By Faith Glasgow

The dramatic slide of sterling against the euro and other currencies since the start of last year has created big winners and big losers in the world of residential property. In the former category are international buyers in the UK, and especially in London, who are combining falling prices with improved exchange rates to secure deals that cost them 40-50 per cent less in their own currencies than they would have a year ago. In the latter are British buyers abroad, who can no longer afford the gîtes and haciendas they once coveted or have found themselves struggling to cover the monthly payments on their foreign-currency-based mortgages.

Sammy Abd Kerim, an Egyptian businessman based in Cairo, is among the fortunate ones. He started looking for a London apartment in the summer of 2007 through estate agency Kay & Co and quickly found an ideal three-bedroom property on the third floor of a grand block overlooking Hyde Park. “I come to [the city] four or five times a year so I felt it would be good to have a base where I could stay and bring my family,” he explains.

He offered £2.1m for the flat, slightly below the asking price of £2.35m, but London’s prime market was still bubbling at the time and the seller rejected it. “I walked away at the time and continued to look around,” Abd Kerim says, “but in autumn last year the sellers reduced it to £2.1m and we picked up our discussion. Now I am expecting to pay £1.9m, which amounts to a reduction of almost 20 per cent on the original asking price.” Even more importantly, since the Egyptian pound gained 26 per cent against sterling in 2008, he saved another £500,000.

He acknowledges that the flat’s value might fall further over the next few months but still thinks now is the right time to buy. The market “may lose another 5 per cent but no more and prices will rise again in due course”, he says. “I don’t feel the need to wait longer. Even if the market falls another 10 per cent, I have saved a great deal of money on the currency exchange. In fact, I am thinking of using it to invest in a second flat to rent out, as a bonus.”

Estate agents in the UK say such attitudes are increasingly common and are now resting their hopes on buyers like Abd Kerim to kick-start sales. They expect the most interest to be in areas and segments of the London market that have been hit hardest by City redundancies, including Kensington, Notting Hill and Holland Park (where Savills says prices fell more than 11 per cent in the past quarter) and in the £1m-£2.5m price range (where Knight Frank estimates average declines at 22 per cent since the peak). They say there is rising interest not only from the Middle East – with buyer numbers up 70 per cent from the end of 2007 to the end of last year, according to Knight Frank – but also from Europe, since the euro gained 30 per cent against sterling in 2008; the US, with the dollar up a relative 35 per cent; and Asia, with the yen up 66 per cent.

“People who stopped looking in 2007 because prices were ludicrous are returning,” says Martin Bikhit at Kay & Co. “Even our toughest, pickiest clients are now seriously looking around because they recognise this is a limited window of opportunity. Two years ago only 20 per cent of our work came from international buyers; now I guess they account for 80 per cent.”

Camilla Dell at property search agency Black Brick confirms the trend. “We’re seeing a big increase in Middle Eastern, African and other dollar-linked buyers, who are now showing strong renewed interest in the London market as a great investment opportunity,” she says.

Commentary from Julian Sedgwick at Jones Lang LaSalle highlights an influx of south-east Asians trying to take advantage of “a clear competitive buying advantage” – with “one particular high-net-worth family in Singapore already [allocating] just over £100m to invest in London prime residential and commercial property over the next 12 months” – while Charlie Parkin at Aylesford has noticed a surge in interest from Italians, thanks to euro strength and extensive coverage of the UK capital’s suddenly affordable homes in their local press. “Unlike some other Europeans, they also really like investing in real estate,” he adds. “They consider it to be safer than the stock market.”

Buying agent Charles McDowell of McDowell Properties says he’s also working with “three or four” European clients who “now regard London as the place to be, since they can buy in effect at half price compared to 18 months ago” and with two Americans who “feel the same”. In the latter category is John Wilson, who is relocating from Los Angeles to run a finance company and now looking for a place to live in Chelsea and Kensington. “We are now more inclined to buy rather than rent but we are cautious on price,” says his wife, Mary Lou. “We don’t want to be caught out as we were in the 1980s in California, where values dropped by 60 per cent and took 10 years to recover.”

