Billionaires choose to rent rather than buy London mansions

With their billions, you may imagine the super-rich are more inclined to buy, rather than rent, super-prime properties in London.

After all, they could dig into their big pockets and easily splash a few million on a city pad.

But they are more canny with their cash, unsurprisingly, and are increasingly leasing homes in the capital, according to the ultra-prime barometer wealth report by specialist super-prime firm, Beauchamp Estates.

Super-prime properties typically cost between £5,000 and £30,000 ($6,281 and $37,687) a week. But the cost of buying those homes runs into the millions.

In the first half of 2023, 10 to 11 super-prime homes were rented a month at values of more than £5,000 a week, with almost £15 million spent renting homes in the capital's best addresses, Beauchamp's research shows.

Meanwhile, multimillionaires and billionaires bought an average of two homes a month above £15 million in London, still a princely sum at £340 million.

So why are so many ultra-wealthy people renting – a practice considered by some to be pouring money down the drain – when they are worth so much?

Borrowing costs

Perhaps, surprisingly, the cost of borrowing is one reason, according to Jeremy Gee, managing director of Beauchamp Estates.

Interest rates have rocketed in recent years, from 0.25 per cent in December 2021 to 5.25 per cent in August, a figure that is still current.

That may seem a strange consideration for someone who has billions in the bank. But only about half the purchases in the super-prime market are made using cash. The rest are funded, at least in part, by finance, said Mr Gee.

“For tax planning and other reasons people often do take finance,” he told The National.

“So there are people who borrow to fund their purchases, which is where the cost of borrowing plays a part."

Islay Robinson, the chief executive of Enness Global, a brokerage for high-value international finance, told The National that the interest rates for specialist mortgages are no different from standard products.

"So if you are borrowing £500,000 or £5 million, the price for that is about the same," he said.

And while Mr Gee and Mr Robinson both say wealthy people are still buying multimillion-pound homes, they both concede the rental market for prime properties is exceptionally busy just now.

"The lettings market is absolutely on fire," Mr Robinson said.

Part of that is due to a lack of supply. But a lot of people moved from London and are now moving back, he said.

"Then there is the time period of uncertainty in the market, with the general election and mortgage rates," Mr Robinson said.

Tax plans

Stamp duty in the UK can be as much as 17 per cent for a foreign buyer who owns other property overseas.

“If you are buying something at £10 million or £20 million-plus, you can understand why those numbers are quite frightening for buyers,” Mr Gee said.

The tax situation is unlikely to get any kinder for the super-rich, with a probable change of government to the Labour Party – traditionally much tougher on taxing the wealthy – which is expected to defeat Prime Minister Rishi Sunak's Conservatives in a general election next year.

“That combined with uncertainty here about the political landscape and the future, I think all of these things have made buyers a little bit more wary,” he said.

By far most super-prime renters are from abroad, with the top regions for Beauchamp being China and Hong Kong, the Middle East and America.

“The people we have been dealing with do seem to be locating to London," Mr Gee said.

"So it is more of a permanent move, particularly with some of the Americans.

"We have renewed interest from the banking sectors, the hedge funds and wealth management sectors, the legal sectors."

Favoured locations include Mayfair and Belgravia for apartments and St John’s Wood, Regent’s Park and Hampstead for houses.

These areas have recorded some of the most expensive rental deals over the past 12 months, according to a separate report from Beauchamp.

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What can you rent in London?

Four-bedroom apartment in Marylebone - £10,000 a week

Mayfair home with four-car stacker and passenger lift - £15,000 a week

Kim Kardashian's minimalist London villa on Cannon Lane - £10,000 a week

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Of the 38 super-prime house rental deals during the first half of 2023, 10 were in north-west London postcodes, such as Hampstead, where Beauchamp recently rented out a property in Cannon Lane.

The 745 square metre, six-bedroom home was on the market to rent for £10,000 a week or to buy for £15 million. Previous tenants include Kim Kardashian and Kanye West.

“It has a sauna, steam room. It has staff accommodation," said lettings manager Francesca Fox.

