 15%

 

 

The new rates will not be applied to corporate entities or funds making significant investments in residential real estate. The government is yet to decide if an exemption for corporate entities and funds owning more than 15 residential properties will be put in place.

The ramifications on the new rates are yet to be seen but they could potentially hinder overseas buyers who wish to enter the UK’s buy-to-let property market.

Tell us what you think…

Are you an overseas property investor buying an investment property in the UK? Let us know your thoughts below.

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