Why Bridging can be a Foreign concept

It has been well reported that the UK economy has had a turbulent time since September 2022. We’ve seen interest rates and inflation soar, and the cost of living impacting our daily lives. Wider afield some of these same challenges have affected the US and eurozone, with banking collapses, and further macroeconomic factors coming into play.

But one aspect where foreign markets have fared well is when considering the relative strength of their respective currencies against the GBP. Typically, the UK has had a strong exchange rate in comparison to major currencies, whether it’s getting more bang for your buck on your holiday, or UK investors being able to flex their financial muscles as they invest in foreign property. But, we are now seeing more opportunities available to foreign investors and ex-pats who are looking to capitalise on inward UK investment opportunities. But why the United Kingdom?

Why is the UK attractive for investment?

The UK has always been viewed positively by many foreign investors, whether it’s down to legal, tax, culture, climate, or rental yields. It’s reported by Landlord Today, that London is home to 103,425 properties in foreign ownership, which is 36.9% of offshore-owned properties across England and Wales.

Despite rising interest rates, we have seen property values across the UK resilient, giving investors greater surety that their investment will be secure in the short, and longer term. For foreign investors, UK rental yields have always been attractive when compared to other European countries. Looking at rental yields, according to Global property guide, the UK is deemed ‘Moderate to Good’ with gross rental yields at 6.21%, this is significantly higher than other major European countries including Germany (3.12%), France (3.97%), Netherlands (4.90%), Portugal (5.20%), Spain (5.57%), Switzerland (2.94%) and Sweden (4.63%). Along with the financial reasons, there are many cultural and language reasons why foreign investors may choose to invest in the UK.

Despite the positives, there are some negatives with foreign investment. From April 2021, a 2% stamp duty surcharge came into effect for overseas-based investors, which is in addition to the existing duty and can be a deterrent. There are also further tax and legal ramifications for foreign investors, including changes to rules of ownership through trusts and offshore companies (SPV/PIC) which could lower exposure to certain taxes. Although this is being impacted by changes by the HMRC.

Bridge-to-Buy?

Can a Bridging loan be used to purchase a property? It is becoming more common for foreign investors to consider a bridging loan when looking to purchase primarily because of the shorter length of term.

Specialist lenders can often provide funds via a Bridge in a very short space of time, meaning deals can be transacted more quickly. The essence of a Bridge means that it provides a pathway for buyers to their end destination, whether that’s a sale or let.

We are seeing buyers explore the possibilities of using Bridging loans for property purchase, which, with the exit strategy either a long term let or sale of the property if the market changes. Due to the weaker pound, foreign investors are seeing the UK as a good opportunity. But foreign investment is not always here for the long term, as we can see properties left empty for longer periods of time where they are no longer needed if they are treated as a luxury and not a revenue stream.

Although this may be a unique method of use for Bridging financing, the flexibility of these loans can serve a useful tool us for foreign investors who can take advantage of the market conditions and act quickly to secure the best possible deal. Typically seen as a more expensive approach by many, but it can prove to be cost-effective in the right environment for some clients who would not need to liquidate assets or move finances onshore.

West One can provide Bridging finance in a matter of days using a personal approach to understand buyers and any complex circumstances they may have. This approach through a specialist lender allows for a two-way communication to understand any complications from the outset on where any flexibility may be needed.