Foreign Landlords Ditch London As UK Government Pushes Them Out

The proportion of overseas-based landlords who own homes across Britain has slumped to a seven-year low, said the country’s largest letting agent.

Countrywide – which lets 90,000 properties – said just 5% of British properties now have overseas owners, compared with 12% in 2010.

Of the 90,000 properties studied, the fall was most pronounced in London, where the proportion of foreign landlords fell from 26 percent in 2010 to 11 percent this year.

The investor demographic in London has also shifted since the start of the decade. Asians now constitute the largest investor segment in the capital, while the number of European owners has dropped from 39 percent to 28 percent over the past seven years.

Foreign investors have previously been blamed for pushing up house prices, particularly prime properties in London and the South East. Prime properties are defined as homes priced at £1m and above.

But now, overseas landlords have been put off by higher tax bills and lower expectations of house price growth in the capital, which until recently had boomed for several years.

One in 20, or 5%, of homes let in Britain is owned by overseas landlords, according to data from the letting agent.

The fall in sterling following Britain’s Brexit vote last June could have been expected to buoy overseas buyers but increased economic and political uncertainty and a more punitive tax landscape is thought to have dampened sentiment. Last year also saw a stamp duty hike for people buying second homes, including buy-to-let investors, among other tax changes for landlords which could potentially eat into their profits.

Investors who already own a property have had to pay a 3% surcharge on stamp duty since April 2016.  This meant that landlords purchasing a London apartment costing an average of £518,511, based on 2016 Rightmove estimates, had to pay a further £31,481 in tax, rather than the previous £15,926.

And since April 2012, companies buying property in the UK have also been liable for the annual tax on enveloped dwellings. Overseas-based landlords have also seen the removal of capital gains tax exemptions in 2015.

“A steady increase in foreign investors’ tax bills combined with more recent falling expectations of price growth in London has led to a decline in foreign investment in buy-to-let,” said Johnny Morris, research director at Countrywide.

“It’s great to see government’s tax changes for buy to let landlords beginning to work”, Reuben Young, policy and communications officer at PricedOut, a campaign body for affordable housing, told CNBC via email. “Landlords buying homes – both foreign and native – consistently outbid first-time buyers before the changes started to take effect. Now we’re seeing rents beginning to stabilize.”

The government has also been rolling out a number of initiatives aimed at deterring overseas investors, who are often accused of driving up prices, and assisting first-time buyers. This includes a scheme unveiled last week in Manchester, one of the country’s most expensive cities, which gives preference to buyers living and working in the city.

DMZ thinks the Government’s tightening on overseas landlords has created more opportunities for UK investors and First Time Buyers, stifling the seemingly unlimited foreign demand and forcing house prices to level off. Squeezing the supply is not good news for developers, however, who are now struggling to shift their projects in a more competitive environment. The move will ultimately assist families looking to get onto the housing ladder at the expense of some in the industry. The smart money is arguably against developers in the current environment, with the spectre of looming interest rates ready to turn off the free credit tap – it could be a tough 2018-9 for boutique or highly leveraged projects.