Investing in UK Property from Overseas
The UK’s property market is widely considered a safe haven for property investors. In this feature, property consultancy Town Square Invest outlines all you need to know about investing in UK property from overseas.
(Originally published in 2021.)
Is the UK property market a safe haven for overseas investors?
The popularity of the British property market and its ‘safe haven’ status has attracted foreign investors for many years, with investors flocking to the UK from all corners of the world with investors from Asia, the Middle East, South Africa, and Europe favouring the UK’s property market.
Following the financial crisis back in 2008, the UK’s property market remained robust, especially when compared to previously strong markets such as the US, Australia and UAE where, in some places, property prices declined by 65%. The UK’s property market was naturally affected by the crisis however, the reductions were not as severe as elsewhere, which meant the UK retained its popularity.
In the years following the global economic crisis, UK property values climbed at a rapid pace, and with the country formally in a state of economic recovery since mid-2014, the property market’s appeal continued to attract investment from around the world.
Despite Brexit and the Covid-19 pandemic, there are many reasons to be positive about the UK property market. Even at a time that could be described as ‘uncertain’, the sector appears to be improving all the time, with both capital gains and potential returns expected to continue to grow in the months and years ahead.
For those investing in UK property from overseas, the regional predictions for the UK market are generally favourable, with experts from Savills expecting to see growth average growth of 21.1% by 2025.
Best of all, traditional hotspots like London are no longer the most profitable options for overseas buyers. According to Savills, investors have an opportunity to take advantage of the lower entry-level prices and varied property options available across the regions that offer a faster rate of growth than what is predicted in the capital.
Savills, one of the largest organisations in the UK, predicted that despite Covid-19 – prices are expected to finish this year 4% higher than at the end of 2020.
As the UK’s successful vaccination rollout continues and lockdown comes to an end, new confidence in the market will likely see further investment into the property market from UK and overseas investors.
The Rise of the Regions
Over the last few years, one of the main positives for the UK property sector and investors has been the rise of the regions.
As values skyrocketed in the capital, regions outside of London – including commuter belt areas in the East of England like Brentwood – have started to gather momentum from buyers and renters alike. In recent years, where property prices in London have significantly outpaced wage growth, savvy buyers and renters who want more space for their money have shifted their search to areas that offer excellent transport links into the capital. This rise in demand has seen property prices and rents outpacing the growth seen in London.
And it’s not just locations with easy access to the capital that have benefitted from rising values.
According to Zoopla’s April 2021 House Price Index, in the year to April 2021, average London values climbed by 2% and notably under the 4.1% UK average. When compared to regional cities in the north, Liverpool (+6.9%), Manchester (+6.8%), Birmingham (+4.7%), and Newcastle (+3.9%), these prominent UK cities are seeing significantly stronger rises than in the capital.
The lower entry level of these markets has also seen rents climb at a faster pace, with HomeLet’s May Index highlighting that rents in London continue to fall year-on-year, with a 0.9% drop between May 2020 and May 2021. When compared to the rest of the UK, 11 of the 12 regions monitored by HomeLet showed a year-on-year increase in rental value, with the East of England (London commuter belt area) increasing by over 8%.
Overseas investors considering UK property investment should pay attention to market trends to help underpin their returns and, with a shift towards a hybrid of office and remote working, areas outside of the capital are showing a real shift in power.
Did you know that the UK is the world’s most ‘transparent’ property market?
The UK is widely considered a ‘safe haven’ for property investors and has a proven track record in delivering rental returns and capital growth. With a clear buying process and strong property ownership laws, the UK attracts investment from all corners of the globe.
According to the Global Real Estate Transparency Index published by JLL, the UK remains the world’s most transparent market for real estate investing. The index also included popular investment areas London, Manchester, Birmingham, Edinburgh, and Glasgow in the world’s top 15 most transparent cities.
This independent acknowledgement further enhances the trust and stability of the UK’s property market for overseas investment and provides an additional layer of security for international buyers searching for a secure market to invest their money in.
“Transparency in all areas of real estate remains a key priority for investors, businesses and consumers and we need to ensure that it continues to improve further and faster to compete with other asset classes and meet heightened expectations about the industry’s role in providing a sustainable, resilient and healthy built environment.”
Is overseas property a good investment?
Before investing in a UK property, it is always important to consider your motivations and what you want to achieve from your investment.
A buy to let property investment provides investors with the opportunity to secure a monthly rental income and house price gains over time however, it is advisable to establish exactly what you want to achieve before investing.
It is not for you if:
- You are looking for a visa
- You or a relative want to live in the property
- You are looking for a holiday home
- Need to flip for a quick profit
This investment is for you if:
- You want to enter a stable property market
- You want to secure reliable rental returns
- You understand that property values fluctuate
- You are looking for a fully managed asset
What is the best property investment in UK?
According to a 2020 Savills report, following ten years of gains, UK housing stock now worth a record £7.39 trillion.
The same report highlighted that the value of the UK’s private buy to let market has doubled over the same period and is now worth a staggering £1.62 trillion (up 124% over the last ten years). The number of available privately rented homes on the market has increased by 50%.
With the demand for buy to let property unable to keep up with demand, residential buy to let investors are still able to profit from this lucrative market segment. New build apartments in prime locations often offer some of the highest rental yields available on the market.
The UK’s student property sector is another key market that has delivered reliable and consistent rental returns over the last 10 years.
Once a niche asset class, the Purpose Built Student Accommodation (PBSA) sector has delivered some of the highest returns available on the market today.
This market segment is worth around £60 billion (Cushman and Wakefield) and is considered a popular choice for portfolio diversification.
Before entering an investment, it is important to establish your exit strategy for selling your UK property.
With xxx transactions, there is an unprecedented demand for UK property means selling your UK property is a simple process.
If you have purchased a residential buy to let property, you will need to find a local estate agent to assist the sales process. If your property is fully managed, they will be able to work alongside the estate agent to arrange viewings.
If you own a student property, check to see if there is a buyback option in your contract and the terms that are in place. If there is no buyback in place, your first point of call should be the management company that operates the building – they may have a waitlist of buyers or they may wish to purchase your property themselves. No matter what type of property you are selling, you will need to appoint a solicitor to oversee the sales process and to ensure that all the necessary legal paperwork is in place.
As a foreign investor, do I need a visa to buy property in the UK?
No, foreign and overseas investors do not need a visa to purchase a property in the UK as a foreign investor.
Although you do not require a visa, you must seek independent advice to determine the best approach for your property purchase from an experience expert.
What taxes do I need to pay while buying a property in the UK?
If you are considering buying an investment property and you are based overseas, it is important that you seek independent tax advice to determine your financial responsibilities and tax obligations.
The HMRC website states that if you live abroad for 6 months or more per year, you’re classed as a ‘non-resident landlord’ by HM Revenue and Customs.
VAT
It is not common to pay VAT on residential property purchases however, commercial property transactions may be subject to VAT. Whether a commercial property transaction is subject to VAT will depend on a number of factors, mainly being whether it is regarded as a “new” property or whether the seller has opted to tax the property. If you are buying a commercial property, it is worth seeking independent advice from a trusted company to ensure that you understand your obligations.
If you are considering purchasing an investment property in the UK, speak to your appointed solicitor to determine your financial obligations. They will be able to provide you with information related to the property you plan to purchase.
Stamp Duty Land Tax
From 1 April 2021, different rates of Stamp Duty Land Tax (SDLT) will apply to purchasers of residential property in England and Northern Ireland who are not residents in the UK. The rate is 2% higher than those that apply to purchases made by UK residents.