Buying UK property from overseas
09 August 2022
The UK’s property market continues to hold up very well, despite geopolitical tension and macroeconomic uncertainty around the world.
And while it remains to be seen whether a changing interest rate climate will contribute to a cooling period, there is no doubt that the UK retains its global status as one of the hottest property markets.
Gravity-defying prices are being fuelled by demand outstripping supply. And the post-pandemic return of international buyers is also expected to rejuvenate the all-important London market – which has seen some of the slowest growth – and further strengthen the sellers’ market.
But in the face of such stiff buyer competition, is there still sufficient opportunity for foreign buyers to purchase attractive properties?
According to Lucian Cook, Head of Residential Research at Savills, the answer to that question is a resounding ‘yes’, especially when you factor in the pound’s relative weakness against many of the world’s major currencies.
“Clearly, the UK has had a very strong period of house price growth since the pandemic started, driven mainly by domestic buyers,” he adds. “It probably means there’s a bit less value on offer right now, but the currency play and long-term safe-haven benefits of UK property will continue to underpin international demand.”
One traditional source of investment in UK property is buyers from Africa. Whether it’s as an investment or a place to live whilst working in Britain, many Africa-based buyers are attracted by the stable and accessible nature of the UK property market.
“House price movements can sometimes be erratic in domestic African housing markets,” says Nav Singh, Head of International Markets at Barclays International Bank. “It is why many buyers from Africa choose to grow their property wealth more securely in the UK, or to set up a home-from-home there.”
The post-pandemic UK property market
If you’re thinking of buying a property in the UK any time soon, it’s worth taking a step back to get a broader sense of the market.
When the UK went into lockdown during the peak pandemic panic in late 2020, it triggered a surge in interest in properties outside of congested towns and cities, in a trend labelled as the “race for space” – with homebuyers prioritising properties with extra rooms and spacious gardens, while the need for office proximity decreased.
Now there are signs emerging that urban living is once again regaining its allure. The gradual return to ‘normal life’ is seeing buyers wanting to be closer to city centre amenities and work.
“It’s certainly not a binary thing that once the pandemic is over, we’ll go back to normal,” says Tom Bill, Head of UK Residential Research at Knight Frank.
“The race for space is still there and a factor in the market, albeit a less frenetic one. The genie is also well and truly out the bottle now in terms of people looking at how and where they want to live. It’s going to be a few years before we find the new norm.
“But I do think the market in general is looking like it’s peaking, after the double-digit house price rises over the last year or so – as more properties come on to the market to match demand. Nevertheless, we’re still expecting prices to stay in positive territory over the next five years.
“The one exception is prime central London, which is on a different trajectory entirely to the rest of the country. After a quiet few years, the capital is now on its recovery path. And this recovery is going to get ever more noticeable when international buyers start coming back in more meaningful numbers.”
The so-called prime central London area stretches from Chelsea to Camden, and Notting Hill to Westminster – where apartments tend to dominate in the traditional golden postcodes. It’s also in easy reach of the capital’s major transport hubs, including Heathrow Airport.
But there are other affluent areas across the UK that also continue to present good buying opportunities – especially for overseas buyers.
“Outside of prime central London, high-net-worth buyers will tend to buy near good schools or somewhere with good access to central London and the airports,” adds Bill. “Along the A3, M3 and M4 motorway corridors remain popular for these reasons. Elsewhere, it can be more property-focused and waterfront properties are another evergreen choice.”
If you are on the hunt, it’s worth asking yourself a few important questions before completing any purchase: Perhaps you prefer the space of a house, or the convenience of a city-centre apartment. Or you’re looking for an out-and-out investment, and don’t envisage living in the property? Maybe you’d like somewhere to rent out to tenants, before eventually moving in yourself when you relocate to the UK? And if you are looking for an investment, what yield would you be targeting?
And for any parents reading this article, you might also want to consider schools ahead of purchasing a property which you later live in. It’s a topic which we covered in our recent article, Moving to the UK? Do your homework to find the right school for your child.
Step-by-step guide to buying a UK property
“What overseas buyers first need to understand is our rather weird freehold and leasehold system,” says Jeremy McGivern, Founder of Mercury Homesearch, a property search company.
“A lot of international buyers are instantly put off by the idea of leasehold, which seems at first like glorified rent and which can dramatically narrow their choice of properties unnecessarily.”
It’s also a good idea to get prepared for the rigorous process that’s about to follow.
“We advise our clients to have their finances in place, as well as their tax situation sorted which is always a moving feast, well before they even speak to an estate agent,” adds McGivern. “A lot of our clients will also use finance to purchase a property, not because they need it, but because it makes sense from a tax perspective.”
And for McGivern, the topic of yield is an important one, but it shouldn’t be a deal breaker.
“Most people think with an investment you have to look at the yield,” he says. “But if you look historically at prime London property, most of the gains come through the capital increase in the value of the property. You must look at the entire investment returns.
“But I do think it’s an interesting time to be buying property across the UK right now.”
Finding the right mortgage
Buying a property from overseas can often be more complicated than buying locally. You will need to do your research, as well as seeking expert advice.
“Foreign residents acquiring property in the UK are typically looking to achieve specific goals which means they will have to consider a number of factors when arranging real estate financing,” says Stephen Moroukian, Product and Proposition Director for Real Estate Financing at Barclays Private Bank
“The post-pandemic world is making people think about how they will use their property in the future. And this means considering new locations or property sizes as well as how to best use the equity accumulated over the years of ownership.
“And you’ll need to know the risks involved, as well as having a good grasp of the local laws. But with everything in place, there’s no reason why you can’t make your UK property dream a reality.”