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Tumultuous year for UK property market presents opportunity for foreign buyers

The war in Ukraine and the mini-budget of former Prime Minister Liz Truss last year had caused a jump in interest rates which left domestic buyers struggling.

The property market in the United Kingdom is becoming increasingly attractive for foreign buyers, but it is widening the divide between richer homeowners and high-interest mortgage holders.

The war in Ukraine which started in February last year, along with the mini-budget of former Prime Minister Liz Truss in September last year, had caused a jump in interest rates which left domestic buyers struggling.

However, house prices have since cooled and mortgage offers are on their way down, along with a weakening of the British pound.

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UNDER PRESSURE

The UK property market has repeatedly proven its resilience, but every period of economic hardship puts it under pressure, said observers.

Soaring costs of living and the subsequent raising of interest rates in a tumultuous 2022 have created a challenge for home buyers and homeowners.

Trade association UK Finance’s director of mortgages Charles Roe said: “As a result of that volatility in the financial markets and particularly in the hedging market, the futures market for interest rate swaps, what we found is that some lenders couldn’t price their products, so they withdrew the products from the market.”

The situation has since stabilised. It is making the market particularly attractive to overseas buyers and helping to prevent a dramatic house price slump in the capital.

Mr Ed Lewis, head of residential development at Savills, said: “I know what the hurdles are for, particularly the younger age group, getting into the property ladder.”

He added: “But London doesn’t work without it being an international city. And London doesn’t get built without international investment.”

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THE BUYERS FROM ABROAD

Prices at the top end of the market have seen little change, and that is widening the gap between richer homeowners and those with high-interest mortgages.

The rising interest rates signalled the end of a long era of cheap borrowing.

The last time the base rate of interest was as high as the current rate was in 2008, with the average UK property price having risen 72 per cent since then.

Foreign buyers, many from Asia and the Middle East, have contributed to the jump.

Dr Filipa Sa, a senior economics lecturer at King’s College London, said: “If we keep foreign investment constant at the level of the year 2000, we see that in 2019, house prices would have been about 17 per cent lower.

“I look at the effect on the price to income ratio, which is a measure of affordability, and I see also that foreign investment increases the price to income ratio. The effect is also quite big and statistically significant.”

While foreign investors tend to buy at the top-end of the market, researchers said that there is a knock-on effect driving prices up overall.

An additional 2 per cent tax is levied on foreign buyers, but estate agents noted that it has not dented the demand, due in no small part to the UK’s limited housing supply.

That is the greatest challenge for the market currently, but there remains no consensus on how to solve it, said observers.

By Fabian Koh

Source: CNA

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Foreign homebuyers sheilded from rising property prices due to weakening pound

Despite house prices climbing considerably over the last year, buyers from overseas currently looking for UK property are saving huge sums due to the weaker pound with discounts as high as £40,000.

The latest research by lettings and estate agent, Benham and Reeves, looked at current property market values and how they compare to this time last year, with the research showing that since February 2022, the average UK sold price has increased by 7.8% to £294,329 today.

Even in a slower London market, the average value of a home has increased by 4.8%, commanding £543,099 in current market conditions.

However, while domestic homebuyers have had to contend with the increasing cost of climbing the ladder, exchange rate fluctuations and a weakening British Pound compared to some currencies have presented an opportunity for foreign buyers to secure a saving.

In February of last year, the average UK house price of £273,066 would have required a buyer from the United States of America to spend $369,459. Today, however, the higher average UK house price of £294,329 would see them spend just $355,079, a saving of $14,381 (3.9%) or £12,161, despite the increased value of UK bricks and mortar.

This saving is even higher in a more inflated London market, where purchasing at the current London average of £543,099 would require them to spend $655,195 versus the $700,993 they would have spent in February of last year, a difference of $45,799 or £38,730.

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Buyers from the UAE have also benefited to the same extent, saving -3.9% or AED 52,717 on their purchase, climbing to AED 167,986 (-6.5%) in London. That’s the equivalent of £12,142 saved on the average UK home or £38,690 on the average London home.

The UK continues to be a popular destination of choice for Hong Kong homebuyers and they too have seen the cost of purchasing a UK home fall, down by -3.3% when compared to this time last year, a saving of HK$95,145 or £10,254.

