London’s calling: How predictions of plummeting house prices will spark a resurgence in overseas property investment


Priya Chahuan OakNorth Bank

Real estate experts predict UK house prices will plummet by around 10% on average, with some suggesting London will see a drop of 12%.

With mortgage rates the highest they’ve been, first-time buyers are unlikely to see the benefit – but overseas property investors will certainly relish the opportunity to get back into a rarefied London market.

The Bank of England has had a busy few weeks trying to keep the UK’s inflation from soaring even higher. Last week they raised interest rates to 3% in a bid to tackle the longer-term impact of the recession.

These increased interest rates, inflation rates of over 10%, the disastrous mini-budget, and its quick U-turn have impacted the property market seismically, and the effects are already beginning to unfold.

The cost of borrowing, specifically mortgages, has rocketed to eye-watering amounts for homeowners coming out of fixed-rate mortgages and moving from a standard 2% to 5% – or even 6% in some cases.

All of this has unsurprisingly damaged buying power, with more people putting the brakes on their plans to move onto the property ladder for the first time. This has led to blanket predictions of a fall in house prices across the UK – the highest predictions hitting prime areas in outer London.

The enticing call of cheaper London real estate, that will recover by 2024

We already know that a weak pound is a welcoming windfall for overseas investors – many of which will be poised and ready to pounce on new acquisitions, both in residential and commercial real estate. And we’ve already heard about property funds rushing to sell assets at ‘bumper’ discounts.

So, now, with property prices falling substantially across outer London, can we expect a high influx of overseas investors and landlords? I think so.

Although borrowing costs are higher, real interest rates are still relatively low historically, so buyers will see savings benefits and look to the long-term advantages that the London real estate market offers.

Out of all of the UK locations, real estate agents predict the UK capital will return to stability the quickest given the constant demand for housing there. And with record highs for rental yield, overseas landlords will likely jump at a rare chance to get their hands on some more London assets, at a reduced cost.

Home supplies and mortgage rates increase outsized rental demand

The housing shortage is a pressing issue that successive governments have pledged to tackle since 2000. The target for 300,000 new homes per year set by the government has not been met, which means fewer houses are available. This means it’s now more common for people living in major cities to rent out rooms in shared houses.

As a lender, we know that developers are struggling to find the right access to finance. During economic cycles banks will rapidly withdraw their liquidity lines, which stalls housing development, causing a significant economic and social impact.

That’s exactly why we keep lending to expert developers, that can provide both affordable and sustainable housing. Since our launch we’ve helped the creation of over 25,000 new homes with our business loans.

Demand for rental properties in London has completely outstripped supply for years now, and this will be compounded by the interest increases and the cost-of-living crisis. So, for property investors and landlords with holding power, the current economic situation could present incredibly rare opportunities for growth.

Reactive markets require fast access to cash

Experienced portfolio landlords will want to act fast to close new acquisitions. But to close deals, they’ll need strong liquidity lines. And if they’re not buying with their own cash there’s always the obstacle of finding a suitable financing partner that can help them move at the pace they need.

My colleague Lucas recently talked about how new tech-first challenger banks, like OakNorth, can support complex overseas investors with nimble lending, as most lenders pull their mortgage or buy-to-let loans overzealously – which makes it harder for bullish investors to seize on rare high-growth scenarios.