Flowers sit in pots as they stand on the balconies of residential apartment blocks in the Westminster district of London, U.K., on Wednesday, Oct. 29, 2014. U.K. house price growth slowed to a nine-month low October, adding to evidence that the market for residential property is cooling. Photographer: Simon Dawson/Bloomberg
© Bloomberg

Overseas landlords are beating a retreat from Britain’s property market in the face of lower expectations of house price growth, a tougher tax regime and the impact of the Brexit-related fall in sterling on their rental returns.

The share of new lettings accounted for by landlords based outside the UK has more than halved in eight years, falling from 14.4 per cent in 2010 to 5.8 per cent in the first 11 months of 2018 — the lowest proportion recorded by estate agent Hamptons International since it began gathering the data eight years ago.

The decline was particularly pronounced in London, the country’s biggest housing rental market, where one in four homes — 26 per cent — were rented by an overseas landlord in 2010, but this has fallen to 10.5 per cent so far in 2018.

Aneisha Beveridge, head of research at Hamptons International, said: “International investors are quite savvy about what’s going on in the UK housing market and their future expectations of price growth are weaker than they have been for some time. They just don’t think property prices will grow as much as they have in the past.”

The overseas share of the London rental market fell by 4.7 percentage points in the past two years alone, which Ms Beveridge partly ascribed to the effects of the Brexit referendum on the pound.

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“Sterling’s depreciation since 2016 undoubtedly makes it cheaper for international buyers to purchase property in Great Britain. However, the conversion of pounds back into local currency means additional costs which cut into an overseas landlord’s monthly income.”

Overseas landlords in the data are predominantly based in western Europe, accounting for 34 per cent against 20 per cent based in Asia and 13 per cent in North America. Hamptons said it classified landlords as overseas according to their residential address, so the data did not exclude expat British landlords. For 2018, the research was based on 79,000 lettings across Great Britain.

House price growth has buckled since 2016, when it stood at 10 per cent according to the Halifax index. Figures from the mortgage lender earlier this month recorded growth of just 0.3 per cent over the year, suggesting a previous slowdown in London was spreading.

Changes in the tax regime have also counted against overseas landlords. From 2015, non-residents became subject to capital gains tax on the sale of residential property in the UK, removing a significant tax advantage. The move also covered the so-called “off-plan sales” popular among international investors in new developments such as London’s Nine Elms, where purchasers acquire the right to buy a home ahead of its completion.

Buyers of second homes in England and Northern Ireland have faced a three percentage point surcharge in stamp duty land tax since April 2016, raising the costs of purchase. For non-resident buyers, a separate 1 percentage point stamp duty surcharge now looms, after the Treasury announced in the Budget that a consultation on such a levy would be published in January.

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