Liquid Expat Mortgages’ CEO, Stuart Marshall, examines some of the key takeaways from new Chancellor Kwasi Kwarteng’s mini-budget, and explains the implications of the stamp duty cut and mortgage rates for existing and prospective UK expat and foreign national investors. This is part two of a two-part article. To read part one, click here.
Stamp Duty and Mortgage Rates.
The rise in mortgage rates has contributed to a 28% cut in domestic buying power, according to Zoopla. This means that the sellers’ market that we’ve been seeing for a while is now at an end. And while the stamp duty cut may do a little to help buyers in some areas of the market, it’s unlikely to do much to move the needle on the housing market overall. The stamp duty cut is most useful to buyers in the Northern regions and the Midlands as there are far greater numbers of homes that are less than £250,000. The stamp duty cut may also serve to offer support to first-time buyers in Southern regions, as their stamp duty threshold has been raised to £425,000 (for properties up to a value of £625,000). However, because of the higher value of properties in Southern regions, the rise in mortgage rates will be most keenly felt by these buyers so the cost of buying a property may remain prohibitively high despite the latest tax relief.
Stuart Marshall says… ‘Ultimately, the stamp duty relief isn’t going to do enough to alleviate the overall strain that’s been created for domestic buyers by the high mortgage rates, cost of living, and inflated property prices. While it might entice selected buyers in Northern regions or first-time buyers – those groups that are most helped by the tax relief – it is likely that even those buyers will be prohibitively impacted by the overall uncertainty and consequent lack of consumer confidence that is permeating the entire domestic market. The stamp duty cut might however do more to move the needle for UK expat and foreign national first-time buyers as it means welcome savings on valuable investments. But UK expat and foreign national first-time buyers are in a really unique position as they’re also competing in a different mortgage market to domestic first-time buyers and they are at an advantage because of the favourable currency conversion, comparative higher incomes, and frequent lower tax rates.’
What’s the Outlook?
So, what’s the general outlook for UK expat and foreign national investors with all the changes that have come from the chancellor’s mini-budget announcements? ‘In short’, says Stuart Marshall, ‘UK expat and foreign national buyers can be far more competitive than domestic buyers in the current market conditions. This is, in large part, due to consumer confidence, which is at an all-time low. It’s hard to see this changing with the way the situation currently sits. Domestic buyers are finding their budgets tightened by rising energy costs and a higher cost of living as a result of inflation. The recent mini-budget has damaged the value of the pound, which means that imports will cost more and this will, in turn, contribute to higher inflation. The Bank of England’s response is to raise interest rates, which is hurting buyer power with regards houses and further damaging consumer confidence.’
‘In the housing market, this means that house price growth will slow, and the market will continue to turn into a buyers’ market as surging mortgage rates, a weak pound, higher inflation, higher cost of living and general economic and political uncertainty continues to do damage. This buyer’s market has been emerging for a while as greater numbers of houses up for sale have seen price reductions over the spring and summer. This is largely a result of buyer demand reducing. And, as the situation continues to worsen for prospective domestic buyers battling heightened mortgage rates and the rising cost of living, buyer demand is likely to see further declines. In the meantime, there are likely to be more sellers in the market as houses stay on the market for longer and some homeowners are forced to sell or downsize amidst the rising cost of maintaining mortgage payments. On the other hand, UK expat and foreign national buyers have access to unique mortgage products in the UK expat and foreign national mortgage market, they are benefitting from a weak pound which increases their deposits and buying power. In addition, first-time UK expat and foreign national buyers will benefit even more because of the reduced stamp duty. Because properties are staying on the market for longer, it’s more likely that UK expat and foreign national buyers will be able to get a bargain. This is particularly true on flats, which have not appreciated to the same degree as houses and which are also incredibly popular in the rental market – meaning they’re a great choice for most UK expat and foreign national investors.’
‘Looking to the future, UK expat and foreign national investors are likely to benefit in the long run as the market recovers in the coming years. This is the predicted trajectory as five-year fixed deals are now cheaper than two-year fixed deals which means that lenders are anticipating rates to rise but they are also anticipating them to start falling again in a few years. When rates start to fall again and the market stabilises, it’s likely that all the delayed or abandoned purchases that domestic buyers want to make will push prices up again and UK expat and foreign national investors that invest now will benefit from the capital gains caused by these price hikes. In the meantime, UK expat and foreign national investors will benefit from an incredibly buoyant rental market which is populated by would-be buyers barred from ownership by the current market conditions.’
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