Again, in London, Hong Kong nationals are enjoying savings as high as 6% on the average cost of a home in the capital, reducing their purchase price by HK$325,801 or £35,111.

However, not all foreign buyers are benefiting to the same extent. The Euro has failed to provide a discount on the average UK house price, with European buyers paying 1.9% more today versus a year ago, while those looking to London are seeing a marginal saving (-0.9%).

Foreign buyers from China are paying the equivalent of £10,868 more today versus a year ago on the average UK home, With Japanese buyers also paying the equivalent of £5,391 more today.

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Marc von Grundherr, Director of Benham and Reeves, commented: “We’re yet to see any notable reduction in house prices and, in fact, the latest sold price figures show that they have continued to climb across both London and the UK as a whole. This demonstrates the tenacity of the property market even during times of economic uncertainty and highlights why so many foreign buyers look to the UK when investing in bricks and mortar.

“We’ve seen a steady stream of foreign interest returning to the market, particularly across London, pretty much since Covid travel restrictions were lifted. However, a weakening pound has enticed them to an even greater extent, as many are now enjoying a substantial discount when purchasing versus the price they would have paid a year ago when property values were lower.”

Source: Property Reporter

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Suffolk BS enhances expat and buy-to-let criteria

Suffolk Building Society has announced a series of product and criteria changes to help brokers place more complex cases for their landlord and expat clients.

Expats and non-UK nationals

Suffolk Building Society will accept applications from first-time buyer expat landlords who are working and residing abroad and who have not owned a property before but who wish to purchase a rental property in the UK.

The Society will no longer require returning expats to spend a set amount of time in the UK before applying for a mortgage. It’s common for lenders to require anything up to two years on home soil but this change allows expats to apply as soon as they return. This applies to both employed and retired applicants.

Non-UK nationals will also be accepted on a joint application where one applicant is a UK national. This means that the non-UK partner can now be named on the mortgage. However, brokers should be aware that affordability will be based solely on the UK national applicant’s income only and they will be required to meet all relevant criteria.

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Support for UK landlords

As well as accepting first time-buyer expat landlords, Suffolk Building Society will now consider applications for first-time buyer buy-to-let properties in England and Wales. Full buy-to-let criteria will be applied including interest cover ratio (ICR) and minimum income. The Society will also run a background affordability assessment.

Landlords wishing to purchase or remortgage their own residential property will now be considered regardless of how many buy-to-let properties they have in the background, as long as the buy-to-let portfolio is self-financing. Previously, the Society had a limit of 10 buy-to-lets in the background but this criterion has now been removed to help landlords.

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Charlotte Grimshaw, head of intermediary relations at Suffolk Building Society, said: “We know our niches extremely well and have a very good understanding of the issues facing brokers in these markets at the moment. It matters to us that we’re there to support those whose circumstances means they need a specialist lender on their side – particularly as everyone faces the uncertainty of the current economic climate.”

By ROZI JONES

Source: Financial Reporter

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Capricorn’s Jeremy Law on overseas investment in the UK property market

Following a turbulent 2022, it is reassuring that an upward turn is already being evidenced this year, with many indications that we are getting back on track. But what of international interest in UK property?

The good news is that current market conditions mean there’s a lot to be optimistic about on that front, too.

The UK’s economic struggles continue to see many face a challenging time – but the weaker pound makes UK property investment a particularly attractive prospect. This is especially the case when considering the ability to purchase ‘forward contracts’, enabling buyers to secure a future sum at today’s exchange rate. Indeed, international investors can capitalise on current exchange rates, using currency to their advantage to make the cost of a deposit far lower than at other times.

Added to this, with some domestically choosing to defer a property purchase until we are sailing in calmer economic waters, rental yields are on the rise. Suggestions are that rents are up 15% to 20% year on year, which makes for a good investment case when buying to let from abroad. It is true that mortgage costs may have gone up – but these are being more than balanced out by higher rents, meaning earning potential in this area is now considerable.

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Meanwhile, November marked a turning point for fixed mortgage rates, which began to fall. This is not to say they are back at the levels enjoyed before, but they are moving in that direction. The market is normalising, meaning rates will go up and down, and we are back in a position where buyers can take advantage of current offers, which remain lower than historic averages.