Indeed, most international buyers are looking for deep discounts. But their presence is nonetheless good for British sellers who intend to buy into the same depressed market and, eventually, it will benefit British buyers as deal-flow picks up and spreads. “The start of the recovery may well be driven by [these] investments,” says Savills’ research director, Yolande Barnes. The precedent is 1993, when, after a disastrous year for sterling, Middle Eastern, European and American buyers revived a collapsed London market.

Meanwhile, at the other end of the widening currency divide are Britons with holiday homes and mortgages abroad. Take Anne Parry, director of a regional PR company in the UK, and her business partner, Edward Carter, who in 2006 bought a two-bedroom apartment in the Vilamoura resort in Portugal’s Algarve region. They paid €266,000, plus the cost of a fit-out, and covered about 60 per cent of it with an interest-only mortgage from a Portuguese bank.

Unlike elsewhere in Europe, the resort has not yet seen property price depreciation, with similar apartments recently selling for €330,000. As a result, Parry, who uses the property herself a few times a year, and Carter still believe in their investment. “It’s in a great location, with two of the best beaches in Europe and seven championship golf courses nearby, and [it] will gain value when the nearby marina development is extended,” she says. “Over the long term we’re not losing because the property is valued in euros and so has gained value in sterling terms,” he adds.

But they acknowledge that the currency swing has caused them headaches. “We are only paying 3 per cent [on our mortgage] but when we started we were getting €1.45 to the pound and now we’re getting around €1.06, so it’s costing us 27 per cent more to service,” Parry says. Plus, the economic crisis has also made securing holiday rental income more difficult. “We aim to cover our mortgage interest and outgoings through letting but we’re really having to be very proactive about marketing at present.”

There have been a few holidaymakers from Ireland and Portugal, who pay in euros, but most are sterling-paying Britons, whose money has to be converted back to euros before the bills can be paid. To make matters worse, as with buyers in the UK, everyone is looking for a bargain. In order to stay competitive, Parry admits, “we’re not setting the rent to reflect our full increased costs”.

Still, the pair are sticking to a long-term view. “We’ll hold [the apartment] at least until the marina development is complete,” Carter says. “I think sterling will strengthen in due course so this is a low period and we’re looking beyond that.”

Currency exchange companies such as Caxton FX and FairFX report that many British homeowners in Europe are less sanguine, however. Some who never intended to let their condos and villas are now doing so as a way to offset costs, while others are selling up, trying to take advantage of the euro’s strength, particularly if the economic downturn has not yet pulled their property values below the levels at which they bought. For example, one Caxton client bought a house in France with cash in 2002 when £1 was worth €1.62, then sold last autumn, when the ratio was £1 to €1.12. His gain on the sterling purchase price was £140,000, with more than £100,000 coming from the currency trade.

If that is one silver lining to the euro’s strength, another is that European developers are also now offering “generous discounts” to sterling buyers, says James Hickman of Caxton FX. “Others have introduced a scheme where buyers pay a small deposit but then defer the rest of the payment for up to five years and pay only interest on it meanwhile,” he says.

Julian Cunningham of estate agency Knight Frank confirms that such “solutions” are increasingly common. “It depends on the developer’s situation but typically at least 75 per cent [of the purchase cost] is postponed,” he says. “That gives buyers time to plan their finances. It’s not a new initiative but now it’s a key element of any deal.”

