Most buyers from the Gulf pay cash for London property, and most of them are right to. A prime flat yields three to four per cent gross; a non-resident mortgage costs five to six. Borrowing against a London property therefore loses money every year, and the usual argument for gearing, that the rent pays the loan, does not hold in London. There are still three reasons to borrow, and they have nothing to do with the rent.
Finance
Cash or finance? When borrowing against a London property is worth it for a Gulf investor
Cash versus mortgage on a London flat: the arithmetic of borrowing
For a Gulf investor in prime London, cash usually wins. A flat yielding three to four per cent gross, financed at five to six, carries a negative carry on every pound borrowed, and prime prices have grown at roughly the rate of inflation over the last decade. Borrowing still earns its place for three reasons: a loan secured on the property is deducted for 40 per cent inheritance tax, it hedges part of the sterling exposure, and it keeps capital free for a business that earns more than the loan costs.
Gearing adds to return only when the asset earns more than the debt costs. A regional flat at six per cent gross, financed at five and a half, earns a thin positive carry and the leverage magnifies any capital growth. A Mayfair flat at three and a half per cent, financed at five and a half, has a negative carry of two points on every pound borrowed, before costs and tax, and leverage then magnifies the annual loss as well as the eventual gain.
Prices in prime London have risen at roughly the rate of inflation over the last decade, so the gain has not been there to magnify. On the numbers alone, cash wins in prime London and borrowing can win in the regions.
Worked example of buying the same London flat two ways
The same flat bought two ways, before tax:
Cash against a 60 per cent loan on a 1.5 million pound flat
| 1,500,000 pound flat, rent 52,500 a year | Cash | 60 per cent loan |
|---|---|---|
| Money invested | 1,500,000 | 600,000 |
| Gross rent | 52,500 | 52,500 |
| Running costs at 25 per cent | 13,125 | 13,125 |
| Interest at 5.5 per cent on 900,000 | 0 | 49,500 |
| Cash flow before tax | 39,375 | minus 10,125 |
| Return on money invested, before tax and growth | 2.6 per cent | minus 1.7 per cent |
| If the flat grows 3 per cent a year, on money invested | 5.6 per cent | 5.8 per cent |
Source: firm’s calculation at indicative yields and rates, October 2026; Bank of England Bank Rate.
At three per cent growth the two routes are level; below it, cash wins; above it, gearing wins and the gap widens fast. Income tax makes the loan slightly less painful, since 20 per cent of the interest comes back as a credit, but does not change the picture. A buyer who borrows in prime London is making a bet on growth, and should know it.
Reason one: inheritance tax and the mortgage deduction on London property
UK inheritance tax at 40 per cent applies to a London property whoever owns it, and a loan secured on the property is deducted from its value. The 1,500,000 pound flat above, owned outright, carries a potential bill of up to 470,000 pounds for a single owner with no other UK assets; with a 900,000 pound mortgage it carries up to 110,000.
When the inheritance tax deduction for a property loan holds
The deduction holds only if the money borrowed was not lent by a connected person and was not used to buy assets that are themselves outside the UK tax net, and HMRC checks. For a family with no intention of selling, the loan can be the cheapest inheritance-tax planning available, and its annual cost is weighed against a tax that falls once but heavily. Our guide on inheritance tax covers the whole subject.
Reason two: using a sterling loan as a currency hedge
A dirham or riyal investor who buys a sterling asset for cash has taken a full position in the pound. If sterling falls 15 per cent against the dollar, as it did in 2016 and again in 2022, the flat is worth 15 per cent less in home currency however London performs. A sterling loan against the flat offsets part of that: the debt falls in home-currency terms exactly as the asset does. A 60 per cent loan leaves only 40 per cent of the value exposed.
The pound at its 2026 levels is cheap by its own thirty-year history, which argues for owning sterling assets; the loan is for the investor who wants the asset without the whole of the currency bet.