Another advantage of the unprecedented events of last year is that some lenders have reduced the margin on their tracker products, making them a more attractive long-term play. In general, lenders have been forced to innovate and there are now a variety of options in terms of mortgage deals to suit different needs, with brokers playing an increasingly important role in helping customers find the best products for them – especially when looking from abroad, where the right lender options can be more challenging to find.

Added to this is the fact that there are many more lenders in the market than there were just a year ago. This has the effect of keeping competition healthy, encouraging further innovation of products and policies – including, for example, offset products and products that offer greater flexibility. There is also an additional incentive for lenders to keep prices low (or at least lower than the competition).

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There are a number of factors that mean international interest in UK property is on the rise – a final one being that lenders are marketing to Chinese buyers again. With China opening up again following its zero-Covid policy, more Chinese property investors are likely to be able to travel to the UK to visit properties, along with their Far East neighbours – naturally increasing potential for investment.

There is no doubt that the last 12 months have been something of a rollercoaster ride for the market – but the fallout has undoubtedly created fertile ground for overseas investment in UK property, and this is a reason for positivity.

By Jeremy Law

Source: Property Week

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Double stamp duty surcharge for overseas buyers to ‘level’ UK property market for locals, urges lobby group

The UK government should double the stamp duty surcharge overseas buyers must pay when purchasing a property in England, an industry lobby group has said.

The National Association of Property Buyers (NAPB) said doubling the stamp duty surcharge would “level the playing field” amid an influx of “wealthy foreign buyers”.

Under current rules, overseas buyers must pay an extra two per cent surcharge for a house they are going to live in, and an extra five per cent for any property that will not be their main home.

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However, the lobby group urged the government to double the two per cent surcharge, in arguing foreign buyers from “high income and low tax locations” are pushing up UK property prices.

The group added that the “collapse in sterling” after Liz Truss’ mini-budget created a “huge discount” for overseas buyers as it warned an increase in the surcharge is needed to fix housing “inequalities”.

Jonathan Rolande, a spokesperson for the NAPB said: “Foreign ownership is reducing available stock in the sales and rental sector and pushing up prices”.

He noted that hiking the surcharge would also “bring in additional funds for the treasury” as he said the UK government needs to “think bigger” in their approach to the housing market.

The calls come as figures show almost 250,000 UK properties worth a combined sum of £90.7bn are currently owned by overseas nationals.

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London continues to be the top destination for foreign buyers, with 85,451 properties in the UK’s capital owned by those from overseas.

Inside London, Westminster remains the top destination for overseas buyers, with £1.8bn worth of homes owned by foreign owners, while Kensington & Chelsea took second place with £10.7bn.

By Louis Goss

Source: CITY A.M.

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The Perfect Rental Storm Continues for UK Expat and Foreign National Investors

A shortage of rental homes and huge numbers of renters in the market are combining to create the perfect rental storm for UK Expat Investors.

The ‘Perfect Rental Storm’ continues for UK expat and foreign national investors in 2023 as a shortage of rental homes combine with huge numbers in the rental market to make for a very profitable rental landscape.

Shortage of Rental Homes

There are currently less than half the normal number of homes available to rent at the moment and this is contributing to fast-rising rents. This equates to the typical estate agent having only 8 available rental properties. The pre-pandemic average was 16, which shows how much rental availability has suffered in recent years.

The low number of rental homes is being driven by high consumer demand and high mortgage rates, which mean that prospective buyers are struggling to get onto the property ladder and are consequently stuck in the rental market. This situation means that rental prices are rising quickly amidst fierce competition. In practice, the average rents for those starting a new tenancy have risen by 12% in the last year.

With cities proving even more popular in the rental market, places like Manchester, Birmingham, and Cardiff have risen as much as 15%. Even renters who are choosing to stay put are facing increases of around 4%. This is largely because many existing renters are in fixed-period rental contracts and landlords aren’t looking to increase prices in a bid to maintain tenancies. Because of the much lower price-increases for renters who stay put, many renters are choosing to stay where they are to avoid risking higher rents. According to data from the English Housing Survey, the average length a renter stays in a property has now risen to 4.4 years, which is up from only 2.7 years in 2012. This means that the flow of available homes into the market is very slow and is further exasperating supply constraints.

