UK House Prices, Currencies And The Brexit Factor

As the Brexit trigger was pulled, the reaction of many British expats was to stay on the sidelines, avoid committing to any major new purchases and take the view they wanted to ‘see what would happen to UK house prices’.

According to expat mortgage brokers Offshoreonline, however, an equal if not larger number of investors took the view that with sterling sliding up to 15% against the US dollar and therefore against any currency pegged to the US dollar, such as the currencies of the Middle and Far East, this was a once in a lifetime opportunity. Prices were effectively reduced by up to 15% for overseas UK buy-to -let investors.

How does this work? If the pound was trading at $1.46, as was the case in May 2016, and in March 2017 it is trading at $1.24, that is a 15% reduction. Put another way, an overseas holder of US dollars or any US dollar-linked currency now needs 15% less to buy the same amount of sterling to invest in UK buy-to-let property.

At the same time, the UK economy has continued to grow at rates which have surprised commentators and markets alike, suggesting domestic demand, for the moment at least, is still strong. Certainly the UK economy looks to be in better shape than many others, with UK house prices growing 6.2% in the year to January 2017 or 0.8% for the month, according to the UK Land Registry. Compare those figures to the returns available on sterling deposit accounts and other lower-risk investments and one can see why UK buy-to-let property may appear an attractive option.

Other headwinds include new UK buy-to-let rules introduced in January 2017 by the UK Financial Conduct Authority, which now oblige buy-to-let lenders to ‘stress test’ loans on the basis of higher notional interest rates. The net effect of this has been to drive down the amounts expat buy-to-let investors can borrow or to oblige them to increase deposit contributions to something between 25% and 35% of the purchase price, depending upon the type of property being bought.

That said, expat buy-to-let mortgage interest rates remain attractive, with UK expat mortgages such as lifetime trackers available from 2.49%.

The other change has been the number of lenders picking and choosing the countries where they want to lend to expats. The Middle and Far East both remain well served, as does Europe, but other areas, such as Australia and India are more problematic, but not impossible.