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UK Property Finance Trends For Foreign Investors

28th October 2022
Islay Robinson GROUP CEO

Islay Robinson

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UK Property Finance Trends For Foreign Investors - Enness Global
GROUP CEO

Islay Robinson

While the UK has seen market turbulence over the past few weeks – especially during Prime Minister Liz Truss' brief premiership – the prime UK property market is once again taking centre stage for non-UK resident investors.

Over the past months, non-resident buyers have been subject to the same increased interest rates as resident buyers, although lenders haven't placed any restrictions on lending to foreign investors.

Because many foreign buyers considering UK property purchases have a significant asset base and liquidity, lenders remain keen to work with these individuals. Foreign investment was slow to return to the UK property market after COVID, which now looks to be reversing, with renewed interest from American, Middle Eastern and Asian buyers in particular. 

High-net-worth US dollar buyers are key targets for lenders, given the quality of these players. From a buyer perspective, the savings opportunities presented by the current UK/US exchange rate are driving demand as buyers look to cash in on the concrete savings offered by the strength of the US dollar against the sterling. 

Some mortgage products were paused or removed from the market after Liz Truss' mini-budget in September as lenders struggled to analyse their margins and calculate affordability in an ongoing rising interest rate environment. However, over the past week or so, we have seen the market and lending products slowly opening up again. A couple of lenders have also dropped their rates, which we believe reflects the fact that despite ongoing economic challenges, lenders and analysts expect a more stable and cautious fiscal environment under new Prime Minister Rishi Sunak's leadership.

UK Prime Property: Renewed Foreign Interest 

Despite the turbulent political, fiscal and economic environment of the past months, the volume of new financing enquiries we've seen from foreign nationals looking to buy UK property has remained steady. This points to the sentiment that despite the political instability that has affected the UK recently, investors remain confident in the long-term viability of the UK as a jurisdiction for owning high-value property. The underlying strength of the UK's prime property market in terms of long-term asset appreciation, purchase price, future demand and the long-term outlook for the UK only adds to the appeal of owning UK property. For foreign investors, the political instability of the past few weeks is seen as a short-term issue rather than a long-term macroeconomic challenge. While the US dollar/sterling exchange rate has pushed foreign buyers to move to take advantage of particularly favourable buying conditions, the overarching benefits offered by the UK's prime property market underpin foreign investor interest rather than exchange rate savings in exclusivity.  

Increased Loan Amounts

Over the past month or so, we have seen an increase in loan amounts from domestic and non-resident buyers. Our data shows that borrowers have requested loan amounts averaging £3.3 million in the last 30 days, compared to an average loan amount of £2.3 million in the preceding 30 days. The fact that lending amounts have increased despite the economic environment again underlines confidence in prime UK property. For foreign investors with US dollar wealth, many have taken advantage of increased buying power which has translated to higher loan amounts. 

Additional Factors Influencing Non-resident Interest in Prime UK Property

Strength of the Dollar and Increased Global USD Wealth 

There has been an influx in interest from American residents looking to buy prime UK property as they look to take advantage of the current exchange rate between the US dollar and sterling and the resulting savings. However, we have seen several clients from other countries with significant US dollar wealth also looking to buy prime UK property. At Enness, these enquiries have predominantly come from residents of the Middle East and Asia, including Malaysian, Indian, Chinese and Pakistani investors. Geopolitical factors have also influenced this trend as individuals and families that generate US dollar wealth have benefitted from new income and revenue streams. This may be due to changes to global supply chains, consumer demand, significant asset increases in the past couple of years, changing energy requirements and, in some cases, opportunities presented by geopolitical instability. 

Historical Valuations of UK Property

UK house prices have risen over the past few years. While we can expect that some parts of the UK property market will see a cooling of prices in the short term (notably the lower end of the market and certain regions of the UK), we expect the prime property market – especially in London – to remain buoyant. 

Before investing in high-value assets like property, investors will always assess past performance: asset appreciation, performance, demand and ROI in particular. In this respect, London property valuations have remained strong despite both Brexit and the COVID-19 pandemic, and the UK property market has weathered recessions better than other European countries. Because of these factors, investors expect prime London property to weather any potential dip in house prices and economic headwinds, underpinning confidence and current non-resident demand. 

Lending Infrastructure

The UK has one of the most competitive, developed and sophisticated mortgage lending infrastructures for non-residents of any European country. In economic headwinds, mainstream lenders across the continent can become more cautious towards lending, which can translate to a restriction in lending to certain borrowers – non-residents included – even if these are quality borrowers with significant wealth. 

Mainstream mortgage lenders in the UK can also follow this trend. However, the plethora of niche lenders, boutique players, private banks and specialist lenders in the UK tend to step up in challenging economies and are keen to take on new business. These lenders have continued to retain large pools of capital and are usually more flexible and holistic in their approach to lending than larger initial. These niche players will continue to offer high-value mortgages to non-residents, and they can cater to the profiles, revenue and financial backgrounds of wealthy non-UK nationals, who tend to have specific financing requirements and complex income.  

Relatively Few Setbacks to Borrowing

The setbacks faced by foreign buyers at present are the same as those of UK buyers – principally increasing mortgage rates. The UK mortgage market reacted strongly to Liz Truss' mini-budget in September, with certain products removed from the market and significant rate rises following the Bank of England's ongoing base rate increases. 

While we expect mortgage rates to continue to rise, the mortgage market has already shown signs of restabilising somewhat, with one or two lenders dropping their rates daily. Lenders remain keen to work with non-resident nationals, including in high-value property finance deals, which we can continue to negotiate and tailor specifically to our client's requirements. Despite the current economic situation, there are no hard restrictions on lending to foreign investors, and there is plenty of lender capital and an array of specialised mortgage products available to non-residents. 

 

Financing options available to you will depend on your requirements and circumstances at the time.
If you are considering securing debts against your main home, such as for debt consolidation purposes, please think carefully about this and consider all other options available to you. 
Your home may be repossessed if you do not keep us repayments on your mortgage or other debts secured on it.