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Sky High Rental Numbers

In addition to the shortage of rental homes, there are also sky high numbers of people in the rental market, with the proportion of people in the private rental sector jumping by 28% in the last ten years. According to the government’s latest housing census, 5 million households are now renting their home in the private sector. This is likely a result of affordability constraints caused by house price growth and lower first-time buyer numbers, as well as many of the factors mentioned above. Crucially, the number of households has also increased, with the number of new properties being built not matching this increase.

The huge numbers of households renting at the moment is good news for UK expat and foreign national investors, as the shortage of rental homes is being further exasperated by ever-increasing numbers of renters. These factors will both contribute to constant increases in rental incomes and rental yields, meaning big profits for UK expat and foreign national investors with the right property.

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What Does This Mean for UK Expat and Foreign National Investors?

‘The problem of high rents and low rental availability is unlikely to go anywhere as a huge increase in rental supply will be difficult as a result of higher borrowing costs and regulatory changes’ says Stuart Marshall, CEO of Liquid Expat Mortgages. ‘But for those who do manage to invest in property, the rewards are likely to be huge. The number of households in the rental market has grown massively over the last ten years and it’s likely to keep growing, with the number of new homes being built continually falling short. Rental demand is consequently bound to stay high, and this will feed big profits for UK expat and foreign national landlords.’

‘Competition is also lower for UK expat and foreign national landlords who choose to invest in UK property now. This is due to new tax and regulatory changes in the buy-to-let sector which have impacted landlords’ bottom lines and contributed to lower levels of investment into the rental sector. In turn, this has contributed to landlords selling their existing rental properties as investors look to cash in on capital growth profits, especially given the massive price rises in the last few years.’

‘While there are obvious difficulties for UK expat and foreign national investors to navigate when investing in UK property, things are not as difficult as they once were’ says Stuart Marshall. ‘The advent of specialist UK expat and foreign national mortgage brokers has been a hugely positive change for many UK expat and foreign national investors as these brokers can help investors to navigate the inherent difficulties of investing in UK property. Not only will they help to smooth the process and make completion as quick as possible, but they can also help to advise UK expat and foreign national investors in the process of choosing a property for their specific investment goals.’

To maximise the quality of the investment, UK expat and foreign national investors should keep abreast of the popular types of property and what is appealing to renters at the moment. In the most recent housing census, it’s clear that the popularity of flats has seen a huge increase over the last few years, with 500,000 more households living in flats compared to ten years ago. This demand for flats also lines up with the popular properties for UK expat and foreign national investors at the moment. Namely, energy efficient properties with lower management and running costs because they can assure a stability of rental income. In fact, much of the recent focus for UK expat and foreign national investors is shifting away from capital growth and back to solid rental incomes. This is because the rental market is booming but huge rises in property value over the last few years have contributed to low capital growth potential. City centres have also become incredibly popular for renters, which again favours flats in the rental market. Flats are also highly mortgageable, which is good news for UK expat and foreign national investors, as there are a range of excellent UK expat and foreign national mortgage products available at the moment.

Source: EIN News

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A buyer’s market for UK with demand from overseas purchasers

One Global Group predicts that the United Kingdom (UK) will experience a return to the buyer’s market in the coming year and that demand from Malaysia and other international markets will increase even more.

The company is optimistic about 2023 since the year’s market circumstances would be perfect for foreign purchasers wishing to buy a home in the UK.

“We’re seeing buyers from across Asia purchasing in UK locations that are offering the best value for money,” said Eli McGeever, director of research and technology innovation at One Global Labs.

“What ties these investors together is that they’re all purchasing for one of these four reasons, which is as a place for somewhere for their children to live while studying, as wealth preservation, to diversify their assets, or they are immigrating and need a home to live in,” he said.

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According to McGeever, although borrowing rates are higher than they were earlier this year, purchasers have a lot more options because there are still currency gains to be had and rising house inventory levels.

“That being said, buyers in Hong Kong have a broad interest, due to the diversity of buyers, from seasoned investors to BNO buyers looking to purchase a home to live in. There are many more types of properties demanded compared to a few years ago. These can range from apartments in inner London, to detached/semi-detached homes in the Home Counties.

