An influx of overseas buyers

There has been an influx of overseas buyers since the general election all wanting to buy up portfolios of prime central London property.  In the days immediately following the election there was a surge of property requests and completions.  There seems to have been a pause in buying in the run up to the election as potential buyers waited to see who the next Government would be and whether the dreaded mansion tax would indeed become a reality.  In the days after the election there was a release of this pent up demand.

This did not stop in the first week though and is ongoing.  The challenge now is which lenders will lend to those overseas buyers needing a mortgage.  Many overseas buyers set up companies in tax havens around the world before buying.  Lenders consider some jurisdictions, such as the Channel Islands, more acceptable than others, such as the British Virgin Islands.  While some lenders will accept this, these jurisdictions are less transparent about a client’s financial affairs, which can understandably make a lender nervous.

Fundamentally a lender needs recourse to recoup their money if somewhere down the line a client doesn’t keep up the payments on their mortgage.  This means that many lenders will lend if the ultimate beneficiary is in the UK but not if they are overseas.

Another consideration is a political one.  Since the credit crunch, London property has been seen as a safe haven for wealthy people from across Russia, Greece and the Middle East to put their money.  Some countries are seen as more politically acceptable for banks than others.  With growing pressure from some activist groups for banks to divest any loans or investment in companies that are not politically or ecologically sound banks are increasingly keen not to incur the potential bad press from lending to the wrong person or company.

Of course most of these are very subjective measures, so for people trying to place a commercial mortgage it can be a rather time-consuming challenge, although very rewarding when it all goes through.

One thing is for sure and that is that the increase in interest in prime London property will at worst firm up prices there again and is likely to crease another mini-boom.  This will give a lift to average property prices across the UK regardless of whether prices rise or fall anywhere else.  

By Robert Collins, director of commercial finance, Brightstar