Market forces have driven down the value of the pound relative to other foreign currencies boosting aggregate demand from international investors for UK real estate assets. Offers in prime London and outer London property markets have reached historic levels recently as sophisticated opportunistic home buyers leverage a weakened sterling to secure valuable real estate holdings in the UK capital.
The pound dropped to its lowest level since March 2020 against the dollar to $1.20 as well as dropping to its lowest level against the Euro since May 2021 at 86.81p. This on account of the market pricing in the possibility of a Scottish referendum as well as interest rates anticipated as rising 0.25 per cent points to a 1.25 per cent base rate imminently.
This has the dual effect of reducing UK resident purchasing power abroad, increasing the likelihood of investing domestically, as well as enhancing the purchasing power for foreign direct investors. The pound has depreciated 10 per cent annually which offers a significant discount on UK assets. This impact is being seen in the London residential property market where May offers in prime central & outer London eclipsed levels not seen for over a decade, according to Knight Frank.
In the past 70 years, the UK property market has grown by 365 per cent on an inflation adjusted basis, according to Savills data. Considering the persistent advantages offered by world class infrastructure, top educational and societal institutions, as well as core fundamental competences in finance and technology propelling the employment market, the long term case for UK investment is a strong one.
A steady growth in house prices is forecast across Britain with Savills predicting overall price rises of 3.5 per cent in 2022, and 3 per cent in 2023. Prime London housing is expected to outperform Britain as a whole with sales in the prime regional real estate market forecast to increase by 22.2 per cent over the next five years according to a statista report.
“Ashley Bayliss, Head of Debt & Mortgage Advisory at Knight Frank in the Middle East, added, “UK interest rates have recently risen in-line with other international markets, however, the investment case for UK real estate remains compelling when considering both the continued potential for growth and current weakness in GBP.”