Any British buyers who have been looking to buy a ski home in the last three years will have had Brexit and a weak pound on their mind. Sterling’s been trading at around 18% below pre-2016 levels, and that has added a certain level of costs – or rather, removed some of the ‘discount’ – for British buyers purchasing overseas, especially in euros.
However, in the last week, the pound has jumped to a 2.5-year high against the euro. But will this continue? As the election next Thursday draws closer, we have a look at what property buyers should bear in mind.
What is the current situation?
At the moment, we are just under a week away from the UK going to the polls on 12th December and the Brexit extension is due to expire on 31st January.
Currently, the Conservative Party is leading in the polls, but the Labour Party is closing the gap – so no-one can say with certainty what will happen. There are, however, three likely scenarios, all of which could have implications for property buyers.
Scenario 1: Conservative majority
If the Conservatives win a majority, judging by current trends, we could see a rise in the pound – but no-one can say for certain. A Conservative win means that Boris Johnson’s Brexit is likely to pass through Parliament, which will mean that the rights of anyone buying from the UK will be preserved until the end of the transition period, until at least 31st December. However, the uncertainty is still not gone – the trade negotiations are still to come after January, and may not be complete by December.
Scenario 2: Hung parliament
This could take any number of forms – a Labour-Lib Dem coalition, a Labour-SNP coalition, a Conservative-Brexit Party, or a combination of the two. This could mean going any on Brexit – leaving with the current deal, renegotiating a new deal, leaving without a deal or a second referendum.
The effect on the currency markets is completely unpredictable – while they generally crave stability, a change of direction could lead to a jump, or the complete opposite. As for buyers thinking about Brexit, it will depend on what direction any coalition takes – the same deal or renegotiating a deal means that your rights shouldn’t change before 2020. If it does end as a no-deal, there might not be any form of a transition period, but, again, it’s completely unpredictable.
Scenario 3: Labour majority
If the Labour Party continues to narrow their lead gap, then we could see a Labour majority in Parliament. Labour’s Brexit policy is to renegotiate the current deal and then put it to the public via referendum. Again, the impact this has on the pound is completely unpredictable – will the markets react positively to a change in direction, or will the uncertainty of more months of negotiation and a further referendum push it down?
How can you protect your purchase?
If there’s one takeaway from these scenarios, it’s that, while we can predict to some extent what the possible outcomes of the election could be, no-one can tell you where the pound will go. But that doesn’t mean you have to put your plans on hold.
The pound could go any way, and that can change the cost of your purchase by thousands. However, you easily lock in your exchange rate with what’s known as a forward contract. This simply means that you and your currency specialist agree that you will send a set total sum over the next twelve months at one fixed rate. You pay a deposit and then pay the balance when you want. Even if the markets do suddenly drop, then what you pay will not change. Find out more about how a forward contract works, and your other options for protecting your money, in the Property Buyer’s Guide to Currency, free to download.
What about Brexit?
Depending on our scenarios, we could see the current situation essentially extended until December 2020, via the transition period, or we could see a further extension while a new deal is negotiated. Likewise, no-deal is not entirely off the table.
However, it is important to remember that the Brexit cut-off point, whether it’s after the transition period, or much closer with a no-deal, does not mean that you can’t buy property abroad. Thousands of Australians, Americans, Chinese and more do so every year, with nothing more than a bit more paperwork. Learn more about buying after Brexit in our dedicated Brexit Guides.