The news on the 24th June came as a shock to all of us. The historic news that the UK would be the first country to leave the EU raised a lot of immediate questions for expats. Working with a number of our clients over the month has taught us one important lesson, Brexit will not stop them from buying.
And why would it? Expats have been living in Australia and America alike for decades and yet they don’t have the luxury of free movement, visa’s?
But this optimism doesn’t ring true for everyone, if it’s not the uncertainty surrounding Brexit that prevents you from buying, the huge fall in the value of Sterling has made your dream holiday more expensive.
This is certainly a fair point, a £200,000 transfer minutes before the announcement of Brexit would have made you €262,000, the same transfer now equates to €240,000, a loss of €22,000. But putting the rates prior to the results to one side, current rates of 1.19 are still favourable when you consider the lows of December 2008 of 1.03. The 10-year average for GBPEUR sits at 1.25 making current levels considerably high given the outcome. In fact, levels of 1.20 have been tested in most years dating back to the financial crisis in 2007.
I will be moving soon, will rates go back up again?
Until Article 50 of the Lisbon treaty is invoked, Sterling will likely stay on the lower side until certainty begins to form. Investor’s will not likely improve their outlook until negotiations between the UK and EU take effect.
If I planned to move to France or Spain in the next 6 months, I would likely buy Euros sooner rather than later as I predict GBPEUR rates to fall in the coming weeks and months. The Bank of England have already hinted at Interest rate cuts and Quantitative easing to stabilise the economy. Most economists agree that this will take place in August’s decision. An Interest rate or further stimulus is usually seen as negative by investors and has the potential to weaken currency.
There is then the job of invoking Article 50, the official process of withdrawing from the EU. Theresa May – the newly appointed Prime Minister has made her point clear that the UK will not invoke Article 50 yet. Once the process is triggered the 2-year countdown begins before the UK withdraw from the EU.
It could well be 3-10 years before the UK officially leave the EU, during this period of uncertainty Pound Sterling could strengthen or weaken depending on a number of factors. The state of the British economy and the deal it receives from the EU are just some of them.
But it’s likely that until a deal is officially reached, rates could remain in the 1.18-1.20 range, possibly lower.
What happens during Article 50?
Once Article 50 has been triggered, presumably under Theresa May, the UK will begin its withdrawal from the EU. The EU will present a deal for the UK in which they must negotiate the terms of the deal. Although the framework allows for 2-years of negotiations, this period can be extended if terms need ratification and the majority of the EU members agree.
What deal will the UK get?
If the UK wants free access to the market, it will most likely need to accept free movement of persons as part of the EU’s fundamental principles. No country has free access to the market without it although Canada will be the first.
Liam Fox – the new secretary of state for international trade will be meeting with Canada’s trade minister to sought advice on trade agreements with the EU. The Canada-EU agreement took just shy of 7 years to complete and a similar model for the UK would take it well beyond the 2-year framework. It’s unlikely the UK would want an extended period of uncertainty which could be damaging for the British economy, they may look for a simpler solution.
There are lesser memberships such as the EEA (European Economic Area), also known as the Norway model. This type of membership allows for most of the existing agreements with the EU minus farming and agricultural policies. This type of membership would be easy to replicate for the UK and would remove a large portion of the uncertainty relatively quickly. This membership would likely maintain free movement of people removing further uncertainty for expats
There are other variations of this model, the Swiss have bilateral agreements with the EU through European free trade agreements but are still accountable for free movement of persons, good news for expats.
What if the UK opt to leave the single market?
The UK could leave the single market altogether and look elsewhere for free trade and bilateral agreements. Although possible, there are a number of negatives for doing this;
1. The UK would default back to the WTO and would be impacted by trade tariffs
2. Setting up free trade agreements with other nations will take time and could rattle markets and investment
3. The UK enjoys close proximity with the EU and shares common values with neighbour countries. It also has decades of integrated social, economic and political policies to untangle.
The UK remains in uncertain territory for some time, and the full impact of Brexit cannot be measured until data releases come to light. That being said, the Eurozone is equally as vulnerable to the fallout of Brexit.
Those looking to move to a country within the EU need to consider that expats move to the likes of America and Australia regularly, and are often faced with visa payments and stringent tests, a vote to leave the EU should not hamper your decision to buy your dream property.
Given that it is unlikely we will withdraw from the EU until at least 2019, making a currency transfer sooner rather than later could prevent you from further losses.