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London Property Market 21 April 2016

Dollar and euro buyers set to pounce as Russians cash in on London homes

Sterling's fall against the euro and the dollar has paved the way for wealthy foreign buyers to pile back into London's residential property market, while those who bought in currencies that are currently faring less well against the pound, such as the rouble, have made huge returns on their investments over the past five years and in many cases are now cashing out at the top of the market.

Those transacting in currencies pegged to the dollar or euro, which includes Middle-Eastern buyers, are in a very strong position to invest in UK property as the pound has fallen by around 7% against both currencies in just three months and is being kept at recent lows by ongoing uncertainty ahead of the referendum on the UK's membership of the EU on 23rd June.

On the other hand, US or eurozone purchasers who bought a home in London five years ago and are looking to sell up and exchange proceeds back into dollars or euros have lost out: The average London home has risen in value by 57% in five years, but when converted into dollars at today's exchange rate that appreciation is around 34%. Russian buyers of London property spending roubles, however, will have seen a relative 253% return on their investment over the same period.

Guy Gittins, Executive Director at Chestertons, says: "UK home-buyers, especially smaller buy-to-let investors, are now in many cases facing a ten-fold increase in the stamp duty they pay on a house purchase since December 2014, while those buying in the euro or the dollar are finding the additional stamp duty is more than offset by the strength of their currency against the pound.

"While this is good news for prime central London homeowners looking to achieve maximum value on sales to wealthy overseas buyers, it is less welcome for first-time buyers in some of the more sought-after locations who are now effectively being priced out."

Jamie Hughes, from the Chestertons FX currency exchange service, adds: "Sterling has lost a lot of value recently and since November the rate against the euro and dollar has fallen 11.93% and 10.7% respectively. This is great news for many international buyers as UK property has suddenly become much cheaper, but conversely it will have hurt those who bought when sterling was much stronger.

"There's a lot of uncertainty around a possible Brexit and the possibility of the pound falling even further, meanwhil the dollar has started 2016 in strong fashion with the index close to recent highs. We can expect further consolidation or weakening of the pound while this uncertainty persists.

"Securing exchange rates is one way to protect investment against the uncertainty of currency volatility. That is one reason Chestertons added a foreign exchange arm to its business, in order to assist international property buyers save money and mitigate these possible risks," Hughes adds.