THE downturn in house prices is likely to lead to a fall in demand from foreign buyers in the UK property market, a leading expert has predicted.
New data revealed earlier this month revealed that more than 70 per cent of ‘prime central London’ properties sold so far this year have been bought entirely in cash.
The report by estate agents Savills has fuelled concerns that rich overseas buyers are snapping up properties at the expense of working Londoners.
But Jonathan Rolande, from the National Association of Property Buyers, said demand from overseas investors was likely to become “subdued”.
He said: “London has continued to attract investment from the wealthy despite the downturn in prices in the last year. The minor fluctuations can be overlooked by those who still see the UK, and central London in particular as a safe place to leave their money. For many buyers, an inflation rate of 9% is nothing compared to rates in some countries.
“However, overseas buyers are at something of a disadvantage despite their wealth, they must pay an additional amount of Stamp Duty of up to five per cent more than their UK-based competitors.
Outlining what he thinks will happen next, he continued: “With the hope of substantial gains in the property sector fading fast, demand from foreign cash buyers will soon be more subdued. However, the trusted nature of Britain’s legal system around property means London will still be an attractive prospect for those who stand to lose more by leaving capital in their home country.
To redress the inequality felt by many Londoners, another increase in Stamp Duty for these buyers may well help to do so but the Government walks a tightrope. The huge wealth that these investors bring to the UK would be missed if taxes were set so high, and they were deterred from coming here in the first place.
Mr Rolande added: “It is therefore more likely that the general downturn in prices will serve as its own deterrent. Ironically, this also means that many locals will still be unable to afford a city property as mortgage lending rules tighten and higher interest rates make borrowing even more expensive, despite lower asking prices.”
A total of 71 per cent of prime central London have been bought mortgage-free in the seven months from January. That compares with about 35 per cent for the UK as a whole.
It comes as soaring inflation has led the Bank of England to push interest rates to a 13-year high of 5 per cent, which has in turn led banks to raise mortgage rates, making large home loans increasingly difficult to afford.
