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Brexit Ripple Effects: The Pound’s Drop Creates New Opportunities in European Real Estate

November 7, 2016 Brexit / Investing / real estate


GBP Drop Creates New Opportunities in European Real Estate

The ups and downs of sterling since the Brexit vote are having ripple effects throughout the UK, throughout Europe, and across global markets. This creates both challenges and opportunities for property buyers.

So, what if you’re in the market to buy a home? We’ve looked to experts for their opinions on the housing market, in the UK and Europe, after Brexit.

The UK Housing Market

Not only have property sales stabilised, writes Kevin Peachey at the BBC, but house prices should increase by just more than 3 percent on average for the next five years.

Two factors contribute to that stability:

  • Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, tells Peachey that the Bank of England deserves credit for its quick action in cutting interest rates.
  • Brian Murphy from the Mortgage Advice Bureau tells Peachey that scarcity of housing stock in the UK market “is likely to underpin the market in the months to come.”

Meanwhile, the somewhat sluggish high-end residential market is being slowed by other factors than the referendum. “Stamp duty, not Brexit, is the principal decelerator,” one estate agent tells The Telegraph. That said, Jessie Hewison at The Times notes that the “weak sterling and discounted prices on prime properties are reigniting interest in high-end homes.”

Julia Cahill in Estates Gazette says stamp duty, recently increased by 3 percent on second residential properties, is why more private investors are buying commercial property at auction. In fact, last year private investors bought more than 21 percent of the commercial property sold at auction last year, a 10-year high.

Allsop auction house partner Gary Murphy says that while tax changes were a major concern to residential investors, he still sees the housing market as strong. “A combination of low interest rates, an ingrained affection for property in the UK’s psyche and a history of strong capital growth on residential investments means demand is still there,” he tells Cahill.

Repercussions from Brexit are only just beginning, though, says Lucian Cook, head of residential research at Savills.

“…as we look forward a lot will be depend on how buyer sentiment ebbs and flows in response to the how negotiations to leave the EU proceeds and the likely impact on the wider economy,” he tells The Telegraph.


Follow the Money

If you’re in the financial industry in the UK, and are thinking about moving closer to the office in London, you may want to wait a bit.

David Rocks and Julia Hirsch at Bloomberg think that one effect of Brexit will be London’s loss of its status as “the world capital of foreign exchange trading and the No. 1 international banking center.”

It’s a lot to lose if the traders and bankers leave the city. “Consulting, financial, insurance, legal, and related services account for 12 percent of the U.K.’s gross domestic product. They pay more in taxes than any other sector and support an estimated 2.2 million British jobs.”

The cities that stand to gain include Frankfurt, write Rocks and Hirsch.

Hubertus Väth, head of the Frankfurt Main Finance trade group, tells them that “as many as 10,000 jobs could move from London to Frankfurt over the next five years.”

Closer to home, and with the same language and legal system as Britain, Dublin is another choice for London financiers considering a move. Currently, “Ireland is home to about 500 international finance companies,” including Credit Suisse and State Street, Rocks and Hirsch point out. The drawback is the lack of readily available real estate, both commercial and residential, an after-effect of the 2008–2009 financial crises, although that could be rectified by a building boom.

Amsterdam, already popular with expats, is home to “some of the world’s biggest pension funds that could attract jobs in asset management, clearing and higher-level trading,” Rocks and Hirsch write. They add Luxembourg to the list of possible alternatives to London, and say that even Warsaw, which remains outside the Eurozone, may see some back-office jobs in tech and accounting.

That’s fine with the Poles. “Foreign investors often go step by step,” Bartlomiej Pawlak, acting chief of the government agency that promotes investment in the country, tells Bloomberg. “And often back-office is followed by mid-office and other services.”


Southern Europe Is Still Affordable for Britons

Another set of dire predictions for British home buyers was that buying holiday or retirement property abroad would become unaffordable; however, it’s too soon to tell what impact (if any) the full separation of Britain from the EU might have on overseas home ownership in future.

For now, though, Dan Johnson, director of property site, tells The Express that, like the pound, “the euro is also weak thanks to the sluggish European economy, keeping property affordable. Vendors in Spain and Portugal are willing to be flexible on asking prices to secure sales, so be prepared to negotiate.”

Another tip comes from dealing director Tom Holian, writing for Pound Euro Exchange. “If you’re in the process of moving to Europe or are buying a property over the next few weeks or months,” he writes, “then it may be worth looking at buying a forward contract which allows you to fix an exchange rate for a future date.”


All Eyes on the PM

Much of the future depends on whether UK Prime Minister Theresa May holds to her promise of triggering Article 50 of the EU treaty or to her other promise of repealing the existing law that gives EU regulations legal force in the UK.

As it stands, according to The Economist, “Mrs May has made it far more likely that Britain’s departure from the EU will take the form of a ‘hard’ Brexit, with Britain leaving both the customs union and the EU’s single market.”

Article 50 is biased, continues the article, with the terms of the exit determined by a majority vote of the rest of the EU countries — which does not include the departing country.

And so, while Worldwide Group, international property sales agents, are reassured by the prime minister’s making “it very clear that guaranteeing the legal status of British nationals living in other European countries … is of the highest priority for the British government and would be an ‘early negotiating objective,’” there really is no guarantee and no way to make such a promise.

There are small indicators, though, that if and when Britons are no longer members of the EU, their status won’t be adversely affected.

For instance, when asked whether a UK applicant post-Brexit would find it difficult to get a mortgage in France, Italy, Portugal or Spain, overseas property specialist Simon Conn says: “At this time, there are no indications that lenders will penalise a British applicant post-Brexit. For example, they do not currently offer different lending terms to Norwegians or Swiss-based applicants who are already residing outside of the EU.”

images by: 921563, Jonathan Wilkins, Wikilmages, amurca

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