What Will Happen To Overseas Property Investing Post-Brexit?

(Credit: Unsplash)

Since the Brexit referendum happened mid-2016, a lot has happened. Donald Trump became America’s president, politics around the world became farcical, the UK elected Theresa May and then Boris Johnson, a global pandemic raged, and Donald Trump got voted out and caused a failed insurrection. That’s just scratching the surface!

One thing that hasn’t happened – at least not in full – is Brexit itself. Negotiations dragged on, with incompetence reigning supreme. Now, in 2021, the final stages of Brexit are coming together. A trade deal has been reached and British citizens and businesses finally have to contend with the consequences.

That is not to say that everything has been decided. There is still little clarity on whether European countries will block British citizens from visiting without visas. There’s also not that much clarity on how liberal various countries will be in allowing UK citizens to buy property.

However, there is evidence that property investment in EU countries will be more expensive. Stamp duties are likely to be raised by many European governments. But the bigger expense will probably come from changing exchange rates.

The state of British property investment abroad

In 2020, British property investment abroad slowed dramatically. This, of course, was mostly due to the pandemic. In an uncertain international landscape, buying property in the EU was risky at best. There was no guarantee that buyers would be able to use it themselves or rent it out, especially while international travel remained out of the question.

The pandemic hasn’t ended, but we are beginning to see a way forward. And this is where Brexit comes in and complicates things.

Even without considering the potential added expenses of property investment for UK citizens, there are reasons to hold off on buying. For one thing, it may become more difficult for British citizens to spend months in their European holiday homes without visa issues. For another, earning income from a European property could become subject to stricter regulations.

Ultimately, money talks, and fluctuating exchange rates will be one of the biggest – if not the biggest – factors.

Brexit’s impact on the GBP/EUR pairing

When the results of the referendum were announced in 2016, the pound plummeted. What had been a consistently powerful currency suddenly lost ground in all pairings. Even though Brexit would have a significant impact on Europe as well, and the euro faced some struggles, it still gained on the pound.

Experts expected 2021 to start in the same way, with the finalised trade deals leading to a wounded pound. As of yet, that has not quite happened, but that doesn’t mean it won’t. Many are still expecting a downward spiral for pound sterling over the next few months and it would be foolish to make any big financial decisions with different assumptions.

How is this likely to impact property investment?

Investment in uncertain times

Increasing costs are not the biggest enemy of investment. Rather, that title goes to uncertainty. It is in uncertain times that investors panic and take their money somewhere else. This is especially true when dealing with expensive assets and big sums of money.

So, while we haven’t seen the pound suffer against the euro thus far in 2021, and while it may not plummet as expected, the lack of certainty remains. With more clarity, people can invest with more confidence, knowing they can prepare and adapt for the hard times.

We don’t know how the pound will fare against the euro in the coming months, but we do know that it will fluctuate more than normal. This is likely to be a major factor keeping UK buyers from investing in property.

However, this doesn’t have to be the case.

Financial tools to deal with uncertainty

Over the past couple of decades, there has been an increasing sense that currencies will become outdated. Instead of having this strange system in which each country has its own type of money despite international cooperation and trade being easier than ever before, financial mavens are trying to move us towards global currencies. Cryptocurrencies like bitcoin and ethereum are the most poignant examples of this. But they haven’t quite taken off as practical forms of payment, even if their values have rocketed.

That does not mean the foreing exchange landscape hasn’t changed. On the contrary, financial instruments have been quietly emerging which help international investors and expats account for uncertainty which would otherwise keep them from reaching into their pockets.

These tools include forward contracts. A forward contract gives investors access to forward exchange rates. These are fixed exchange rates which the money transfer company calculates from the spot rate. The investor agrees to exchange future transfers at this rate. So, instead of agreeing on a price with the seller of a property in euros and hoping that payments won’t differ too much from month to month, you can use a currency forward contract to ensure they remain exactly the same.

With tools like forward contracts, potential property buyers can take the uncertainty out of their investments. They can put the question of GBP/EUR future rates aside for a fixed amount of time, knowing that even if the pound does plummet in the near future, they will be fine.

Buying property post-Brexit

Forward contracts are not a panacea when it comes to buying property post-Brexit. There are still financial matters which are uncertain, including potential taxes and increased difficulty due to potential regulations on earning income in some EU countries. There is also the reality that visiting an EU property will no longer be as simple for British citizens, especially if they intend to be there long term.

However, it does take out one of the biggest sources of financial uncertainty. It means the investment is not going to suddenly become much more expensive than initially thought. Access to these instruments will make buying property post-Brexit an option for many investors trying to avoid the worst.