The British pound’s historic decline in recent days will further fuel demand this fall among foreign buyers looking for a deal on London’s luxury real estate—even amid increased taxes on U.K. home sales, experts say.
The pound has seen a spate of historic lows against rival currencies after British lawmakers signaled the country would make a hard exit from the European Union. Last week, sterling hit a 31-year low against the dollar, and then fell to its weakest point ever against a basket of other currencies on Tuesday.
While the plunging pound has caused economic uncertainty in the U.K., the devaluation has made British exports more competitive, including property. Wealthy foreign buyers, especially those with currencies pegged to the dollar, have seen their budgets stretch further for luxury homes in London.
As a simple example, a home priced at £2 million would have cost a dollar-backed buyer close to $3 million in the days before Brexit. Last month, it would have cost the purchaser about $2.7 million. And as of Wednesday, that buyer would pay closer to $2.4 million. That steep discount excludes further corrections in U.K. home prices since Brexit, which sellers and vendors have reduced even in sterling terms amid the economic uncertainty, experts said.
"For an international buyer, it’s the perfect storm if you’ve got dollars to buy in London. You’re getting a great deal," said Chris Lanitis, director and partner at Amazon Property. American and Middle Eastern buyers, whose currencies are fixed to the greenback, benefit particularly from the exchange rate, he said.
Since Brexit four months ago, Mr. Lanitis has exchanged just over £20 million in apartments, including three to international buyers who came in to take advantage of the weakened pound, he said.
Two of the buyers were from the Philippines, looking to buy pied-a-terres. The third was a family relocating from Azerbaijan, who bought a unit for £8 million.
The devalued pound comes just in time for the fall season, which usually sees an uptick in market activity after the summer, which is traditionally a quiet time for the luxury residential market while buyers go on vacation.
Sales were especially cool this summer, even despite Brexit, thanks to a 3% increase in stamp duty, or taxes on residential property, which went into effect in April for second homes and buy-to-rent sales, Lucian Cook, director of Savills Residential Research, said.
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The past two months have seen some recovery. "We’ve certainly seen a bit of a pickup in activity," Mr. Cook said. "That primarily driven by overseas buyers."
Today, the total stamp duty on second homes and buy-to-rent properties of more than £1.5 million is 15%. Though the exchange-rate discount now more than covers that tax, according to some experts, the tax is still having a negative effect on the market. "You have many moving parts," said Tom Bill, head of London residential research at Frank Knight. "But the main issue is the stamp duty. Sales have cooled and are still running about 20% off where they were."