Expat buy-to-let investors caught in London property dilemma

Published:  26 Jun at 6 PM
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As London’s property market edges ever nearer to a slump, will Brexit and the withdrawal of easy money destroy expat buy-to-let dreams?

Sellers’ deliberations as to whether it’s best to lower the price or sit on the investment in the hope things will improve are going on across the capital. Until recently, in spite of the 2008 financial crash and previous booms and busts, sitting tight proved to be the best policy, but the risks nowadays are unique and mostly down to Brexit. The drop in the value of sterling immediately following the referendum result saw expat investor interest soar as never before, driving up the value of London’s real estate and providing a windfall for lenders and realtors.

With just nine months to go before the EU’s door closes, it’s a different story suggesting the party’s now over and it’s time to go home. Demand is slackening as next March draws ever closer, and potential interest rate rises are likely to result in prices falling still further amid a glut of investment properties on the market. Since 1973, the year in which the UK became an EU member state, London house prices have seen a 36-fold increase in spite of a hiccup caused by the 2008 financial crash, during which real estate prices fell by 20 per cent. Although present day decreases are modest as yet, the stage is set for a slow falling back to turn into an untidy retreat.

In 2017, expat buyers represented over half the property purchases made in central London and 33 per cent in greater London. The vast majority were buy-to-let deals but, when interest rates rise, property values decline and the UK’s prospective political situation is likely to hit its economy just as global interest rates rise. According to experts in the sector, that’s a double whammy for the London real estate scene. Leading estate agents in the city are posting losses of up to 15 per cent in revenue for the first quarter of 2018, mainly caused by lower letting incomes as well as falling sales figures.

The threat of a hard Brexit is causing fear in the sector, with one property market analyst asking what will happen should rents fall by 20 per cent due to the fact that no-one wants to live and work in London after Brexit. Others see the prospect of a weaker pound as insurance against a chaotic exit from the EU and are remaining positive about the so-called Brexit effect. However, all seem to believe that, should a Labour government be elected with Corbyn as its PM, the pound will crash and capital will flood from the UK to safer havens overseas, decimating the capital’s property market.
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