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London property and the return of international investors

As lockdown restrictions lift in the UK, we are seeing the return of international investors to the London residential property market, with demand extremely high and homes with outside space driving market activity. But, there have been tax changes that could impact the market, particularly the new 2% Stamp Duty Land Tax (SDLT) surcharge for overseas investors.

The 2% Stamp Duty Land Tax (SDLT) surcharge for overseas investors was introduced by the UK Government on April 1st 2021 so non-UK residents must pay this in addition to the 3% surcharge that is payable if the buyer already owns a property anywhere in the world.

Stamp Duty holiday extended

On the plus side, buyers of UK property are benefiting from a Stamp Duty holiday which means they don’t pay Stamp Duty on the first £500,000 of a property’s purchase price.  This scheme has been extended until the end of June and will be tapered out by the end of September.  So there are pros and cons to UK property taxes at the moment.

How is this affecting demand amongst international investors? 

While overseas buyers cannot ignore the 2% Stamp Duty surcharge, the fundamentals of property investment in London remain favourable and we believe these are more significant when considering a long-term investment.

Why London property remains such a trusted asset

Historically, the UK is known as a safe haven for investors.  London property has consistently delivered long-term capital growth and the city remains a key international hub for business, finance and the tech sector.  In addition, global mobility means that corporates continue to rent in London and universities in the Capital have the highest number of international students in the world. And, if our April and May student rental enquiries are anything to go by, it is clear that many intend to take up places here in September.

With the additional advantages of the Stamp Duty holiday, the weak pound (and its attractive sterling exchange rates) and low interest rates, all of this will go a long way to lessen the impact of the 2% surcharge.

An upturn in interest from international buyers

Seasoned property investors recognise this is an excellent opportunity to buy in London, with investors from South-East Asia, the UAE and the USA leading the way.  Enquiries are up considerably from Hong Kongers (BNO passport holders) too, primarily for homes in North-West London and also in outer prime locations such as Hampstead, but many wish to rent before they buy.

In terms of the number of overseas landlords owning property in the UK, the latest HMRC figures reveal this has risen steadily over the last few years, despite recent tax deterrents – from 154,000 in 2014/15 to 184,000 in 2018/19. Looking at our own client base here in the UK and across our international offices in China, India, Hong Kong, Malaysia and Singapore, we’ve seen a 13.7% increase in new clients since February demonstrating the confidence that investors have in the wider UK economy and our historically strong property market.

The housing market has remained buoyant throughout recent lockdowns.

Amazingly, London house prices increased by 6.2% since the start of the first lockdown – the first house price rise during a recession in modern history! In fact, London house prices hit an all-time high in January, reaching an average of over £500,000 in January.

Meanwhile, Rightmove recently reported the strongest spring sellers’ market in a decade and rival portal Zoopla’s latest property index shows that over £149bn of homes have been sold so far in 2021 – nearly double the value of homes sold subject to contract in the same period in 2020 and 2019.

According to the latest Nationwide Index, “May saw a further acceleration in annual house price growth to 10.9%, the highest level recorded since August 2014. In month-on-month terms, house prices rose by 1.8% in May, after taking account of seasonal effects, following a 2.3% rise in April” said Robert Gardner, Nationwide’s Chief Economist.

Benham & Reeves’ research

And our own research reveals that since March 2020 there have been almost 50,000 sales across the London – with 65% more sales in London’s peripheral boroughs rather than inner London. These transaction levels have prompted commentators to ask whether housing stocks could run out.

Investors are now taking a bigger interest in central London again, taking advantage of the pandemic price drops. We expect prices to look quite different by the end of this year.

If you are considering buying or selling a property in London, you can get in touch with our London Sales team or contact your nearest Benham and Reeves international office.

You can also sign up to get a copy of our handy Tax Guide for Overseas Investors.

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About the Author

Vidhur studied Management Sciences at Manchester University, focusing on accountancy, before going on to qualify as a chartered accountant. He began his career working in investment banking but after several years decided to join Benham and Reeves in 2003. Since then he has expanded the finance department, introducing a broader range of services to encompass all financial aspects of property investment, from collecting rent through to completing tax returns (or ATED returns for overseas companies). Read more about Vidhur Mehra here - Read full profile

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