Buyers eager to bag a holiday home bargain while European markets remain depressed are also getting creative themselves. “A couple of recent British purchases have gone through where, instead of converting their pounds at an unfavourable rate, the buyers opened a sterling interest-bearing deposit account with a Spanish bank,” says Barbara Wood of The Property Finders in Spain. “Against this, they took out a personal loan in euros to pay the sellers. The difference between the interest earned on the sterling deposit and the interest on the loan costs them about 1 per cent. But they can wait until sterling recovers and then convert their funds and pay off the loan…”

In the end, second home purchases abroad are lifestyle decisions as much as investments. Culture-hungry jet-setters tend to crave pieds-à-terre in London whatever the cost, while Britons keen on warm-weather sailing, golfing and surfing will always dream of their own places in the sun. But until prospective buyers engage in substantial and prescient hedging – locking in attractive exchange rates through forward contracts – currency swings like the ones we saw last year will continue to have dramatic fall-out around the world.

By Catherine Moye

OVERSEAS INTEREST IN BRITISH SCHOOLING IS FUELLING THE DEMAND FOR HOUSES IN PRIME AREAS, writes Catherine Moye

Like Oxford’s spires, British fee-paying schools evoke notions of educational perfection. For many affluent non-Britons, names such as Eton and Harrow share a pedigree with buildings such as Buckingham Palace and St Paul’s cathedral: traditional British institutions that cannot be out-sourced to China.

Thus many overseas parents move to the UK, be it as non-domiciled aliens or relocators, as buyers or renters, full or part-time. Their search for British schooling for their children helps fuel demand for housing in prime areas, especially in London.

“Business, tax and education are the main reasons that overseas nationals come to live in London,” says Richard Sharples of buying agency Property Vision. “The perception is that the British [education] system is the finest in the world and most people think it’s a good idea for their children to learn English. There’s also an element of prestige in having your child go to Harrow or wherever.”

That might be the case but securing your child a place at Britain’s most venerable scholastic institutions can be like obtaining a seat at King Arthur’s round table – especially for an overseas national. Pressure on places is tough and growing and only a lucky few are admitted.

“We get hundreds of overseas enquiries. I would say that number has more than doubled in the past three years,” says Kirsty Shanahan, communications manager of Harrow school, where fees are approximately £26,500 a year. “The bulk of the increase is from the emerging economies of India, Russia and China.”

Yet only about 10 per cent of Harrow’s pupils are from outside the UK, according to Shanahan. “That’s been fairly consistent throughout. It’s not set in stone but we do keep one eye on the quota, otherwise it’s not good for the school as a whole.”

Historically the overseas clientele were wealthy parents from Asia, the Middle East and commonwealth African countries. They sent their children to British public schools that they had almost invariably attended themselves before going on to the universities of Oxford or Cambridge. (In Britain, in one of those quirks apparently designed to fox foreigners, independently run, fee-charging schools are termed “public” because historically pupils were gathered in public to be taught rather than privately at home by a tutor).

“To a certain extent it’s snob value and the fact that children are worked much harder in the English publics school system than, say, the American system,” says buying agent Robert Bailey, many of whose clients want second homes for education related reasons. “That is, the American system is more sports-led and a lot less arduous academically. We are very results-orientated.”

The attraction of a British boarding school is also perhaps an unconscious backlash against the globalised era of You Tube, the IPod and the other relentless technology assailing children. The public school boarding house is seen as a bastion of discipline and offers the original and unsurpassable version of social websites such as Facebook and Bebo: the old school tie network. Not that all parents are up to speed with the protocol. “I am constantly being asked if I can try and pull a few strings and, you know, offer a school a sizeable ‘donation’,” says Bailey.

Education consultant Martin Humphrys says he has never been so inundated with requests for schools and has witnessed a marked increase in interest from emerging countries, especially Russia and China.

”The demand for places is very high at the moment,” says Humphrys. “We’ve been in that situation for about the past nine years.” But if overseas parents’ dreams for their children are somehow bound up with the public school system, Humphrys reckons that 99 per cent of his job is about managing their expectations.

“Places are at a premium in the key schools such as Eton and the entrance exams are incredibly tough for children whose first language isn’t English,” he explains. “And there are certain schools that, if parents haven’t registered their child by the age of 10 and a half they’re not going to get them in at 13.”

