The Government has been reviewing the issue of foreign buyers purchasing UK residential property in a bid to help first time buyers, although there are no imminent plans to implement any restrictions.

This is a complex issue to untangle. There are no official statistics on the sale of residential property to overseas buyers, only estimates, as the government has not conducted any studies investigating the impact of overseas investment on property prices. ¹ Most of the estimates are based on figures in London, as it is widely accepted that the scale of foreign investment in residential property is lower outside of the capital. ²

The subject is further complicated by the definition of a ‘foreign buyer’. In the reports, market research and surveys carried by various think-tanks, estate agents, and the government itself, the definition ranges from either buyers that have non UK nationalities but live in the UK, or foreign buyers who reside abroad, which could also include British expats. Therefore whilst opinions can be formed there is no conclusive data on the subject.

The current market trends in the UK
According to a 2013 Knight Frank report³ the majority of foreign buyers who purchased in London were prevalent in the Prime Central London (PCL) and the new build market.

It is worth noting that these two markets, PCL and the new build market, only accounted for a small percentage of residential transactions in the UK as a whole and therefore, whilst they are popular areas for foreign buyers, the majority of buyers were UK residents. Furthermore, the majority of the new build properties were occupied either as an investment or residence, and so not left empty, despite concerns that there is a ‘Buy-to-leave’ problem in London.

How such restrictions might work
At present, there are no restrictions on foreign ownership of residential property in the UK. The two most favourable methods adopted elsewhere appear to be a stamp duty land tax on foreign owners only and a restriction on non-residents being able to purchase.

In Canada, Vancouver has a 15% stamp duty tax on all non-residents and Canadian citizens.⁴ Singapore and Hong Kong also have a 15% additional stamp duty for foreign buyers, and Australia charges additional stamp duty land tax to foreign buyers, which varies from state to state, but as a whole any foreign buyer would need prior approval to purchase.⁵

Switzerland and Denmark don’t have separate SDLT rates for foreign buyers but do have restrictions on non-residents buying residential property.^6&7

The impact they would have on the UK
If such restrictions were introduced they would certainly slow down the market. The recent changes in the SDLT regime for additional properties have already slowed the market, with reports by Nationwide in September confirming that London house prices fell for the first time year-on-year since the height of the financial crisis eight years ago, underperforming the rest of the UK.⁸

However, this is seen as a combination of the introduction of the higher rates of SDLT and also by Brexit, with a rippling effect expected to spread from central London to other areas. Other studies by the Smith Institute claim that overseas buyers raise demand and house prices in London, and suggest restrictions such as a Property Speculation Tax (PST), which would impose a high rate of tax if properties are sold quickly, could help reduce any future housing bubble and constrain unsustainable rise in house prices in London and the South East.⁹

It is arguable whether such regulation is needed, as it is possible foreign investors eased the housing crisis, by buying properties which are then let out.¹⁰ Berkley Homes has argued that foreign investment aids the house building process by providing finance at the early stage, enabling future development, and attribute high house prices to a lack of supply.¹¹

Any introduction of tax usually cools the residential market. There are also other uncertainties in the market which have created speculation on the whether foreign buyers are likely to be deterred, in the short term, by Brexit and instead seek an alternative country, such as the US for investment.

Summary
Unfortunately, this is not a problem that can be resolved swiftly or easily. The starting point would be to collect official statistics and see exactly whether or not there is any detriment caused by foreign buyers to domestic and first time buyers. It’s too speculative to introduce regulation or restrictions on foreign buyers without conclusive evidence. Trends are exactly that, therefore whilst it is clear that foreign buyers favour Prime Central London and the new build market, this could change. What is known, is that if regulation were sought then taxation would be the most likely deterrent.

What is clear is that the factors affecting domestic buyers, including first time buyers, need to be given greater consideration to solve the housing crisis. This includes tackling the rising student debts, increasing the lack of housing supply and making sure that any increased housing supply is more affordable for first time buyers. In order to help first time buyers all of these issues have to be addressed collectively, rather than looking at isolated issues such as foreign buyers, in order to tackle what is now a long term problem affecting not just first time buyers, but the UK housing market as a whole.

References
^{*1 (Letter from Lord Ashton of Hyde to Lord Howarth of Newport, 7 June 2016, Dep 2016-0523).}

^{*2 (Savills Spotlight: the world in London, 2014).}

^{*3 (Knight Frank, International buyers in London) and 2014 Savills report*(Savills Spotlight: the world in London, 2014).}

^{*4 (Guardian Money, Has Vancouver found the answer to a problem that is plaguing the world?, 1 October 2016).}

^{*5 (Australian Government, Residential real estate, accessed 1 September 2016).}

^{*6 (Swiss Property, Buying Property in Switzerland, accessed 2 September 2016}

^{*7 (Danish Justice Ministry, Foreign Acquisition of Real Property, accessed on 30 September 2016).}

^{*8 (Guardian – London house prices fall for the first time in eight years as the rest of the UK rises).}

^{*9 (Smith Institute, the case for a property speculation tax, September 2013).}

^{*10 (Alan Tovey, Foreign home buyers ‘easing housing crisis, Daily Telegraph, 10 May 2013.)}

^{*11 (Ed Hammond, Foreigners buy nearly 75% of new homes in inner London, Financial Times, 3 August 2013).}