Is Now a Good Time to Invest in UK Property?

Whether you're a UK ex-pat looking to invest in property back home or an Overseas Resident national seeking your first overseas investment, financing your UK property is crucial. At Magnate Assets, we understand the concerns raised by rising interest rates and the value of interest-only mortgages. This article will address these issues and explore why the UK is an attractive destination for your next property purchase.

Do Overseas Resident Investors Need to Worry About UK Interest Rates?

The UK has long been a lucrative market for buy-to-let investments, with a history of exceptional performance, a thriving rental market, and steady capital growth. However, the recent rise in interest rates has raised concerns among investors. As of March 2023, the Bank of England increased interest rates for the eleventh time to tackle inflation caused by rising goods and energy prices. These rate hikes have affected mortgage repayments, with those on SVR and tracker mortgages experiencing significant increases. According to UK Finance, tracker mortgage holders can expect an average yearly increase of £880, while SVR mortgage holders face an increase of £554.64.

Despite these figures, overseas investors must be encouraged to invest in the UK. The British property market has proven its stability during economic hardship. The average UK home is valued at £288,000, an increase of £16,000 from the previous year, despite the impact of interest rates on mortgages. Moreover, landlords can still anticipate generous yields, as rental yields project a 4% increase in 2023 alone.

Is Now a Good Time to Invest in the UK from the Overseas Resident?

Confidence in the UK property market among overseas investors continues to grow, with a 19% increase in overseas investment in British property since 2016. Moreover, the interest rate increase is expected to be temporary. Efforts to address the energy crisis through green energy alternatives and resolve supply chain issues in the coming months and years should reduce inflation and interest rates.

Additionally, several regions in the UK are experiencing impressive growth, making them top investment hotspots for buy-to-let investors. Birmingham, Manchester, and Leeds, in particular, are set to benefit from the UK government's 'Levelling Up' funding, aimed at distributing opportunities beyond London. The upcoming HS2 rail network is also expected to increase house prices and demand in these critical areas. With significant investments and regeneration across the UK, property values are projected to increase by 20% over the next four years. Rental prices are also anticipated to rise by 12% nationwide as demand grows. As a result, the future of the UK property market looks exceptionally bright for overseas investors.

Interest-Only Mortgages for Overseas Investors

For many Overseas Resident investors seeking UK property investments, obtaining a UK mortgage is necessary, with interest-only mortgages prevalent among buy-to-let investors.

Sophia Kazmi, Director of Madewell Group, explains the benefits of interest-only mortgages:

"An interest-only mortgage allows you to pay only the interest on the loan amount each month, requiring you to repay the initial loan amount at the end of the mortgage term. This means your repayments are more affordable compared to a capital repayment mortgage. In addition, from a cash flow and buy-to-let investor's perspective, interest-only mortgages offer higher cash flow, enabling you to grow your property portfolio and diversify your investments."

Interest-only mortgages can also help overseas investors mitigate the impact of rising interest rates, as rental income from tenants is more likely to cover monthly costs, making the property self-funding.

What happens to the initial loan amount left at the end of the mortgage? Sophia lists three options: remortgaging your property, selling your property, or paying off your loan with your savings. With the average UK property doubling in price every 15 years, many investors will sell their investment at the end of their mortgage period to pay off their initial loan and have enough funds to invest in their next property asset.

“Assuming the property has gone up in value, you could then take out the equity you have built up in that property, grow your property portfolio, then take that equity to fund your next investment.”