An additional 2% stamp duty surcharge will be introduced for foreign investors next month. Will overseas buyers still invest in UK property after this takes effect?
From 1 April 2021, a new 2% stamp duty surcharge will come into effect for overseas-based investors. This will be on top of the existing rates of tax. The government says the idea behind the policy is to bring down house prices and put the emphasis back on homeownership within the UK.
For years, the UK property market has been a major target for overseas investors. This has continued at strong levels. Overseas investors even ranked the UK as the best residential property investment hotspot for this year.
Many foreign buyers and investors have been snapping up property across the UK before the additional stamp duty surcharge comes into play. While some may view this new rate as a deterrent, many won’t be put off as there are numerous factors making investment in UK property so appealing.
Low mortgage rates
Interest rates are at low levels, which makes mortgage borrowing cheaper. Mortgage product numbers are currently on the rise, which is providing more choice for investors seeking mortgages. At the same time, interest rates are increasing. However, there are still very competitive rates out there. If overseas buyers act quickly, they could lock in attractive mortgage rates.
Fall in sterling
In recent years, the sterling has fallen in value. The Brexit uncertainty, which was then followed swiftly by the COVID-19 pandemic, has kept the value of the sterling low. This has made the UK more attractive for overseas investors. The exchange rates are particularly appealing for Chinese and Hong Kong investors in particular.
Housing is continually under high demand in the UK as there is a major shortfall in supply. Demand in the rental market has also remained strong. Rents have even been on the rise, despite the economic uncertainty. Because of this strong demand and shortfall in supply, investors often can earn impressive yields, especially when investing in growing areas.
Strong long-term forecasts
The UK is a top property investment hotspot, and the property market is continuously performing strongly, even through adversity. The UK is often viewed as a safe haven for international investors, and demand in the sector is continuing to outstrip supply.
Recently, Savills projected UK house prices will increase by 21.1% in the five years to 2025. In other regions, there are even higher property price forecasts, especially in the north of England and Midlands.
During 2021, foreign investors are forecast to continue purchasing UK property at strong levels. This will especially be the case once international travel resumes to a more normal level later, which is expected to happen later in the year.