Overseas investors in the past have focused on commercial properties to achieve a good return on their capital. However, the Bank of England reports that investors from overseas are now more interested in investing in the buy to let sector of the UK residential property market.
Investment in London and beyond
London is often seen as the place to invest, owing to its position as a global financial hub, its cosmopolitan feel, its infrastructure and popularity with tourists, not to mention being home to some of the best schools in the country. That said there are good financial reasons for investing in the capital at present. Overseas investors have taken note of continued demand for properties to rent and the high rental yields that can be attained, particularly around London and the counties of South East England; Hackney currently offers yields of above 6%. However, overseas investors are now choosing to avoid investment in prime properties. While areas such as Belgravia, Knightsbridge and Mayfair were seen as a good bet as an alternative to investment in similar properties in the Eurozone, since the new stamp duty was introduced earlier this year there has been a slowdown in investment in prime properties within London. Elsewhere in the country over the last quarter houses and flats saw a return of 6.6%, while for houses of multiple occupation yields rose above 11%.With house prices falling in many areas, it makes sense that investors, both at home and from abroad, should want to take advantage of the buy to let property market, with investors targeting areas where prices have seen the greatest decline to generate the best returns. The move towards greater investment in the UK residential lettings market shows that it is a strengthening and profitable choice.
Negative consequences of increased property investment
However, it is not all good news. Increased investment in property is crowding out first time buyers; if they did not need to compete with landlords, property prices would be lower than they are at present. Although high end property in central London locations may now be cheaper to rent than they were, across the country as a whole the shortage of housing to rent has driven up the cost of renting a property further, with the average rent in the UK in September standing at £741; a 1.1% increase on the previous month and the sixth month in a row to see a rise. Rising rents is only adding to the problem that first time buyers face of saving a sufficient deposit to put down on a property.