Who are the international buyers?
A significant number of people from around the world choose to invest their money in British property, a trend that has continued for many years. But where are they from, what do they buy and why the UK?
Overseas investors consider the UK a safe option, a reputation reflected in the demand for British homes from buyers based overseas. And although many parts of the UK are proving popular among foreign investors, the trend is particularly easy to see in London.
It now has one of the most multicultural populations and property markets in the world. Of the 8.5 million London residents, just under 37%1 were born outside the UK, and over a third of all the property bought in its prime central districts were purchased by non-UK citizens in the final quarter of 20152.
For more than a decade London has been a popular destination for international property investors3. This is due to a range of factors including the UK’s political stability and governing laws, rising property prices, excellent state-run and private schools, English language, and time zone.
Research by London estate agent Strutt and Parker found that buyers from Western Europe, North America and the Middle East dominate its London property sales. These regions are followed by Africa, Southern Europe, Asia and Northern Europe2.
“London is an important focus for international buyers and investors but interest in other areas is growing and this includes within the Home Counties that surround the capital and many of the UK’s other key cities such as Bristol, Manchester and Birmingham,” says Paul Deen, Head of International and Private Bank Mortgages at Barclays Wealth.
Where are international property investors buying?
Agents have noted that international buyers tend to focus on specific areas within the ‘prime central London’ market, which covers homes for sale over £2m.
“South Kensington is popular with the French and Italians,” says London agent Lulu Egerton. “Mayfair is popular with Middle Eastern buyers, although it attracts Americans too, while Belgravia and Knightsbridge are generally more sought after by Indian, Turkish and Greek buyers.”
Each of these areas has different property market dynamics. Research by Knight Frank recently demonstrated that high prices and softening demand from international buyers has hit some of the most expensive areas in London including Knightsbridge (-4.5% in the year to October 2015) and South Kensington (-3.8%)4. By contrast, prices across all of London are rising by 12% year-on-year5.
Price growth in prime central London by area in the year to October 2015
Source: Knight Frank, Prime Central London Index, October 2015
Despite the market cooling, prime central London’s high prices are prompting some European buyers, notably Italians, French, Spanish and Greeks, to look elsewhere.
Buyers are concentrating less on the most expensive locations – the so-called ‘golden postcodes’ – and starting to look beyond for value.
“The map of the £10 million-plus sales in London is more widespread than three years ago and now encompasses areas such as the South Bank,” says Victoria Garrett, Residential Associate Director at Knight Frank.
For international buyers looking for more value, this means extending their search to outer areas of London, according to Stephanie McMahon, Head of Research at Strutt & Parker. “We are seeing more interest in the east of the city, where a lot of the younger international buyers are being attracted to the affordability of properties, but also for a different lifestyle too,” she says.
Increased costs on the horizon
The costs of buying and running a second home or investment property in the UK are set to rise. This includes new EU mortgage rules, which require lenders to treat ‘novice’ and professional landlords differently6, as well as an extra 3% added to the standard Stamp Duty and Land Tax levied on property purchases in the UK if you’re buying a second or investment property7.
What types of homes are they buying?
Stephanie says that while around half of her clients are looking to purchase their principal home here and 15% are buying second homes, a quarter of them are also investors.
The increasing popular market among international buyers in London is for the many new-build apartments that are being constructed all over the city. These are often in demand for their investment potential rather than to reside in as a home.
Peter Rollings, Managing Director of agent Marsh and Parsons, explains that a significant proportion of these investors originate from Asia. Buyers from countries such as Singapore, Hong Kong and Malaysia view the UK property market as one of the world’s safer investment opportunities, he says.
One example of this can be seen at Dover House near London’s Waterloo railway station. It’s a mixed-use retail and residential development built by The Thackeray Estate. All nine apartments within it were sold off-plan recently to a Chinese investor for £10.5 million8.
“We’ve marketed these apartments all around the world, however they’ve appealed principally to those based in Hong Kong, Singapore and Malaysia,” says central London agent Lulu Egerton.
Peter Rollings mentions that recent Chinese buyers have all preferred new builds, because that's what they are used to in their home market and therefore, understand it as an asset class.
“Also, they like off-plan new builds because they can put down 10% but then wait while the property takes two to four years to complete, at which point it is potentially worth more than the original offer price,” he says.
Looking beyond London
But some international buyers want to live and invest in property outside London and they are an increasingly important part of the market in some areas, in particular within the Home Counties that surround the capital, although many of the UK’s larger cities are also attracting international investment.
One example of this can be seen in Birmingham where Shanghai-based company PGC is building a large apartment development in the city’s Jewellery Quarter. The company’s president, Denise Liu, recently revealed that she believes the best opportunities for investors lie outside of London9.
But it’s not just institutional investors that are playing their part. Individual ones are too. For example, at luxury apartment development Royal Connaught Park in Hertfordshire, nearly a third of the properties sold so far have been to international buyers for investment purposes. These include Russians, Chinese, Iranians, UAE citizens, Norwegians, Israelis, Indians and Australians, says developer Comer Homes.
“8% of all properties sold for more than £2 million outside London are now bought by non-UK residents, our research shows,” says Stephanie McMahon of Strutt and Parker.
“We tend to get the French and the Dutch with business interests in the UK looking at our country houses outside London, particularly in and around Oxford and Cambridge. But the story isn't just about London by any stretch.”
Research by agent Savills into the Cambridge market reveals the extent to which international buyers are looking further afield, particularly those from China and Europe10.
The company found that a fifth of all buyers in the city’s second-hand market are international, while 24% of new-build buyers are also international.
The UK’s larger cities are also where some international investors are considering and in particular Bristol11, Manchester 12 and Birmingham13 are being suggested as potential areas of property market growth.
“With London so competitive, attention is shifting to Birmingham and other regional centres,” said a recent Urban Land Institute report13.
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