Even if the star names are over-subscribed, Humphrys is firm in his conviction that British public schools offer the best education in the world. “London especially has excellent schools, from nurseries right through to senior schools,” he says. “People come here because you will not find schools bettered anywhere.”

Although there are no specific statistics on how many overseas nationals relocate to the UK to buy second homes, many parents will want somewhere in the capital for family get-togethers, especially during boarding school holidays. To that extent their housing needs are more prêt-a-porter than couture.

“These buyers are looking for easy maintenance, lock-up-and-leave apartments that are secure, with 24-hour porterage,” says Camilla Dell of buying agents Black Brick Property Solutions. “They want them in safe areas such as St John’s Wood or Knightsbridge for when the children reach 16 or 17 and stay there by themselves, and that are good for public transport.”

But matching the right child to the right school often means looking outside London.

“The most important thing is that the school is a genuine boarding school and not dominated by flexi or weekly boarders with just a trickle of overseas children left at the weekends,” says Catherine Stoker, director of education and guardianship services at educational consultancy Gabbitas. To that end, schools such as Marlborough and Haileybury in Hertfordshire and Uppingham in Rutland are popular choices.

Berkshire schools close to Heathrow airport are also popular choices for overseas parents with children returning home at the end of each term – notably Bradfield College, Wellington College, and St George’s at Ascot. And different nationalities have their own reasons for being often drawn to particular parts of the UK.

“In Tokyo they tend to live in apartments the size of postage stamps and so they love going to boarding schools set in large historical buildings,” says Stoker. “We just took a Japanese girl to see Gordonstoun [in Scotland] and she loved it.”

That blue-chip schools attract great wealth and prestige to the nation is music to the ears of Tony Little, head master of Eton College. “Ours is very much a British school and we are already over-subscribed from our British market. We don’t actually have figures for nationality but the figure that springs to mind is about 100 boys [from overseas] out of 1,300,” he says.

“UK independent schools have the strongest track record of any sector anywhere,” he explains. “When you speak to people in, say, Russia or China, what they admire most is our great tradition of liberal education.”

By this Little means that it is holistic and centred upon the person. “The Chinese, for example, are very conscious of the fact that they are strong in theoretical ‘Confucian-style’ education but the British system has the X-factor of building students’ confidence and practical abilities in the wider world.”

London also has highly regarded international schools serving the needs of foreign families, especially those relocating for short periods. Notable examples include the French Lycée in Kensington, Marymount in Kingston upon Thames, Woodside Park in Frien Barnet and Egham International in Surrey, all of which operate the International Baccalaureate system.

Those of us who live in the St John’s Wood district of north London can be in no doubt as to the knock-on effect that a prestigious school can have on an area. The American School, which has existed in various incarnations since 1969, is one of the principal drivers in the local economy. Its presence is felt in everything from the cost of quality housing to the lengths of the queues at Starbucks.

Americans are the dominant group in relocating to London. “[They] represent a large percentage of our sales and lettings, “says James Simpson of estate agency Knight Frank’s St. John’s Wood office. “Most Americans rent but we also get investors looking to buy to rent to American families. Principally they want detached five-bedroom Victorian homes in side streets.”

Greek-board Alicia Cornelius and her husband, Alex, a banker, divide their time between New York, Athens and London, where their 14-year old daughter is at boarding school. “We have a two-bedroom flat in a new-build block overlooking the river that just takes care of itself,” says Cornelius.

Her own upbringing as much as her regard for the British school system came into play when deciding upon her daughter’s education. “My parents were diplomats, so I went to at least a dozen schools around the world,” she says. “I meet a lot of people today who went through the same and want nothing more than to settle their children in one place throughout their schooling.”

Naomi Heaton of property investors London Central Portfolio, finds that mapping out your child’s educational needs is not so different to mapping out an investment plan. “In both cases you are looking at around an eight-year cycle,” she observes. “Your child is likely to be here at school or college for eight years and we see that time as the normal doubling of the London (market) cycle. In my experience, buying for the children is just a good rationale for something that people were going to do anyway.”