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Increased Taxes Weigh Heavily on UK Property Market

UK Housing Brexit
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July 23, 2017 By: , No Comments

In 2010, 12% of all UK homes were owned by foreigners. Today, that number is just 5%. The number of foreign landlords has rapidly declined in the United Kingdom, owing to increased taxes. The research was conducted by Countrywide – a real estate enterprise – and released on Monday, 17 July 2017. The changing face of the City of London’s property market is raising eyebrows across the board. The report studied an estimated 90,000 properties across the United Kingdom. The biggest decline in foreign ownership of UK property was reported in London. In 2010, 26% of properties in London were owned by foreigners.

Fast-forward to 2017, that figure dropped to just 11%. There are also many changing demographics taking place in the UK, notably in London. Previously, European property owners dominated the scene, with some 39% of ownership, however that dropped to just 28% in 2017. Now the biggest investor group comprises Asians.

While UK house prices have increased since the Brexit vote, the increases have been rather limited. Between June and July 2017, the average house price increased by just £300. The UK property market is also seeing a stabilization in rent prices, owing to the slowdown in property purchases. Prime Minister Theresa May’s government is also intent on assisting first-time buyers in the UK and preventing foreign buyers from raising prices unnaturally. This stabilization mechanism may not have the intended effect on the UK economy.

 

What is driving these changes in the UK?

There are several theories about why the UK property market has changed so dramatically. For starters, the June 23, 2016 Brexit referendum completely shifted expectations. Investors who had dropped anchor in the UK property market were suddenly shaken to their core. The GBP plunged to a 32-year low, after trading at 1.48 to the USD on June 23. This means that the UK value of properties plunged overnight.

While the City of London remains a prime real estate destination, the GBP does not offer enhanced security as a currency par excellence. The political uncertainty that followed the Brexit decision, and the general election on June 8, 2017 did not serve the UK well. Prime Minister Theresa May’s position has been severely hamstrung, and her negotiating hand has been weakened by the hung parliament which ensued.

 

Why the higher stamp duty?

Ironically, a weak GBP may serve as an enticement to foreign buyers. With EUR, JPY, INR, HKD and other currencies now able to purchase more GBP per unit, it would appear that the UK is an attractive destination for property investments. However, it is the rising uncertainty in the United Kingdom, and the exodus of multinational corporations, financial enterprises and banks that is presenting problems.

There are new taxes being levied on companies which are buying properties as investments in the United Kingdom. This is known as the Annual Tax on Enveloped Dwellings. This can increase costs in the region of £3500, all the way up to £7000.

Plus, there are additional considerations. Consider, for example that foreign investors were required to pay 3% stamp duty on the purchase of secondary properties. This acts as a disincentive to investors. When measured in GBP terms, that’s 3% tax can equate to an average stamp duty of £31,481, compared to the former figure of £15,926 for secondary properties.

 

 

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Brett Chatz

About Brett Chatz

Brett Chatz is a graduate of the University of South Africa, and holds a Bachelor of Commerce degree, with Economics and Strategic management as his major subjects. Nowadays Brett contributes from his vast expertise in online trading for spreadbettingreview.co.uk.

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