SEPTEMBER
PROPERTY MARKET UPDATE
03 OCTOBER 2022
It is fair to say that September has been a seismic month in all things the UK with a new Monarch, a new Prime Minister and a mini-budget all rolled into one month. That Liz Truss is the new UK Prime Minister seems old news, yet at the time of writing, she’s been in the job less than a month whilst unveiling a programme of ambitious legislation and tax cuts to stimulate UK growth.
In this market update, we’ll be digesting the changes to stamp duty and looking at the influx of dollar-based buyers to the UK housing market as well as considering the impact of the base rate rises from the Bank of England.
Stamp Duty Threshold Raised
The new threshold at which stamp duty kicks in has been raised from £125,000 to £250,000, slashing the previous 2% rate whilst for a first-time buyer this has been raised even further to £425,000. This will certainly encourage buyers at the lower end of the market to take the plunge.
In addition to this first-time buyers can now claim stamp duty relief on properties up to £625,000 (up from £500,000). A first-time buyer on a £600,000 property previously would have paid pay £20,000 in stamp duty. Now, they pay only £8,750 – calculated at a rate of 5% on the portion between £425,001 and £600,000 meaning that even London’s property market will benefit.
The savings are considerable and make plain the economics behind the government’s slashing of duty intended to stimulate job and social mobility benefitting the wider economy. “Home ownership is the most common route for people to own an asset, giving them a stake in the success of our economy and society,” said the UK Chancellor Kwasi Kwarteng, announcing the new rates.
Whilst the benefits are less significant for an overseas investor in the UK market there are still savings. Overseas buyers still have to pay the 2% non-resident rate across the whole property value and second home purchasers will be due the 3% additional property stamp duty. If you’re looking at a specific property to buy the UK government website has a clear breakdown of the thresholds and accordant levies.
Mortgage Volatility
In its continued efforts to bring inflation under control, the Bank of England raised the base rate by 0.75% to 2.25% and with the volatility experienced in the last week following the Mini Budget many reputable sources are quoting a further interest rate rise to come in as early as October. Given this many banks have reacted by stopping new applications on their lower rate products whilst they reprice. With the reporting on this being typically sensational it is important to remember that there are still rates available and the expectation is that most of these lenders will be re-entering the market in the coming days and a sense of normality will be returning.
For information on rates available and what this might mean for your investments please reach out to us and we can arrange an expert consultation for you with our preferred mortgage broker IPFG.
Do it with dollars
Reacting to the government’s announcement of the UK’s biggest tax cuts in 50 years (an attempt to stimulate growth and increased FDI), sterling dropped to a dramatic all-time low against the dollar at $1.03 as Asian markets opened on the following trading day. It wasn’t just sterling that was sent southward, the euro also ‘touched’ a fresh 20-year low against the dollar. In the intervening week though the value has bounced back to 1.12 as of this morning (3/10/22).
This reaction has highlighted what the fundamental opportunity is though for USD-based buyers currently; namely the opportunity to buy UK property at an effective 20% discount in USD terms. For example, a buyer purchasing a £ 1 million house in dollars would save approximately £164,000. ‘Foreign buyers snap up London property as the pound falls’ said The Times, ‘Americans are rejoicing.’
Indeed, so far in September prices have risen by 0.7%, reversing predictions of a steadying in the market. New data released from the Land Registry shows that international investors accounted for 48% of all homes sold in prime central London during the first half of 2022; 5% of those being Americans, a proportion which is expected to increase significantly during the second half of the year.
One high-end property advisor went on record to describe how clients who had been circling the market for a while were now pulling the trigger. ‘They see the opportunity because the perceived discount or saving if you like can be millions. It would cover the price of stamp duty which for a foreign buyer is quite appealing.’ He cited not only the currency play but the time of year with the summer holidays over and everyone getting back to business, decisions were being made expedited. ‘It’s all coinciding nicely,’ he concluded.
London agents too are reporting buyers from Saudi Arabia, UAE and Kuwait to be amongst the most active in the market, something that we at RPA can attest to through our UAE-based office.
The conclusion? There has never been a better time to buy UK property for dollar-pegged or dollar buyers.
If there is one thing that will offset the effect of interest rate rises it is the fact that rents have and are rising at record rates across the country with certain hotspots where RPA are active including London, Birmingham, Brighton & Hove performing exceptionally well.
As a live example of this clients of ours who bought in ‘The Copperworks’, Birmingham, in late 2020 and early 2021 did so on the basis that a typical 1 bed would achieve £825-850 per month and a standard two bed approx.. £1,100 per month. Today through our preferred letting and management partner Brick we are achieving up to £1,075 for 1 bed and approaching £1,500 for 2 beds.
RENTAL INCREASE
The RPA View
With many of our clients pouncing to purchase in the last two weeks, we relate strongly to the sentiment of the London agents who are seeing a flux of overseas buyers choosing to act now – and that was even before the changes to stamp duty were announced.
The interesting phenomenon is that if you can buy in dollars, gains don’t seem to be limited to one particular end of the market; investors can benefit across a variance of price points. Wealthy parents looking to buy a property for a child studying or resident in the UK could benefit doubly from reduced stamp duty rates for first-time buyers AND the discount of buying in dollars, saving tens of thousands. Likewise, as stated above, the benefits of buying a second home in the UK if you are pegged to the dollar can outweigh the cost of the 10% or 12% bands of stamp duty.
We, like our investors, are interpreting the UK government’s efforts to increase support for first-time buyers as a positive in the longer term. If recent history is anything to go by, movement at the lower end of the market ‘trickles up’ to the middle and with a fundamental lack of stock, we believe that with the market opportunity for landlords to enter with an effective discount remains strong whilst taking advantage of record income levels through rents.
For a discussion on the above or to discuss current opportunities please get in touch
about the AUTHOR
RPA’s founder, Richard has worked in residential development investment for 20 years and oversees the general running of the business ensuring the RPA Group retains true to its founding principles. Over his career Richard has built an incredible network of international property investors and like-minded industry professionals. The RPA Group was born out of a duty of care to provide property investors with an industry-leading and integral service, one that connects investors with quality and desirable investment opportunities, whilst providing reliable and trustworthy market commentary and analysis alongside, enabling investors to make the best, most-educated decisions for them.