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It has been a month since the pound sterling fell to a 31-year low, followed by the country’s vote to exit the European Union. Many investors in the UAE have started planning to pick up UK property to take advantage of exchange rates. Additionally, the Bank of England cut interest rates from 0.5 per cent to 0.25 per cent, a new record low.
This recent cut was part of a £170-billion (Dh823.25 billion) monetary stimulus designed to prevent a post-Brexit recession. It also means that borrowing has become much cheaper.
How much cheaper?
A UAE property research firm has crunched numbers to determine that an average UK residential property is now £72,101 pounds ($96,000) cheaper for foreign buyers looking to enter the UK property market. Property in London today is 31 per cent cheaper compared with the previous market peak in the third quarter of 2007. Furthermore, asking prices are falling in London and Brexit could burst a bubble that has caused prices to double in the past. Foxtons, a London-focused estate agent predicted concerns that Brexit would depress London property sales for the rest of this year.
That said, there has been a huge demand from foreign investors since Brexit, primarily because of the exchange rates. This demand would mean that the prices in the UK should sustain.
According to Sawan Karan, Director of Home Matters Mortgage Consultants, “For those who are worried about the impact Brexit will have on real estate prices, we believe there is nothing to worry about. Even during the global economic crisis in 2008, London prices only dropped by about 5 per cent.”
Impact on buyers
Due to the devaluation of the pound, lower prices in the UK property market and the exchange rate effect will start to encourage UAE residents to acquire property in the UK, which has been a G7 country with a good history of achieving favourable economic growth.
Although the mediumterm fundamentals of the UAE market remain firm, a rule of thumb is to not over invest in one property or market. For example, anyone who bought property in the UK in cash using US dollar or UAE denominations will have suffered a devaluation in wealth due to the pound’s volatility post Brexit.
Therefore, you should diversify your portfolio and consider buying abroad. It is best to take your individual circumstances into account and consult a financial and mortgage consulting firm before taking the next step.
Benefitting from Brexit
Brexit offers expat buyers and investors holding US dollars an excellent opportunity to buy UK property at a bargain price. The combination of a devalued British pound and general market uncertainty is providing a rare buying opportunity.
UAE residents can also take advantage of the currency change. Since interest rates for the US dollarpegged dirham are expected to stay low for longer, UAE investors stand to gain by taking a loan in the UAE to pay off debts in the UK.
Property owners in the UAE can also get an equity release on their property and use the capital to buy an investment property in the UK. Since the UK rental market is strong, the rental income would be more than enough to cover the bank payment. By paying the capital and interests, an investor would reduce the loan, making indirect savings.
UK stamp duty
Property buyers in the UK also pay the Stamp Duty Land Tax (SDLT) and an additional 3 per cent if purchasing a second property (see table below). Therefore, property owners in Dubai who want to invest in the UK will be charged the stamp duty tax plus 3 per cent since it would be considered a second property. The following is a breakdown of the Stamp Duty Land Tax:
Consider working with a local mortgage consultant who can offer a wide array of mortgage options and assist with the UK property purchase from Dubai. A qualified mortgage consultant can open new doors and unlock a plethora of UK property investment
Source: Lynnette Abad, Special to PW