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Home > News > Twin Boost of Positive Budget and Interest Rate Cut for London Property Pnvestors

Twin Boost of Positive Budget and Interest Rate Cut for London Property Pnvestors

Thursday, March 19, 2020

Stamp Duty

Rumours of an immediate hike in stamp duty of 3% for overseas investors buying London real estate were squashed in the Chancellors budget last night.

The Government has come in with a lower surcharge of 2% for overseas investors and have delayed this potential change for one year. If it does come into force it will not be until April 2021.

This is a massive boost for overseas investment into London. The current rising market, refreshed by a new and decisive government is set to have a bumper year now.

London stands out as the most cost-effective capital city in the world for overseas investors to deal in residential real estate.
Costs of dealing in Singapore, Hong Kong and Vancouver are in excess of 20% of the value of a property purchase.

In comparible cities such as Berlin, Paris and New York the costs are over 15%.

London remains inexpensive at a cost of just over 10% and there is at least one year’s holiday for investors to take advantage of this opportunity to buy into a quickly rising market.

Buying, holding and selling a $2 million property graph
Source: Savills (FT)

Interest rates

A substantial interest rate cut of ½% bringing rates down to an all time low of ¼% was deliberately timed to coincide with a supportive real estate budget.

Mortgages for London property up to now have carried rates of 3.74% p.a. (2.99% + base rate of 0.75%).

After yesterday ½% base rate cut, mortgages can potentially carry an interest rate of only 3.25% p.a. This becomes a massive boost to the investor market where mortgages of 50% to 70% are commonly taken out.

It means that now rental income on London property can be in excess of mortgage interest, the surplus being applied to capital repayment and still maintaining breakeven cash flow between mortgage interest/repayment and incoming rental income.

Applying just this ½% rate cut to mortgages saves £50,000 over the lifetime of a 30-year investment based on a £500,000 mortgage.

These twin boosts to the property market will undoubtedly create another wave of buying over the coming months.

To view new London projects for investors, view our developments here

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