Foreign buyers own close to 13% of the property in London. Should the UK ban foreigners from the British property market? Will this help bring down the house prices in the UK? Personal Loans Now explores.
- Following New Zealand’s lead
- The housing crisis in New Zealand and in the UK
- The truth about foreign home ownership in the UK
- Whether the UK should ban foreigners from the British property market
- Ways to bring down house prices in the UK
During the recent election campaign in New Zealand, the New Prime Minister, Jacinda Ardern, made the housing shortage in the country a prominent issue. Linking the lack of affordable houses to the numbers bought by foreigners, the new PM promised to ban the sale of the property to non-residential buyers.
With an annual rise in property prices of 10.4%, New Zealand is currently ranked 10th in 55 worldwide housing markets. This is according to a recent survey by property consultants Knight Frank. But, how similar is the housing crisis in New Zealand to that of the UK? And would such a measure be possible here in an attempt to make more housing stock available to residents?
The Housing Crisis in New Zealand & the UK
Personal Loans Now, offering access to some of the most trustworthy personal loans online, state that, the main difference between the two countries is their population size. However, regarding changes in property prices, they share many similarities. Both have seen house prices soar over the last 20 years fuelled by low interest rates, limited housing stock and the influx of immigrants buying property. The UK market has also been affected by an increase in the numbers of people buying property to rent. This has further reduced available houses and pushed up prices.
In both countries, it’s felt that the sheer numbers of non-native buyers have also led to rising house prices. Another criticism is that many purchase property as an investment, rather than as a place to live. As a result, many of these potential homes remain empty. On the other hand, others claim that foreigners are more likely to buy top-of-the-range housing. Therefore, their house purchases don’t affect the prices of smaller homes that first-time buyers would be more interested in.
The Truth about Foreign-Home Ownership in the UK
Evidence about the effect of foreign home ownership on the housing market tends to be contradictory. A 2017 London School of Economics report was commissioned by the Mayor of London. Sadiq Khan revealed that foreigners own 13% of property purchased in London. They also found that there was almost no evidence of new-builds bought by non-residents being left empty. Also, they said that many of the homes were higher-priced than average.
In separate research by the University of York, it was found that 3 in 5 homes in London belong to residents of 4 countries: Hong Kong, Singapore, Malaysia and China. They discovered that around half of the homes cost less than £500,000 and are not in higher-priced areas of the capital. Just over half (53.5%) had a mortgage. With such a high number of people not requiring a mortgage, it’s likely that only very few people required home improvement loans to rennovate their home.
The picture which emerges is that the Asian middle-class are buying these homes. They want to get their foot on the property ladder and invest their money outside their country. The Bow Group think-tank emphasise that foreign buyers can push up prices across the board even when they buy in ‘unfashionable’ areas. They say that estate agents react quickly to changes in the market and put up their evaluations for property prices accordingly.
Could We Ban Foreigners from the British Property Market?
Bearing in mind the present political climate, it’s very doubtful that the UK would follow the example of New Zealand. Opponents from different parties unite in their opposition to ban foreigners from the British property market. They cite reasons such as it goes against laissez-faire market economics or it would be racial discrimination. Also, foreign property purchases bring cash into the country.
Others point out that there could be repercussions for British ex-pats wanting to buy homes in other countries. They perhaps don’t appreciate the point that the ban would only affect non-residential buyers. Other critics of the ban point out how easy it would be to circumvent the prohibition of foreign homeowners. This can be done by hiding their identity behind shell companies who would buy on their behalf.
If such a ban is both undesirable and difficult to implement, how else could we reduce house prices in the UK?
Ways to Bring Down House Prices in the UK
The Tory think-tank, the Bow Group, believe that the way to bring down house prices is to cut demand. This can be done by limiting foreigners to only being able to buy one property. They also suggest that there should be penalties if they re-sell within 5 years. They recommend that the Bank of England should set a target making house prices no more than 4 times the average salary in an area. It’s also hoped that recent legislation to control rent-to-buy landlords would also cut demand to prevent the rising costs of house purchases.
Others advocate that foreign buyers should receive an additional stamp duty charge (anything from 1%-20% of the purchase price has been put forward). The local authorities will collect these funds and use them exclusively to build affordable housing for local residents with ties to the area.
It’ll be interesting to watch and see the results of New Zealand’s ban and whether it has any effects on house prices in the UK. Positive results would give supporters of a similar ban in the UK the proof to push through the legislation to ban foreigners from the British property market. Everyone agrees that house prices are too high in the UK. But, it’s very difficult to see how to reduce these prices without hurting homebuyers financially. If the property market bubble were to burst, a lot of homeowners would face negative equity. Many would be left with a home they would be unable to sell.