Domestically, property investment activity in the UK is slow at present. Thanks to uncertainty about the up-coming EU referendum and the after-effects of the 3% stamp duty increase on non-main residence property purchases last month, many investors feel that this is simply not the right time to buy.
For some international investors, though, things are very different. Investors from the US, in particular, are finding the situation in the UK property market encouraging right now.
This is, at least indirectly, the result of some of the same factors which are putting domestic investors off. The most important factor behind this is definitely the relative weakness of the pound. The UK’s currency has been shedding much of its value lately, due in no small part to uncertainties about the country’s economic future as the referendum on EU membership approaches. Sterling is trading at a particularly low point at the moment against many other major currencies, not least the US dollar.
While some international investors share the same view as domestic investors – that the lack of certainty about the UK’s post-referendum property market is a reason to delay investing – others are being drawn by the advantages of a depreciated pound. US buyers, especially, are being drawn to the UK for the opportunity to buy properties while exchange rates are tipped in their favour. With the Federal Reserve increasing interest rates late last year, and with further increases expected, the dollar is rising in value as the pound falls so that the effect is even more marked for US buyers than those in most other countries.
With the pound trading significantly weaker against the US dollar, investors from the USA are finding that the same amount of money is going a lot further when buying sterling-priced properties than it would have a while ago. This gives US investors an effective discount, and a significant one, which may not be maintained for much longer depending on the direction things take after UK voters take to the polls to decide on the future of their country’s EU membership.
According to one prominent agent, Douglas & Gordon, prices in some of London’s most exclusive and expensive areas have dropped by an average of 1.8% since June. When this drop in values is combined with the pound’s depreciation against the US dollar over the same period, US buyers have seen these prices effectively drop by 18.5%.
The strong position of the dollar against the pound easily cancels out the stamp duty increase, which would otherwise be as off-putting for US buyers as for domestic investors, and delivers a significant discount on top. It is not hard to see, therefore, why some US investors are braving the uncertainty in order to buy while this situation lasts. If the UK were to vote to leave the EU, its economic future would become all the more uncertain, yet it is widely predicted that the pound will become even weaker. Some sources predict up to a 20% drop in value for the UK currency in the event of a “Brexit,” which could lead to the same trends in investment activity becoming all the more marked.