“Hong Kongers have also been strong buyers in regional powerhouses, such as Manchester and Birmingham. Whereas buyers in Singapore and Malaysia are still more interested in London,” he said.

McGeever said there are five key areas that are going to make 2023 a buyer’s market and the ideal time for investors in Asia looking to purchase a home in the UK.

“These are price corrections in some markets, more home inventory, strong rental price growth, favourable exchange rates, and, mortgage rates lowering,” he said.

McGeever said that following the unsustainable real estate buying frenzy of the previous two years, sales volumes have returned to pre-pandemic levels.

Although costs are still rising in much of the UK on an annual basis, he said that they have started to decline in select markets.

“What’s likely to happen next year is that prices will correct by a couple of percentage points in some markets while staying pretty level or rising in others. Each city has its markets. For example, areas in London such as Harrow, Hounslow, and Newham will likely outperform the market, as will areas in Manchester, such as its city centre,” he said.

McGeever said that the housing stock is finally increasing, which will bring the real estate market some much-needed equilibrium.

He said that a lack of available housing has contributed to the dramatic price growth that has occurred since the Covid epidemic began.

According to him, building more homes will assist to slow the price increase.

The housing stock has increased by 40 per cent over the last year, according to Zoopla. But inventories are still 19 per cent below levels from 2017 to 2019.

According to McGeever, rental costs have increased quickly in the UK over the past year, and he doesn’t think this trend will slow down in 2023.

He said the high rental costs will probably encourage more people to look into purchasing a home, particularly first-time purchasers who would prefer to increase their equity in a brand-new residence.

“Investors who are looking for a buy-to-let property should not be concerned about demand weakening anytime soon. We expect the Pound Sterling to remain below rates seen only a year ago. This provides savings over any expected interest rate rise. However, One Global Group expects the Pound Sterling to strengthen for 2023 so early movers will benefit,” he said.

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Pent-up demand in off-plan projects

McGeever said that interest in off-plan projects has increased.

Buying off the beaten path enables purchasers who need financing to secure a mortgage close to the project’s completion date, he said.

He said this is a smart choice for people who anticipate that the interest rate will drop in 12, 24, or 36 months.

“Property developers are also currently offering more competitive pricing and lower deposits. This trend is expected to continue in the year to come,” he said.

According to him, notable projects in the UK with strong buying interest from overseas buyers include Graphite Square (Vauxhall, London), Fulton & Fifth (Wembley, London), and One Victoria (Victoria District, Manchester).

Graphite Square is a residential development by Third.i Group in London’s Vauxhall.

“The residences are just a short distance from the River Thames, the West End, Battersea Park, and Chelsea, so residents are never too far away from your next adventure in the capital. Prices start from £735,000 in the loft-style residences akin to what you might find in New York City’s Manhattan,” he said.

Fulton & Fifth, the newest development from Regal London is an upscale, “live-work-play” Wembley Park project comprising five apartment blocks set along Wealdstone Brook that will hold more than 800 homes on completion in early 2025. Prices start from £440,000.

One Victoria is a development by One Heritage Group PLC. Set over two blocks, it fronts Great Ducie Street. One East is a 14-storey building with 84 apartments while One West is 10 storeys high with 45 apartments, with prices starting from £199,000.

By Kathy B

Source: New Straits Times

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Overseas buyers will help avert a property market crash – claim 

A property tax consultant has hit back at suggestions of a housing market crash, suggesting that overseas investors will help sustain growth.

David Hannah, group chairman at Cornerstone Tax, has predicted that price growth will slow but said he is confident that it won’t turn negative.

It comes as a survey of 2,000 people by the firm found 55% were not deterred from purchasing property in 2023 – compared with 45% who said they would halt proceedings.

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Hannah said the 55% who will follow through with purchases in 2023 will most likely be buyers who are less dependable on interest rates.

Foreign investors will also seek to take advantage of the fall in the price of sterling, essentially, making the UK housing market 10% cheaper, he said.

He added that the 45% that will hold off on purchasing will be most likely first-time buyers, who now cannot afford the inflated mortgage payments.

Hannah said: “In early 2023 we will see slow demand. Only those people that are forced to sell will see a small fall in prices, however, over the whole of 2023, I expect to see low to mid to single-digit growth over the UK property market- between 5-8%.

