Sterling prospects attract foreign property buyers

Published 24th Dec 2008

Sharp falls in sterling and the prospect that interest rates could hit zero per cent next year are luring foreign buyers into the UK property market.

Estate agents said buyers from Europe and Asia were eyeing up luxury flats and houses in London as large savings could be made compared with a year ago.

Property prices will end the year about 15-25 per cent down on last year which, together with the recent plunge in sterling, means properties may be at least a third cheaper for some overseas buyers.

The pound almost reached parity with the euro this week as speculation grew that the Bank of England would slash interest rates to close to zero per cent next year. It has also suffered severe losses against the Swiss franc, dollar and yen.

Knight Frank, the estate agent, calculated that a house priced at £8m at the end of 2007 – which at the time would have been worth €11m – would now go for the equivalent of about €7.8m. This represents a fall of almost 30 per cent in euros, more than double the drop for those buying in pounds. Buyers with dollars would have seen a decline closer to 40 per cent.

Knight Frank has seen more interest from Americans and Europeans in recent weeks, although most were not yet buying.

Hamptons International’s Knightsbridge office has done 50 per cent more deals in December than any other month this year, with buyers coming from the Middle East, China and India.

Meanwhile, Douglas & Gordon, another agent, has seen an influx of wealthy Italian buyers and Winkworth said buyers were coming from Hong Kong and Singapore.

“The increase in overseas buyers is marked,” said Ed Mead, sales director at Douglas & Gordon. “It will be a long time before they see these savings again.”

Buyers at the higher end of the market tend to make their purchases in cash, so are not driven by the prospect of lower interest rates.

Those who do plan to take out a mortgage are being urged to secure a deal early to benefit from falling interest rates.

“The further Bank rate falls, the higher the margin which new tracker deals will be priced,” said Ray Boulger at John Charcol. “The best rate at the moment is Bank rate +1.49 per cent but, at the end of next year, most new trackers will be on a margin of at least 2.5 per cent over Bank rate.”

Source: ' FT '

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