"The really amazing thing about this house is the architectural design. And the fact that it’s an absolute trophy asset.

“Most of the houses in Hampstead are quite period and they are kept that way. But this is a super-modern house made out of three or four materials.”

Another recent example was a four-bedroom apartment on Devonshire Place in Marylebone, which was on the market to rent for £10,000 a week or to buy for £7.25 million.

“The rental number seems massive compared to the sales figure, but when you buy a property you have stamp duty, lawyer fees,” Ms Fox said.

“Your costs grow and grow into the hundreds of thousands overnight.”

The four-bedroom apartment is contemporary but still has period features, Ms Fox said.

“You have this big, huge ceiling height – I think it’s four-metre ceiling height – big open-plan kitchen, lots of reception space. It certainly has the wow factor,” she said.

“The first tenant that came into this came from a 10,000 or 11,000 square feet house and lived in this comfortably, even though it is 3,500 square feet, because it’s just a different style of living.”

One super-prime property still on the market is a newly built four-bedroom house in Down Street Mews, Mayfair.

The 610 square metre property is available to rent through Beauchamp for £15,000 a week or to buy for £18.25 million. It features a swimming pool and spa, cinema room, four-car stacker and a passenger lift.

The brochure says Down Street Mews is centrally located and moments from “chic boutiques, hotels, restaurants and private members' clubs”.

The new breed of billionaires

Isabella Birch Reynardson, who heads super-prime lettings in London for Savills, said: “Renting has become more on trend, especially in prime central London where it’s such a transient market.

“People are coming from the four corners of the Earth. Predominantly, the driver I see is schooling – lifestyle choice and the education of children.”

Many of those who rent super-prime property from Savills are younger than previously.

“Age is such an interesting thing," Ms Birch Reynardson said.

"It’s generally accepted that the billionaires and millionaires of the world are getting younger with the emergence of tech. For us FinTech has been a huge market, that and gaming.

“When I first took over this department in 2017, the average age of a super-prime tenant was 55. [Now] 52 per cent of our market is aged between 26 and 45. So it is pulling it right down.”

According to Beauchamp's Ultra-Prime Barometer Wealth Report, there are 3,194 billionaires in the world, with the largest number originating from North America, with 1,011 billionaires, most of whom (735) are in the US.

The UK and Western Europe have 933 billionaires, or 29.2 per cent, with 177 of these living in London or the UK, and Asia is third with 835 billionaires, or 26.1 per cent.

The top source of these billionaires’ wealth originates from banking and finance, at 21.1 per cent; technology and FinTech businesses, at 20.2 per cent; consumer businesses, at 7.8 per cent; hospitality and entertainment companies at 5.5 per cent; and real estate, at 5.2 per cent.

The new report says these billionaires typically invest about a third, or 32 per cent, of their personal wealth in residential property, in a combination of homes, either for personal use or investment properties.

The rest of their wealth is focused on equities, such as stocks and shares, commercial property, government bonds and venture capital.

According to the report, billionaires typically have three or more homes for personal use, with at least one in their main country and two or more overseas.

It says a budget of £62.2 million would be needed to provide them with a home in Mayfair, at £18.8 million, a villa on the French Riviera costing £20.4 million, and a townhouse in Manhattan at £23 million.

Mr Gee expects London to keep its allure for billionaires, despite competition from those warmer locations.

“Due to the quality of lifestyle, education and stability, London is seen as a safe haven for global capital and remains one of the most desirable locations in the world for multimillionaires and billionaires to buy or rent a home and spend their time," he said.

"However, London is competing with other rival wealth hubs, and this is where domestic issues including interest rates, taxation and state regulation play a significant role in the decision making process.

"London wins if it is allowed to compete as a lower-tax, lower-regulation free-market hub.”

Whether the trend of the super-wealthy renting holds remains to be seen, but experts suspect it might.

“If you buy, with all the costs associated, you are depending on capital growth in the asset to make more sense other than renting. So it may be that they see renting as a long-term option,” Mr Gee said.

“If you were working it out on economics alone, it may make more sense.”