Reason three: keeping capital free by borrowing against London property
Money locked in a London flat is slow to get back: a sale takes three months at best and a year in a soft market. A loan at purchase, or a refinance once the flat is let, leaves capital in the business or the portfolio where it may earn more than the loan costs. A family office that earns seven per cent on its capital and borrows at five and a half is ahead even with a negative carry on the flat. This is a judgement about the rest of the balance sheet, not about the property.
When buying a London property in cash is simply right
The cases where we advise cash without a second thought:
- A home for the family: a home for the family’s own use, which cannot take a buy-to-let loan in any case and should not carry debt that the family’s circumstances might one day make awkward.
- A single income flat: a single flat bought for income, where the carry is negative and the inheritance-tax exposure is within the allowances or covered by insurance.
- A buyer who wants to move fast: cash completes in weeks, a non-resident loan takes two months, and sellers in a strong market take the cash buyer.
- A buyer who would worry: anyone for whom a loan would be a source of worry rather than a tool. The flat is meant to make life simpler.
How we advise on cash or finance for London buyers
We ask what the property is for, how long it will be held, who will own it next, and what the rest of the family’s capital is doing. From those four answers the financing decision usually makes itself. Where borrowing is right we bring in a broker who places non-resident and Islamic loans weekly, and we often advise buying with cash and refinancing within the year, which gets the flat and the sterling hedge without the delay of a loan at purchase. Our guides on buy-to-let mortgages for non-residents and on Islamic home finance cover the products.
Related guides: Buy-to-let mortgages for non-residents and Rental yields in London by area, 2026.
Sources: Bank Rate (Bank of England) · Tax on your UK income if you live abroad: rent (GOV.UK). Yields, rates and tax figures are indicative for that date. General information, not financial or tax advice; the decision for a particular buyer is for their adviser. Figures verified 14 October 2026.
Frequently Asked
Questions about cash or finance for London property
When the net yield after finance costs is still positive and the family would otherwise hold cash earning less than the finance rate, or when the family wants to spread the money across two properties rather than one; rarely at the top of the market for a home the family will use.
Only as a 20 per cent tax credit on the interest, not as a full expense, for an individual landlord; a company deducts them in full, with the company’s other costs.
A little, on rate and arrangement fee, for a non-resident; the stamp duty relief ensures no double charge. Our Islamic home finance guide gives the figures.
Not in prime London. A flat yielding three to four per cent gross, financed at five to six, has a negative carry on every pound borrowed. In the worked example, a 60 per cent loan on a 1,500,000 pound flat turns a cash flow of 39,375 pounds into minus 10,125 before tax. The rent-pays-the-loan argument holds in the regions, where six per cent gross can be financed at five and a half.
About three per cent a year. At that growth rate the worked example is level, at 5.6 per cent on cash against 5.8 per cent geared; below it cash wins, above it gearing wins and the gap widens fast. A buyer who borrows in prime London is making a bet on growth and should know it.
Inheritance tax at 40 per cent applies to a London property whoever owns it, and a loan secured on it is deducted from the value. The 1,500,000 pound flat owned outright carries a potential bill of up to 470,000 pounds for a single owner with no other UK assets; with a 900,000 pound mortgage, up to 110,000. The loan must not come from a connected person or fund assets outside the UK tax net.
Partly. A cash buyer holds a full position in sterling, so a 15 per cent fall against the dollar, as in 2016 and 2022, cuts the flat’s home-currency value by 15 per cent. A sterling loan falls in home-currency terms as the asset does, so a 60 per cent loan leaves only 40 per cent of the value exposed.
We often advise buying with cash and refinancing within the year. That gets the flat and the sterling hedge without the delay of a loan at purchase: cash completes in weeks, a non-resident loan takes two months, and sellers in a strong market take the cash buyer.
No. A home for the family’s own use cannot take a buy-to-let loan in any case, and we would not want it carrying debt that the family’s circumstances might one day make awkward. For that purchase, cash is simply the answer.
Because money locked in a London flat is slow to get back: a sale takes three months at best and a year in a soft market. A family office earning seven per cent on its capital and borrowing at five and a half is ahead even with a negative carry on the flat. It is a judgement about the rest of the balance sheet, not the property.
