Published: March 12, 2020

Budget 2020 & UK property: stamp duty & interest rates.

Written by Amber Furr
UK Budget 2020

After the UK Chancellor delivered his speech about his spending plans for the UK economy, we analyse the key things UK property investors need to know.

The UK Treasury has just updated Parliament on the state of the UK’s economy and government spending plans for the next 12 months. But what do UK property investors need to know?

You can read the Budget statement in full here. Below Select Property Group has highlighted the key announcements relating to stamp duty for non-resident buyers, in addition to details about the Bank of England’s emergency interest rate cut.

What is the Budget?

On Wednesday 11th March 2020, Rishi Sunak delivered his first Budget speech since taking over as the Chancellor of the Exchequer just over four weeks ago.

This Budget was originally scheduled for November last year but was postponed due to December’s general election.

It was the first opportunity the newly elected Conservative government have had to outline their spending plans and priorities.

Stamp Duty increase for overseas investors explained.

Mr Sunak confirmed plans for a 2% increase in stamp duty land tax (SDLT) for non-resident buyers of residential property in the UK.

However, this new surcharge will not come into effect until April 2021 – giving overseas property investors 12 months in which to invest in UK property before this new rate of SDLT.

Based on the current SDLT surcharge rate for non-resident buyers, the average UK residential property priced at £233,000 (as defined by Statista) will incur the following rates until April 2020:

From April 2021 onwards, the following levels of SDLT would now be applied on the same £233,000 residential property.

How non-resident UK property investors can offset the impact of the Stamp Duty increase.

1. Buy now!

On a basic level, non-UK resident investors wanting to completely shelter themselves from this new surcharge should buy UK residential property before April 2021.

In addition, the value of the pound versus the US dollar is also currently favourable for those buying UK property in foreign currencies. Compared to June 24th 2016 – before the UK’s referendum on EU membership, the pound is 14.7% weaker against the US dollar.

In just under four years since that vote for Brexit, the pound has fluctuated and, whilst still one of the world’s most resilient currencies, has yet to fully recover its losses.

This, coupled with the pending SDLT surcharge increase, makes for a compelling argument for overseas buyers to invest in UK property now.

2. Avoid London and choose high-performing regional cities.

For many overseas buyers, the idea of avoiding London’s property market to achieve greater affordability in other cities across the UK isn’t a new strategy.

While there’s research to suggest that performance in London has improved over the last 12 months, the capital’s high prices and slow rent growth over the last five years are in contrast to the type of affordability and higher returns that can be found in key regional cities, such as Manchester and Leeds.

Now, the prospect of higher levels of tax when purchasing a residential UK property further increases the attractiveness of property in cities outside of Britain’s capital.

Here’s how much overseas investors will have to pay in SDLT from April 2021, based on average property prices in each city as stated by property portal Rightmove:

3. Consider purpose-built student property

It’s one of the UK’s strongest property sectors. Over the last 15 years, purpose-built student accommodation (PBSA) in the UK has delivered high growth for global investors.

You can read our investors’ guide to UK student property to find out more about the strengths of investing in this highly lucrative sector.

Crucially, when it comes to stamp duty, PBSA is generally priced at lower rates. Therefore, SDLT rates are significantly lower, as average prices tend to fall under the price threshold.

In England, this threshold is £125,000. However, if your property is located in Wales, this will change further still. As property in Wales is subject to Land Trasaction Tax (LTT), rather than SDLT, the tax rates when buying property are different.

Emergency interest rate cut – what does this mean?

Ahead of the Budget on 11th March, the Bank of England also announced an emergency cutting of interest rates, from 0.75% to 0.25%.

Once again, borrowing costs in the UK are now back at their lowest level in history.

The move was designed to ease pressure on banks and businesses amid the current global COVID-19 outbreak. Governor of the Bank of England, Mark Carney, explained that “The Bank of England’s role is to help UK businesses and households manage through an economic shock that could prove large and sharp, but should be temporary.”

If you have a fixed-rate mortgage, nothing will change.

If, however, your mortgage is set at a variable rate of interest, you can expect your monthly repayments to be lower almost immediately.

What’s more, if you plan on taking out a mortgage soon, you may now be able to access lower rates of interest than you could have before 11th March 2020.

Summary.

Firstly, a cutting of interest rates should be considered as an opportunity for any UK property investor looking to make a move in the market with a mortgage in the short to mid-term.

The increase in SDLT on residential property for overseas investors, while undoubtedly an increased cost, should not deter any non-resident buyer from considering an investment in the UK:

  • The UK remains one of the world’s strongest property markets.
  • There is a huge undersupply in property versus demand from a rising population. This is unchanged.
  • By making careful investment decisions, such as choosing key regional cities over London, you can offset the impact the new SDLT rates will have on your purchases.

Finally, this new SDLT surcharge doesn’t come into effect until April 2021 – meaning overseas investors have a full calendar year to buy and complete on a UK property before these new rates of tax apply.

If you want to find out more about investing in UK property, contact us today to discuss your options and our latest opportunities with one of Select Property Group’s expert UK property consultants.

Share Article
May 27, 2024
The future of luxury city living: 6 unique features of One Port Street
April 30, 2024
How are GCC investors using a UK mortgage to unlock investment opportunities?
April 22, 2024
Where to invest in the UK property market in 2024
March 21, 2024
One Port Street reaches 90% sold milestone

Newsletter Sign Up

Be the first to hear about new investment opportunities and property insights.

By submitting your details via this online form you agree to be contacted via email. We do not share your personal details with third parties. To view our full Privacy Policy click here.