UK Property

Expat Briefing Editorial Team, 18 September, 2014

United Kingdom property is still seen as a "safe haven" investment for foreigners and expats in an uncertain financial and economic world, especially in the last couple of years when values have appreciated strongly. But a flurry of recent data suggests that the party may be coming to an end.

Even though gross mortgage lending increased by 7% in July 2014 to hit its highest monthly figure in six years, international and UK mortgage lenders said pressures on budgets could start to dampen housing market activity.

Figures from the Council of Mortgage Lenders (CML) showed that a total of GBP19.1bn was advanced to borrowers during the month, 15% higher than the GBP16.7bn recorded in June 2013 and the highest figure since August 2008.

The pick-up in lending follows a slowdown in the wake of the mortgage market review in April, which brought in new rules on affordability tests for borrowers and forced lenders to "stress test" applicants to ensure that they could still meet repayments if interest rates rise. The new rules only affect those applying for main home loans and not buy to let purchases.

The CML said activity had "remained robust" despite the changes, but warned the market still faced "headwinds".

Recent data from surveyors and the property website Rightmove suggested the market has started cooling in recent weeks, as more homes have been put up for sale and the supply-demand balance has shifted in favour of buyers.

That was backed up by the most recent UK Land Registry data which showed prices more or less went sideways in June. Whilst many parts of the country actually experienced a slight decline in values, London, for so long the engine room of average price growth, ground to a halt, recording just a 0.1% rise for the month.

The latest UK residential house market survey by the Royal Institute of Chartered Surveyors (RICS), published on September 11, confirmed that prices in the UK moderated and buyer demand declined for a second consecutive month.

The RICS survey found that house price momentum slowed to the same level it was a year ago and new buyer enquiries fell for the second consecutive month. The number of agreed house sales also dipped for the first time since September 2012.

Significantly, the concern over a potential rise in interest rates could be a contributing factor to the fall in buyer interest and the number of agreed house sales. Members also indicated that more stringent mortgage application rules and an increasingly acute shortage of conveyancers are adding between 2-4 weeks onto the time it takes to complete a transaction.

However, RICS sees the slowdown more as the market reaching a plateau than the edge of a cliff. Prices over the next 12 months are still projected by surveyors to rise by 2.3% across the whole country, although this is down from the 3.7% price growth predicted at the start of 2014.

Of note was the finding that RICS members now expect price gains over the next year to be faster outside of London, than in it. Indeed, there are increasing signs according to RICS that the London market is gradually moving onto a more sustainable footing with a modest increase in the number of instructions coming through slowly helping to create a better balance with demand and, in the process, taking the edge off price gains.

However, Hometrack's latest monthly national housing survey suggests that the reversal in fortunes in the London market over the last six months has been "stark." Hometrack says that in February this year 87% of London postcode districts witnessed a price increase over the month compared to just 11% in the latest survey. The proportion of the asking price achieved has fallen from 98.8% to 96.4%. 

"The latest survey continues to point to clear evidence of slowdown, particularly in the London market," commented Richard Donnell, Director of Research at Hometrack. "This is not a huge surprise for August but the signs of a slowdown in market activity were starting to emerge back in May with evidence of growing resistance to rapid price rises in the London market. Talk of a housing bubble and warning from the Bank of England have impacted sentiment while tougher affordability checks for mortgages and rumblings around interest rate rises are starting to make buyers think twice."

Land Registry data shows that the average sold price in London went up by GBP15,000 in July 2014 to just over GBP457,000, about ten times average income. This compares to an average price of GBP175,563 across England and Wales, which is still short of the GBP181,442 peak reached in November 2007.

However, signs of a slowdown taking place in the prime London property market are few and far between, with demand driven as before by foreign investors. The average sale price of prime property in central London between June and August 2014 was GBP4.7m, up from GBP3.7m in the preceding three month period according to Knight Frank. This is despite the Government's efforts to forestall a London housing bubble with new tax measures on high-value property purchases.

Interestingly, UK expats are now targeting properties at the cheaper end of the market according to data from Find UK Property, a UK-based company that specializes in finding properties for overseas investors.

Sales to expats and to non-UK nationals of properties worth GBP70,000 or less had risen by 55 percent during January to June, 2014, against the same period in 2013. The most popular properties were worth between GBP55,000 and GBP70,000 coming with full management, repair guarantees, and guaranteed rent.

Find UK Property said that many residents of other countries see the UK as a "safe haven" when considering long-term property investment, with well-regulated selling laws and clear title ownership.

Andy Noble of Find UK Property explained that investors are being forced to look beyond London due to high prices. He said that Find UK Property's best-selling house costs GBP54,999 and delivers a rental yield of eight percent, while a comparable two-bedroom property on the outskirts of London could cost over GBP250,000 and deliver a rental yield of just three percent. Noble added that less expensive properties often have greater potential for capital growth, and also give investors greater flexibility.

Brits Look To France

Meanwhile, International mortgage brokers have witnessed a surge in interest in expatiates looking for euro mortgages to buy in France, as interest rates there continue to fall.

The latest survey of overseas buyers of second homes in France carried out by bankers BNP using data supplied by notaries from across the country paints a mixed picture of the health of the French property market, but puts the Brits firmly back in pole position as buyers.

Transaction volumes are continuing to fall, down from just under 15,000 in 2012 to just under 13,000 in 2013, but the average price paid and the amount of the loan advanced have both held up well – average house prices now stand at EUR448,000, with the average euro mortgage amount being EUR354,000.

But the real change was seen in the number of Brits who are once again buying second and holiday homes in France. One in four foreign property buyers was British in 2013, a rise of 5% over the past two years. British buyers are comfortably ahead of Belgian, Swiss and Italian buyers, who make up the next biggest groupings.

Commenting on the figures Tim Harvey, managing director of said that, with UK house prices having recovered "it was just a matter of time before UK buyers began selling in a strong market at home and banking gains to buy abroad. France represents a popular choice for many and French values have weathered the economic crisis far better than Spain's prices over the period since 2007, making France a sound investment in its own right."

Whilst the most expensive parts of France remain Paris, the ski areas and the Cote D'Azur, Brit buyers have shown themselves to be canny, securing far better value in the more rural parts of France, dominating purchases in the Loire, Charente and Limousin areas, accounting for between 70% and 80% of all foreign transactions here.  In contrast, British buyers took just 3% of homes bought in the Paris region by foreign buyers, 17% in the Alps and 10% on the Cote D'Azur.

Tags: accounting | interest | Tax | budget | Offshore | investment | France | Spain | United Kingdom | law | banking | tax |


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