Commercial Insurance Articles
Foreign investors 'unlikely to affect to UK housing market'
17 Sep 2009
Recent research has shown that more foreign nationals are looking to invest in the UK property market, suggesting that the recession could leave a legacy of a more cosmopolitan Britain.
Currency exchange broker World First says the number of people bringing euros into the UK has doubled in the last year.
The company reports that it has seen an "influx" of overseas investors interested in taking advantage of the weak pound and low prices to snap up a bargain.
Elisabeth Dobson, head of private clients at World First, says: "There has been an increase in interest anyway. Certainly from some of the clients we've been speaking to, a lot of them are looking to buy in the UK."
"We've got some clients in the south of France for example who've bought a holiday home a few years ago and might be selling at lower than they actually bought at, they're making it on the exchange rate anyway and their money will go much further in the UK if they're looking at buying a property," she adds.
Meanwhile, London mayor Boris Johnson has recently committed to bringing in overseas businesses to the UK by offering them 12 months free rent for commercial property in the capital, which has been welcomed by the British Council for Offices.
Industry expert Malcolm Harrison, who has 25 years of experience in the housing market, says it is difficult to excess the level of investment coming from overseas as foreign buyers do not usually show up on statistics.
He explains that external purchasers might be revealed in buying figures if they have taken out a mortgage in the UK, but if they have acquired finance from their own country then their presence in the British market is unlikely to be discernible.
Nevertheless, he agrees that it is quite possible that buyers from abroad will be looking to these shores for an investment opportunity.
"There's no doubt about it, the bargain hunters are out in the market now and have been for months. In other words, they're recognising that we must be getting close to the bottom," he confirms.
"You don't wait for the bottom of the market because nobody quite knows when that happens and it can turn round and be going up before you know about it so it is quite common for bargain hunters in any market to be out at this stage," he continues.
Mr Harrison asserts that it makes sense for foreign nationals who have the available finances to come to the UK.
However, the potential difficulty for overseas buyers, as for anyone entering the buy-to-let or investment market for the first time, is a lack of knowledge about the sector.
"They may not have a sense about what area to go to so they have got to be extremely well advised about what location to go to and the type of property," he states.
Mr Harrison explains that they must do their homework so that they know which areas have mid to low-priced properties that are more affordable, offer a better rental yield and are open to a bigger market of prospective tenants.
It is well documented that the housing market is struggling, although the latest figures from the British Bankers Association suggest that it may be turning around.
The organisation reported that the UK's high street banks approved 28,179 mortgages for house purchase last month, up from 24,278 in January.
Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors (Rics), argues that these results show that the recent increase in buyer interest documented in Rics research is channelling into completed transactions and more people buying property again.
However, he also stresses that the level of activity in the market is still not far from its historic low and that it is too early to start predicting the recovery of the beleaguered sector.
So could the injection of cash from abroad help it to bounce back?
"It certainly won't do it any harm. I would be surprised if the level was sufficient to make a big difference," says Mr Harrison.
Furthermore, what about expats? World First's research found that the dramatic drop in value of sterling has resulted in many former British residents selling up and coming home.
Last month, the cost of living in the eurozone was 20 per cent higher than a year ago, meaning many expats and second home owners who are financing their property and life abroad on their sterling pension or savings are struggling, the company reports.
Mr Harrison says that the statistics on this trend are limited, but that it is certainly true that former British residents are selling up and coming home.
"It's probably not a bad time on the exchange rate because they can probably make a profit provided they didn't buy very recently," he says.
However, similar to the increase in foreign buyers coming to the UK, Mr Harrison does not see this helping the property situation.
"I don't see expats coming back making much of a difference to the domestic housing market because a lot of them are in an unfortunate position," he asserts.
What might happen, according to Mr Harrison, is that people will return to the UK and rent rather than trying to buy a property.
However, those who have earned or have cash reserves in euros will feel much better off and many are liquidating their assets on the continent to buyroperty in the UK, as their money will go further, according to the World First's research.
Land Registry figures released last month showed that house prices fell by 0.8 per cent again in January to an average £156,753, which represents a 15.1 per cent decline year on year, so for there are bargains to be had for those who have the finances.
Overseas investors may be particularly interested in snapping up a coveted London property, as year-on-year values in the capital fell for the seventeenth consecutive month in January, with the average price standing at £306,183.
