What does the falling GBP mean for international property investors?

Recent political upheaval fused with the ongoing cost of living crisis has led to a significant dent in the GBP – and this is unlikely to slow down anytime soon with forecasts of a deeper recession than first predicted.

With the pound being at its lowest value in decades this turbulent climate has quite rightfully made investors anxious of making any long-term commitments.

However, this may prove very beneficial for international investors who will be able to take advantage of the falling GBP with the exchange rate favouring foreign currency’s value.

This means that international investors will be in a good position to capitalise on their investments by drawing in large-scale profits.

UK property investment is expected to become a particularly desirable area given the housing markets history of relative stability.

Why has the GBP fallen?

There is an array of contributing factors to the current economic downturn on top of rising levels of inflation across the UK.

The ongoing Russia-Ukraine war has served as a backdrop to this economic unrest, and this has been felt worldwide. Russia serves as a major supplier of gas and oil with 40% of the EU’s gas coming from the country last year.

This has led to a substantial price hike in gas and oil prices – energy companies have therefore been forced to raise their prices to try and compete with this upsurge.

This has resulted in a cost-of-living crisis in the UK which has led directly to a drop in consumer spending as individuals try to save money in order to meet the rise in their heating and electric bills – further negatively impacting the UK economy.

Another leading factor has been the newly appointed Liz Truss government introducing a drastic shift in economic policy with a specific emphasis on tax cuts instilling uncertainty across foreign markets.

Other setbacks have been linked to the impact of COVID-19 in addition to talks of Scottish independence as well as ongoing disputes concerning Northern Ireland’s trading agreements following Brexit.

An increase in interest rates and efforts to cap energy bills have also directly contributed to the falling pound – with the pound falling below $1.09 for the first time since 1985.

 What can this mean for foreign investors?

A falling pound stacked up against foreign currencies such as the euro or the dollar will allow for a bigger return when investing compared to times when the pound was more stable.

Ultimately, investing in UK assets with foreign currency ends up becoming a much cheaper deal with the present state of the pound.

Bricks and mortar serve as an attractive investment prospect under such circumstances due to the housing market’s general stability with its strengths as a physical asset that increases in value over time.

The ongoing supply-demand imbalance in the housing market also ensures that house prices will remain relatively high – this has been reflected in 2022 where house price rates have been at their highest-ever growth rate.

Similarly, the buy-to-let market has experienced a surge in rental prices which will be beneficial to property investors at this time.

Property therefore serves as a good form of investment during a period of economic unrest. Off-plan properties offer a lower price point and higher rental yields with a longer period to make returns. This makes them attractive to foreign investors through the chance to buy at a cheaper rate now and see the price increase once the GBP returns to the more stable ground over time.

What does the future hold?

To conclude, the future of the GBP is not looking bright with political and economic uncertainty set to continue.

The current inflation rate of around 9.9% sets it close to a forty-year high and this will directly impact many industries as households are set to spend less and save more.

It remains to be seen what direction Liz Truss and her government will directly settle on amidst the U-turns announced this week – further unpopular policies could further destabilise the pound.

A falling pound whilst heading into the winter will see the cost of food and petrol rise as households spend less.

International investors can take advantage of the current GBP slump by investing their money now – with the property market serving as a particularly appealing asset.