Are secret ‘Pandora Papers’ investors to blame for soaring UK house prices?

Secret ‘Pandora Papers’ investors have been snapping up UK properties worth billions. Are they to blame for soaring house prices in the UK?

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The Pandora Papers published this week reveal a tale of corruption and greed: rich investors and world leaders hiding wealth in off-shore companies to avoiding paying tax in their home countries. A BBC report revealed that secret owners have bought UK property worth billions of pounds. Have those greedy investors been fuelling skyrocketing UK house prices?

Here, I investigate whether the Pandora Papers investors are responsible for the UK house price boom that has priced ordinary buyers out of the market.

[top_pitch]

Who are the Pandora Papers investors?

The Pandora Papers investors include world leaders, influential politicians and business magnates from around the world.

These investors have been snapping up some of the UK’s most expensive properties. According to the BBC, buyers include retail magnate Sir Philip Green and his wife, the Qatari ruling family, Ukrainian billionaire Gennadiy Bogolyubov and the son of sanctioned Russian oligarch Mikhail Gutseriev. Between them, the Pandora Papers investors own property worth billions of pounds, with Gennadiy Bogolyubov alone allegedly owning UK property worth over £400 million.

Are foreign investors driving up house prices?

Foreign investors have been snaffling up UK properties for a long time. But the trend seems to be rising. The number of foreign landlords in the UK was recently estimated at a five-year high of 184,000. 

UK property is an attractive investment due to the weak pound and widespread expectations that UK house prices will continue to grow.

The problem is that with houses already in short supply in the UK, increased demand pushes house prices up even further.

What is the UK government doing?

The government has introduced several new taxes for foreign property investors.

Since April 2021, foreign investors have had to pay an extra 2% Stamp Duty surcharge. This is on top of the extra 3% surcharge for anyone buying a second home in the UK.

This means a foreign investor buying a second property worth £500,000 would pay £40,000 in Stamp Duty. This compares to £30,000 if the property is bought by a UK-based landlord, £15,000 for an ordinary homeowner and £10,000 for a first-time buyer.

However, it appears that some of the Pandora Papers investors have been able to get around the Stamp Duty rules. They have bought UK property indirectly by buying shares in a holding company.

They may still need to pay tax on dividend income, but they can avoid paying Stamp Duty altogether.

[middle_pitch]

Is there any good news on house prices?

Right now, good news is in short supply on the property market.

Foreign investors aren’t the only reason for the UK house price boom. There’s a long-term problem with the supply of UK houses. That means that demand is consistently higher than supply, pushing up prices.

But the Pandora Papers investors certainly aren’t helping. Property prices in London have been particularly impacted as this is where foreign investors tend to buy.

Experts believe that UK house prices may continue to rise for some time. They’re currently predicted to rise by up to 3.5% per year until 2024.

What does this mean for you?

For buyers, there is one consolation. It’s that mortgage rates are at an all-time low and may fall further for first-time buyers. House prices may be extremely high, but at least those low mortgage rates make mortgages as affordable as possible.

So, what does all this mean for you if you want to move soon? Well, with house prices unlikely to fall in the near future, if you have enough saved for a deposit, then it might be time to get moving. Check out these tricks for getting the best mortgage rate available.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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