It can be clear to see that currency valuations have a massive impact on foreign buyers, but have little or none on domestic customers. It is important to note that the currency moves we have witnessed over the last year or so have been very positive for foreign investors looking at the UK, offering across the board discounts on everything of around 20%, as the value of the pound continues to languish. Obviously this is where the currency value does impact on domestic buyers as they see a continued flow of foreign investors pushing UK prices ever higher. But the question we ask is, is this a problem?
From the developer’s point of view, many would argue that this isn’t in fact a problem. This is because the demand continues, and they continue sell more properties. However, from the domestic buyers side, this may well be an issue as foreign buyers start to price the average UK buyer out of certain areas (as has recently been seen in London). On the flip side if you have property already, this move simply increases the value of your portfolio and therefore the impact is lessened as you will have had the benefit of the latest moves.
If you are looking to add then the move higher does impact. This is when you have to look further afield as an investor and start looking at areas that perhaps foreign buyers would not be aware of, at least not as obvious as London. This has led to other areas of the UK outperforming the usual hotspots of London and the South East. A major focus of investors has been to the North West of England, an area that has had large investment into it by the Government, creating this Northern Powerhouse initiative. All of this has seen cities like Liverpool and Sheffield becoming the number one buy-to-let cities, and the focus on these and Manchester is set to continue, albeit with an interest now from foreign investors too as returns on offer here become more apparent.
So where will the pound be in a week, a month or even a years time? This is a question that for many is difficult to answer and continues to be a problem for market participants. The main problem facing the FX market is that currency movements in the pound are dominated by Brexit, and little to do with the economy and other influences. For example, if the UK economy was doing well and the market was expecting a rate hike in a months time, then the value of the pound would be trading higher against foreign currencies, as it should. But, lets say we get a politician that comes out and states that negotiations are to be delayed for a time or there is strong disagreement on several points of the Brexit negotiations, then the GBP would fall, regardless of the economic situation. So my point here is that whatever happens to the UK all normal influences do still apply to currency moves, but any bad/good news around the Brexit story will force the value of the pound to move in the opposite direction, regardless.
So this is very binary, it is a good news, bad news scenario, and one that will be with us for some time yet, and therefore currency levels are difficult to predict.
There is a view held that the currency still has even further to fall, and that good news will be tempered quickly as the leaving process is so complex and has many stumbling blocks, and as such the ability for it to go lower is far greater than it is to go higher. Some market participants out there are expecting to see the price of the pound drop another 10% before it settles seeing the pound vs. the Euro at parity, and everyone knows the Foreign Exchange market loves a target!
So plenty to think about with the currency there, but generally of a positive nature for foreign investors as the price of our currency looks to remain on the soft side for some time to come.
Market forces are what they are and there is little you can do, so competition to search out and find good property will be a continuous problem, although it may make sense to perhaps keep an eye on the value of the pound, as that may help you determine whether there is a disproportionate demand from foreign buyers for properties you are looking at in certain areas, typically larger cities, and in most cases cities with an International profile. One thing to finally remember as an investor in property in the UK, we are an island that is obsessed with property, and they are not making any more land!
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The currency moves we have witnessed over the last year or so have been very positive for foreign investors looking at the UK, offering across the board discounts on everything of around 20%, as the value of the pound continues to languish. Obviously this is where the currency value does impact on domestic buyers as they see a continued flow of foreign investors pushing UK prices ever higher. But the question we ask is, is this a problem?Read Full Post