Expats and foreign investors are pouring cash into UK property investments, according to a new survey.
The number of expat and overseas investors has topped 2 million and reflects a 40% increase over the five years ending March 2012, says tax consultancy UHY Hacker Young.
The investors are individuals as well as offshore property companies.
Most are putting money into buy to let homes, despite the scarcity of mortgages for overseas investors.
Much of the cash is going to London and the South-East, where rents and property prices are rising faster than the rest of the country, according to official figures released by the Office of National Statistics.
Homes bought for cash
A popular investment is in letting to student as the number of overseas learners swells year-on-year.
Yields are better on student properties as letting a home room-by-room returns higher rents than letting to as a family let.
Buy to let mortgages are difficult to find for expats and overseas buyers and the amount of money advanced by banks and building societies in the market has shrunk significantly since the credit crisis struck in 2007.
Then, lending was running at £45 billion a year. In 2013, the Council of Mortgage lenders, the trade body for property investment lenders, expects to lend around £18.5 billion and has forecast the figure is likely to rise to £25 billion in 2014.
However, the only UK buy to let bank lending to overseas residents is the Bank of China – and borrowing is restricted to customers living in China, Hong Kong, Macau and Singapore.
Capital gains change on the way
The result is foreign investors buy in cash or via private overseas lenders.
“Investment property in the UK is seen as a safe place for investment cash, especially as the market for homes seems to be on the rise,” said Mark Giddens, head of private client services at UHY Hacker Young.
“This is driving buy to let, especially in the capital and Home Counties.”
HM Revenue and Customs reckons overseas landlords paid £379 million in tax in 2012, but Chancellor George Osborne is taking action to up the amount flowing into the Treasury with new capital gains tax rules from April 2014.
Until then, British expats and overseas property owners are exempt from paying capital gains tax on residential property disposals.
From April 6, 2014, they will pay the tax. A consultation is underway to figure out the best way of collecting capital gains from overseas residents, but expect to see the tax deducted at source by lawyers completing the sales and probably at a rate of 20% or more.
