Over the past 5 years, the number of overseas investors investing in the UK has increased by almost 20%, with the number currently sitting at just over 184,000. This has resulted in the market becoming more competitive, especially for those first-time buyers looking to get their foot on the property ladder.
To try counteracting this, the UK government put in place an extra stamp duty charge of 2% for overseas investors but is this a good idea? What if this only pushes investors away from the UK?
What do we know?
The UK housing market has always been seen as a strong market to invest into, which is what has drawn in investment from overseas. However, as a result of so much foreign investment, the UK government has now created an additional 2% stamp duty charge to these overseas investors.
Since April 2016, those investing in a second property, whether that be a UK or overseas investor, have to pay an additional 3% of stamp duty for any property over £40,000. Adding this to the extra 2% stamp duty charge for overseas investors and they will be paying an additional 5% stamp duty charge compared to first-time buyers or people buying a new ‘main residence’.
Currently the stamp duty holiday is saving everyone large amounts of money, with those who would pay large amounts of tax, overseas investors included, benefitting the most.
However, with the end of the stamp duty holiday nearing, the costs to overseas investors will naturally become even larger – which begs the question will the extra stamp duty charges push overseas investors away from the UK?
Why the extra stamp duty charge?
As the UK has always been seen as having a strong housing market, further highlighted by its robustness throughout the Covid pandemic, it has always attracted attention from overseas investors.
However, with the housing market already in short supply, the addition of overseas investors only increases the demand for housing, pushing the prices up. The increasing house prices only makes it more difficult for first-time buyers to get their foot on the property ladder and makes it more difficult for ‘normal’ movers to find a new ‘main residence’.
Because of these factors, the government implemented an additional 2% stamp duty charge for overseas investors, on top of the extra 3% stamp duty charge already paid when buying a second property over £40,000, as a sort of ‘disincentive’ to try to reduce overseas demand for UK property.
As a result of the additional charges, an overseas investor buying a 2nd property worth £300,000 will pay an additional £6,000 compared to a UK investor and £15,000 more than a UK mover moving main residence.
These figures highlight exactly why an overseas investor may start to think twice about investing in UK property. Although the aim of the extra stamp duty charges is to reduce investment into the UK housing market, it creates a risk that investment will drop to extremely low levels.
At a time where the UK economy is particularly damaged by the effects of a pandemic, any drops in investment could have worrying effects.
What does the future hold?
Although it’s easy to see how these additional charges may put off foreign investors, our opinion is that it will not halt overseas investment much, if at all.
The UK is still relatively more affordable than other countries, with some great places to invest up and down the country. The rental yields of the UK are also increasing, particularly in the North of England, so any investor would see this money-making opportunity.
Previous to this extra stamp duty charge, there has already been some ‘disincentives’, Brexit and the Covid pandemic in particular, which hasn’t stopped overseas investors with the number only increasing over the past 5 years.
This is bad news for UK house movers, first-time buyers in particular, as it makes the housing market more competitive, and therefore more expensive, in a time where supply is already limited.