“Despite the negative headlines we have been seeing, there is an underlying pressure on the market and that is leading to upward pressure on prices.

“We now have a growing number of people that want to move to the UK.

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“The first is the overseas investor who regards UK property as a safe haven for their money because the country they principally live in is not economically or politically safe.“The second are those who want to become second homeowners. The third and final group is those who want to leave their country of birth and are in need of a home.”

He suggests all of these factors over the course of the next 12 months will support the market, adding: “There will be no crash and no 10-20% fall in property prices that we saw in the noughties. The UK property market has tended to be more stable than any other global market in property.”

By Marc Shoffman

Source: Estate Agent Today

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Foreign property investors must be registered, says government

The government is urging all overseas entities who own property in the UK to register at Companies House.

The Register of Overseas Entities came into force in August this year and requires all entities in scope to register with Companies House before the deadline of January 31 2023. The registration process involved them declaring the beneficial owners and/or managing officers for properties in this country.

As the deadline nears, Companies House is urging overseas entities and agents to register in good time and avoid some common pitfalls.

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To make sure registrations are processed quickly, Companies House is recommending that agents  work with their clients to make sure all the information is correct before their registration is submitted , to file as early as possible before the deadline of January 31, and for agents to file on behalf of their clients – it’s likely to be easier and quicker for them than for the clients.

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Overseas entities must register on time to avoid prosecution or civil financial penalties. Overseas entities that fail to register will also find it difficult to sell, lease or raise charges over their land. 

Rachael Watts, Head of Register of Overseas Entities at Companies House, says: “We have seen a significant number of filings rejected with most of these due to errors in the agent information section. Common errors include the registry name being abbreviated or incorrect, and inconsistencies in the agent’s name, overall person with responsibility, address, and email address.

“By minimising these errors and registering in good time, overseas entities and agents can avoid running into issues later on.”

By Graham Norwood

Source: Letting Agent Today

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Overseas buyers are flocking to London due to dollar strength, says agent

Carter Jonas predicts that 2023 will be an exceptional year for the prime central London (PCL) market following a recent spike in the number of cash buyers registering to purchase property in the heart of the capital.

Most recently, the Marylebone and Mayfair office has seen all cash buyers, many of whom are dollar buyers utilising the good exchange rates to purchase in prime central London, Next year is expected to continue on this trajectory, the estate agency says.

Carter Jonas predicts that the prime central London property market is set to out-perform the rest of London – and the country – in the coming months as overseas Dollar buyers from the US, Middle East and Asia flocking to the Capital to take advantage of the weak pound.

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Samuel Richardson, head of sales at Carter Jonas in Marylebone and Mayfair, commented: “We are anticipating that 2023 will be a very good year for the prime London property market. At the end of September this year, UK property was 25% less expensive for these buyers than in June 2021 and this is a trend we expect to continue. 80% of those that purchased via our Marylebone office in prime central London in the last quarter of 2022 have been from overseas. 50% have been Dollar buyers, the majority from America, followed by those from the Middle East and Singapore. Interestingly, 90% of American buyers were Californian.

“The major prime central London boroughs will remain desirable investment locations next year. Mayfair, Marylebone, Kensington and Chelsea are set to outperform all London markets as these buyers are purchasing in cash for purely investment purposes.

“Areas such as southwest London will likely be more heavily impacted, as those who bought there in recent years will be affected by the rising interest rates. This could see a drop in property values, as many people may sell up.”

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Richardson added: “I am almost certain that prime central London will outperform all other London areas in 2023. Despite there still being high demand and lack of supply, the soaring rental market will see the return of the investor as they take advantage of better rental yields. Savvy investors are also taking advantage of discounts from developers who are selling remaining units in new build developments and are happy to discount to cash buyers.

“Buyer demographics are varied from international and domestic professionals buying pied-a-terres in convenient, high traffic areas, to those purchasing short-term investments or properties for children whilst studying in London. We’re also seeing many families looking for a more permanent and long-term abode. These buyers are spending anywhere from £800,000 to upwards of £70m.

“If the dollar remains strong, I believe that prime central London will outperform the rest of London next year. The reason for this is due to high demand and a soaring rental market which will appeal to investors taking advantage of the good exchange rates.”

By Marc Da Silva

Source: Property Industry Eye