If you own a property overseas, or you’re thinking of buying or selling, then here’s an update on how Brexit may affect your choices, from the team at Currency UK.
Brexit is a wide-reaching event that will affect not only the UK, but the EU and potentially the wider world for years to come. One group of people who will potentially be affected the most by Brexit is those living in the UK with property overseas in Europe, as well as people looking to become property owners in Europe.
A large reason for this is the fluctuation (and recent weakness) in the value of the Pound, which has a direct impact on the value of property overseas. Note: for the purposes of this article, we are writing from the perspective of the UK, and therefore ‘overseas’ refers to Europe.
Firstly, a little background on currency over the past couple of years. Immediately after the referendum in June 2016, the Pound suffered a drop in value against the Euro of approximately 10%, and has been unable to recover those losses since. To put it simply, the weaker the Pound, the fewer Euros it buys, and by that same token, Euros buy more Pounds than before.
Extending that to buying goods and services, Europe has become more expensive for the UK, and the UK has become cheaper for Europeans (very generally speaking).
Looking to buy?
Let’s take a look at those looking to buy property overseas. Last year, before the referendum, a property valued at €250,000 would have cost £190,000; now, however, the same €250,000 property will cost approximately £220,000 – that’s £30,000 more expensive.
Another way that those looking to buy in Europe are likely to suffer from Brexit is with regards to house deposits. In some EU countries, EU citizens are charged smaller deposits for house purchases than non-EU citizens. For example, in France, minimum deposits for EU citizens are 20% of the full price, whereas for non-EU citizens that can go up to as much as 50%!
Current owners of overseas property could potentially lose out on some perks, especially if the UK leaves the European Economic Area (EEA). Parties to the EEA Agreement are included in the EU single market and must comply with its rules and restrictions, including the four fundamental freedoms: movement of goods, workers, capital, and provision of cross-border services. An example of the perks that UK owners of EU property could lose are tax breaks. Currently, EU home owners in France pay only 19% tax on gains from renting or selling their properties, whereas non-EU home owners can be charged up to 49%.
However, homeowners can rest easy in the knowledge that they won’t be charged double tax; the UK has approximately 120 double tax treaties in place with individual countries, many of them being in the EU.
Another consideration is actually getting to your European property. While it’s unlikely that it will be very difficult to travel between the UK and the EU, it’s highly doubtful that it will be as smooth, or as cheap, as it is currently.
Looking to sell?
Those looking to sell their overseas property, however, may actually gain from Brexit and the weakness in the Pound that it has brought. Here’s an example:
If you bought a property in Spain pre-2007 that was worth €350,000, that would have cost you £233,333.33 at a rate of 1.50.
Since then, property value in Spain has seen a 41% drop, meaning the property would now be valued at €206,500. If you were to bring back €206,500 to the UK in 2007 you would have received £137,666.67, but at today’s exchange rate of about 1.13, that would give you £182,743.36.
As you can see, the fall in the value of the Pound has partially mitigated the fall in overseas property values. If Brexit does continue to decrease Sterling’s value, this at least gives some comfort to overseas property owners planning to sell and bring the funds to the UK.
Even if we were to look more recently than 2007, in 2015, a year before the referendum, the GBP-EUR exchange rate was hovering around 1.40. The €206,500 property would’ve given you £145,500. That’s over £35,000 less than today’s exchange rate.
As you can see, now is arguably the best time in recent years to sell your European property and repatriate funds to the UK.
While full of uncertainty, Brexit has already had many concrete ramifications, and the effects and potential effects on overseas homeowners cannot be understated.
Before making any big decisions, make sure you pay attention to the news and movements in currency. Speak to a broker to get the latest information, so you can make the most informed choice when sending and receiving international payments for property.