Why paying for London property in US dollars could save you a fortune
Every week, City PM invites an industry professional to write about an emerging trend in the property market.
Wise investors spend their time looking for smart places to put their money. The current weakness of the pound against the US dollar has presented an opportunity in the London property sector for smart money from outside the UK.
For the last two years, the pound has fallen steadily against the US dollar. In February, as London mayor Boris Johnson threw his considerable weight behind the campaign to leave the EU, sterling slumped by nearly two per cent – its lowest point since March 2009.
Every quarter, Douglas & Gordon releases the Quarterly Property Index – a detailed tracker showing the movements in the property values in London’s residential areas. Trace the index forward from June 2014 and it shows house prices in London’s Prime and Emerging Prime areas have declined by 1.9 per cent overall.
But when the relative strength of the US dollar against sterling over the last two years is factored in, this decline translates to 18.5 per cent (in US$ terms).
Put simply, someone looking to buy property in London’s upmarket areas using US dollars could effectively ‘cancel out’ SDLT – even at the top rate – and still be getting a better deal than a sterling buyer.
The window is shutting fast though. True, the markets are expected to remain uncertain until the outcome of June’s Brexit vote. But as Scotland’s recent referendum showed, the exchange rate could rebound quickly if it becomes clear to investors that the UK electorate will vote to stay in the EU.
Even if they don’t, the fact a decision has been made – in either direction – will start to breathe confidence back into the currency markets.
Dollar buyers who finalised their purchase in February will have got some real bargains. But with two months to go before the polls, overseas property buyers who move fast still have a chance to make their money ‘smart’.