While most buyers are facing a race against time to complete their home purchase before the stamp duty holiday expires at the end of March, overseas buyers have another deadline to contend with.
From 1 April 2021 non-UK residents in England and Northern Ireland will have to pay a stamp duty surcharge of 2% when they buy property, on top of the 3% stamp duty surcharge if it’s an investment property or a second home.
Therefore, if they buy quickly overseas investors can save £15,000 due to the stamp duty holiday, as well as a potentially bigger sum if they avoid paying the 2% surcharge, depending on how expensive the property is they’re purchasing.
Why the stamp duty surcharge was introduced
The stamp duty surcharge was announced in March last year, and was likely introduced with one eye on Prime Central London.
Many of the wealthiest buyers across the globe focus on buying property in the English capital, which is seen as a reliable place to park cash.
This trend has become controversial however, as it’s believed that locals are pushed out of the city due to a lack of property to buy, with prices being pushed up as a result.
The glut of overseas buyers in areas like Knightsbridge has also contributed to the ‘buy-to-leave’ phenomenon, where wealthy people own property that they leave empty.
Whether these issues will be solved by the overseas stamp duty surcharge is debatable.
Indeed, critics of the overseas stamp duty surcharge say it could lead to a lack of new developments, as some housebuilders rely on off-plan sales to fund new developments.
Incentives for overseas buyers
While we’ve already talked about stamp duty incentives, people with money in a foreign currency have found the UK property market to be increasingly cost-effective in the past five years, due to the relatively weak value of the pound.
The pound nosedived compared to currencies like the US dollar following the Brexit vote in 2016, while the currency has been on shaky grounds since owing to Brexit and electoral uncertainties.
Secondly there’s the state of house prices at the Prime end of the market in the capital.
Knight Frank, the property consultancy, said the luxury London market has seen prices fall by 17% from mid-2015 to this year, so it’s more affordable to buy in Prime London than it once was.
Strong London demand
Amidst this backdrop, it’s hardly surprising that we’re starting to see green shoots of recovery at the top end of the market in the capital following the first lockdown.
Property analyst LonRes reported a 21% annual increase the number of properties going under offer in September 2020.
While you’d think the current situation would make buying difficult, overseas investors are now commonly making purchases without visiting them in person.
Indeed, a report from investment firm London Central Portfolio released this month found that 22% of properties are being purchased by overseas buyers who didn’t view the place they were buying.
Currently it’s difficult for people from overseas to travel due to the Covid restrictions, while unseen purchases are more common amongst the wealthy elite even in regular times.
It seems overseas buyers are cottoning onto the situation and buying while they can.
Buying outside London
Due to the sluggish nature of the housing market at present, for overseas buyers in London there’s a danger of them missing the deadlines for the stamp duty surcharge and end of the overseas stamp duty holiday.
Research from PropCast London released this week said deals in London using a mortgage are unlikely to complete in time, though they likely will in 70% of areas.
Therefore, if you’re an overseas buyer looking to buy with a mortgage, you could alleviate some of the stress by focusing your efforts on buying in an up-and-coming city in the Midlands or the North.
If you’re buying a property with the intention of renting it out, many of the best yields are also in the likes of the North West.
Enterprise Finance research released this week shows that the highest rental yields on two bed properties are 7.6-7.7% - found in cheaper areas like Middlesbrough, Inverclyde and Glasgow
While there’s clearly a strong incentive for overseas buyers, those buying with a mortgage may end up spending more than they anticipate.
While foreign nationals can utilise lenders like NatWest and Skipton International, some are increasing their rates in the current climate to limit business.
We’d recommend you speak to a mortgage broker to understand the latest situation regarding what’s available.
High net worth
High net worth buyers do have an edge compared to less wealthy overseas buyers, when it comes to beating deadlines.
Those with the money can use tailored services from the likes of investment banks, so they are likely to be able to get things done faster, providing they don’t leave it much later to apply for a mortgage.
They are more likely to be able to purchase property with cash, so they don’t have to wait for the mortgage to complete.
It’s not surprising that overseas buyer activity is starting to rise.
Given that they have two major deadlines to beat to save cash – in addition to other factors like a weak pound and relatively low house prices – people in that situation would be advised to get the ball rolling on their property purchase as soon as possible.
While it seems plausible that the government could extend the stamp duty holiday, the powers that be are less likely to shift the deadline for the overseas buyers, considering it affects fewer people.
There’s a reason so many properties are being snapped up without being viewed in person.
Clearly there’s a need to act now.