From Turkey to London: The enduring allure of UK BTL investment – Michaelides

This can seem somewhat counterintuitive, given premiums on stamp duty for non-residents have increased the upfront costs of entry biting into potential returns. And the incoming rental rights reforms, which promise greater protections for tenants through measures like extended notice periods and caps on rent increases, have introduced additional layers of regulation. These changes, while aimed at improving the rental sector, have inevitably added compliance burdens and have tempered yields in an already competitive market.

Despite this, our international lending hasn’t noticed demand drop away; overall, it remains robust. The UK remains an attractive destination for property investment for several reasons.

UK has many benefits

For many overseas investors, a property in the UK represents a strategic foothold, establishing a tangible presence in a market that could facilitate future business or family relocations, even if the asset is primarily let out to generate rental income.

London’s status as a global hub further amplifies this, with a world-class financial services sector, cultural institutions, and connectivity drawing investors who value proximity to international networks. However much we beat ourselves up, London, along with New York, is in the top two rated cities in the GaWC World Cities rankings.

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Underpinning all this is the UK’s stable and transparent legal system. Investors from less stable jurisdictions appreciate the rule of law, clear title deeds, and conveyancing processes that minimise risks. And our dispute resolution is envied in other parts of the world.

The UK is increasingly viewed as a ‘safe haven’ amid the current geopolitical climate. Global tensions, from conflicts in Eastern Europe to trade disputes, have heightened the appeal of stable democracies like the UK.

Investing in buy to let (BTL) in the UK is also seen as a way to diversify wealth. Non-resident investors are looking to spread risk across geographies and asset classes. In an era of volatile stock markets and cryptocurrencies, tangible real estate in a mature economy like the UK’s offers a hedge against inflation and economic downturns.

The availability of financing plays a crucial role. As lenders, we see non-residents benefitting from competitive mortgage products tailored to their needs – with particularly low rates available for expats – including higher loan-to-value (LTV) ratios for BTL (up to 85%), more flexible terms that accommodate international income sources, and specialist products that fit a given economic climate, like our fixed to tracker switch offering.

Another attraction is the perception that new developments are well-built. That might seem odd to brokers in the UK who are used to consumer complaints over, say, poor snagging. But our build quality and buyer protections hold their own on the international stage.

Finally, there’s strong demand in urban areas, where entrenched supply shortages have driven decent capital growth. That means places like Manchester, Edinburgh, and Birmingham – not just London – offer a compelling case for long-term appreciation. Of course, this is equally interesting to landlords here in the UK. Cities grappling with housing deficits ensure consistent rental occupancy and every landlord wants that.

But then there’s the big one: currency movements play a pivotal role in influencing international investment decisions. A strengthening pound can enhance returns for foreign investors when converting back to their home currency, while a weakening one might amplify capital gains over time.

Demand from China, which was once a dominant force in the non-resident BTL segment, has cooled. The slowdown there can be attributed in part to stricter capital controls being imposed by Beijing to curb outflows. Equally, the weaker yuan has eroded purchasing power for overseas investments and made UK properties less affordable.

Conversely, one of the most striking trends we have seen recently is the growth in demand investors from Turkey. Economic instability there, characterised by volatile interest rates and inflationary pressures, has prompted plenty of high-net-worth (HNW) individuals to seek some stability abroad. The Turkish lira’s fluctuations have also made UK assets appear increasingly attractive as a hedge against domestic uncertainties. Turkish investors see UK property as a reliable store of value that provides peace of mind in uncertain times.

In summary, while stamp duty surcharges and regulatory reforms present ongoing pressures, the multifaceted advantages – from safe-haven status and quality developments to legal stability and opportunities presented by currency fluctuations – continue to fuel non-resident BTL demand. The UK’s property market remains a beacon for global investors seeking reliability and returns in a turbulent world.