Just why is the UK so popular with foreign property investors?.
The UK is known around the world as a safe haven, and the latest data from EY shows that it has maintained its position as the most attractive destination in Europe for Foreign Direct Investment (FDI).
The country has retained its top spot throughout the Brexit process and the Covid-19 pandemic, managing to actually increase its share of FDI through those turbulent periods. For this reason, EY believes that the UK will maintain this position for many years to come as its underlying stability and reliability is extremely attractive to investors.
Nowhere is this clearer than in the world of property investment. The UK is incredibly popular with foreign property investors, and investment hotspots like Manchester have a strong claim to be the best property markets in the world.
But what exactly is it which makes the UK so popular with foreign property investors?
Long-term undersupply of new homes
The foundation of the UK’s strength as a property investment market is the enormous gap between demand for new homes and the available supply. According to the UK government, at least 345,000 new homes are needed in the UK every year, but their most ambitious targets will only deliver a maximum of 300,000 a year – and the actual number they delivered in 2019-20 was just over 240,000.
This shortfall of 100,000 homes a year puts tremendous pressure on the existing housing stock, and fuels demand. This lack of new homes has a dual benefit for investors. Firstly, it constrains supply for home buyers, and this lack of availability is predicted to push house prices up a huge amount in the coming years.
The latest Residential Forecasts report from JLL notes that the national average house price has been growing at its fastest pace since 2008, and projects a further increase of 21.7% by 2026. The country’s strongest housing markets such as Manchester (25.8%) and Birmingham (27%) will perform even more impressively than that. By investing in Manchester or Birmingham property, you can secure high levels of capital appreciation in a reliable, predictable way.
The second way that the UK’s housing shortage is good for investors concerns monthly rental income – a passive, regular income stream that investors can rely on. If there aren’t enough homes to buy, more people will rent, and therefore competition for homes will increase and rents will go up.
Due to supply issues, the number of renters in the UK is expected to exceed the number of homeowners by 2039; in the shorter term, competition for rents is already intensifying and pushing rents upwards. Reports from Zoopla in November 2021 show that UK rents are at a 14-year high having increased by an average of 6% in a month. In a market like Manchester, where there are fewer than 500 homes available to rent in the whole city, JLL believes that additional rental growth of more than 15% will be seen by the end of 2026.
Favourable borrowing rates
The Bank of England recently voted to maintain the base rate of interest at 0.1%, meaning that borrowing rates are going to remain at a historic low. This offers opportunities for property investors who can either borrow for new purchases while rates remain low, or remortgage existing properties to lock in low rates now before they rise.
How much of a risk is there of rates rising in the future? There are indications that 2022 could see at least one, and possibly two, rate rises which will affect those borrowing with a mortgage. Indeed, major high street lenders including Lloyds, Halifax, Barclays and Nationwide have already announced interest rate rises for some of their mortgage products, and it is likely that this signifies a slight shift in the market.
However, it is worth noting that there are still many products available at lower rates of interest which investors can take advantage of – but even if mortgage rates do rise slightly, foreign property investors should not be deterred. Even rises of a few percentage points will mean mortgage interest rates in the UK will be notably low compared to historic averages. For example, Zoopla research shows that the base rate averaged approximately 4.5% in the early 2000s.
Finally, as mentioned previously, the pace of house price and rental growth anticipated in the UK over the coming years will be far greater than any minimal rise in mortgage rates. They are set to stay at a level so low that investors looking to buy UK property with a mortgage will barely even notice – the income they will earn will make sure of that.
A stable, landlord-friendly environment
The UK has a political system that is stable and reliable and has proven itself to be resilient through multiple major economic events over the past decades. This is an important factor that property investors should consider as a stable country is a place you can trust with your money.
The political and economic system in the UK is built around the housing market, with everything from government bonds to pension funds relying on the health of property to function properly – creating a major incentive for all political parties and non-government bodies to support and encourage the market. There are very few restrictions on who can buy property in the UK, and no discriminatory laws which put foreign investors on a different footing to domestic investors.
Financially, the UK has a premium currency that is trusted around the world and contributes to the overall stability of the country and its economy – the twin foundations which support the property investment market.
Likewise, it is a simple matter to access capital and borrow to purchase in the UK through its mortgage market. As explained above, it is currently an advantageous time to borrow and buy in the UK thanks to low mortgage interest rates. These interest rates are themselves a tiny fraction of the profit that is on offer through rental income and capital appreciation.
Finally, the tax regime in the UK is simple and convenient for foreign investors. Barring a small surcharge on Stamp Duty, you will pay no more than a domestic UK investor on your profits, unlike the situation in countries like Australia where foreign investors face a different set of requirements.
You can find out more about the tax implications for overseas investors, and everything else you need to know, by clicking here.
Robust property management infrastructure in place
The UK’s success and popularity as a destination for foreign property investors has created an ecosystem of experts at all stages of the process. One of the major benefits of investing in UK property is the lettings and management structure in place following purchase and handover.
In other countries which don’t have such a robust system in place for foreign investors, there are obstacles that are hard to clear. So many aspects of letting and managing a property are extremely hard for foreign landlords to undertake, including:
- Marketing and viewings
- Furnishing the property
- Key handover and inspections
- End of tenancy inspection and checks
- Repairs and maintenance
- Bi-annual property inspections
- Rent reviews
Because of this, the vast majority of overseas investors rightly decide that it is simply not worth the hassle, time and expense to manage a property themselves and instead appoint a local expert to do so on their behalf – allowing you to sit back, earn your returns and plan your next investment.
It is so much easier to deal with a single company from the initial point of sale through to the ongoing lettings and management of your property. Having a single point of contact throughout keeps the process as hassle-free as possible, and at Opulent we are pleased to take this approach and operate our own in-house management company which can take care of everything on your behalf.
Choosing to continue your investment journey with Opulent following the completion of the sale comes with many benefits in addition to removing an enormous workload from you. As your trusted partner throughout the sale, you can rely on us to ensure that your returns are maximised, and profits are delivered efficiently and on time.
The UK is one of the most popular destinations for foreign investment in the world – and that is especially the case when it comes to the property market. The profits on offer through rental income and capital appreciation are high; the political and economic climate is friendly to overseas investors, and the infrastructure to make the process completely hassle-free is in place.
For more information about buying UK property as a foreign investor, get in touch with our team today by clicking here.