Brexit: consequences for property investors targeting Europe16 June 2017
Whilst the reverberations of this morning’s result in the UK continue to be felt across stock and currency markets, what should investors currently looking towards Europe's key markets consider?
The immediate effects
‘Priced in’ is the term being used with the pound’s relatively resilient movements today. To most people not working in Forex markets, it may have come as a surprise that the pound is holding at around €1.24. Many of our British clients locked in exchange rates weeks ago for their deposits or first stage payments, but with those who did not, a sense of urgency may develop over the coming days. That said, last week, the pound was at €1.25, not much higher that it is today and it is still in a better place than where it was in 2014.
Elsewhere, the dollar is up 4% on the euro overnight and 24% up compared to this time in 2014. Those buying in the greenback or a currency pegged to it are suddenly in an even better position than they were pre-referendum.
For the French market, a majority Brexit vote has arrived at almost exactly the same time as mortgage rates have dropped to all time lows. Across the country, non-resident buyers can access rates of 2.15% fixed for 20-year durations. Americans buyers understand the concept of long term fixed rate mortgages (of 10-20 year durations) as they are readily available, but British buyers can sometimes fail to grasp the value behind the numbers.
“Even if you include the currency equation, which for now is not as bad as it could have been, there is still huge value in the French market at the moment,” comments John Busby at French Private Finance (www.frenchprivatefinance.com). “In France rates are fixed for long periods, normally 20 years, which is the entire duration of the mortgage. A buyer with a good profile can now access a 20-year fixed rate loan at 2.15% at a loan-to-value rate of 80%."
For those looking at Paris, even lower long term fixed rates – down to as low as 1.5% - can be locked in depending on buyer profiles.
This morning’s news is unlikely to change the French finance market for now.
In the short term currency will affect demand from UK buyers and mid-term uncertainty will fuel this. However, in key prime markets like Paris, Lisbon and even the French Alps, the supply of rare new-build and renovated apartments - finished to a standard that meets international requirements - will remain low.
As a result, buyers from within Europe will try and capitalise on any opportunities that arise. The French Alps will remain a popular location with wealthy domestic buyers, as will Paris. Lisbon is also a good example. Prime property prices are a third of Paris and London and have increased 30% in the last three years. With a resurgent market that’s undergoing continued regeneration, real estate opportunities will come and go regardless of any Brexit-induced hesitation.
Stepping back further, Portugal’s various residency programmes will fuel this dynamic of reslience even more. Firstly, the Golden Visa programme, Europe’s most popular property-for-residency scheme of its kind, will continue to attract non-EU investors looking to target a keenly priced market that’s on its way up, with a residency permit that paves the way to a Portuguese passport.
For EU investors (but also non-EU too) Portugal’s NHR (Non-Habitual Residence) programme is another feather in the country’s increasingly attractive cap. No wealth tax and a flat income tax of 20% works well with a purchase of a competitively priced property one of Europe’s best connected cities.
In France, taxation is the same for residents of the EU and the EEA (European Economic Area), which includes non-EU members. Therefore in theory if the UK were to leave the EU, but stay in the EEA, the tax rules for British owners would remain equal to those inside the EU.
Perhaps most importantly, the double tax treaties, which affect things like property rental income taxes (meaning owners are not charged twice for the same tax) will likely not be affected. This is because each double taxation treaty has been agreed with each individual country.
Mortgages…Being within the EU means British buyers can access mortgage products with loan-to-values of up to 85%. Long term this may change.
Countries outside the EU are often slightly less fortunate with loan-to-value rates. Depending on personal affordability profiles, Brazilians can access loan-to-values of 60-80%, buyers from China 50-60% and Argentina 50-70%.
Once the UK has left the EU, Brits with a less appealing profile would probably be charged higher interest rates and would have to put down a bigger deposit.
Visas…Even if Brits were eventually required to apply for visas for each visit to an EU country, whilst inconvenient in the short term (an inconvenience that would no doubt come with a small cost), such a process hasn’t perturbed British from buying and visiting other countries which have such a process.
Lisbon and Portugal will continue to be a target for Brazilian and South African investors, just as Paris and France will be for American and Middle Eastern investors. Post-Brexit, if British buyers have a similar status to those countries, the general feeling is that they will adapt and move on.
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If you have any questions relating to how the Brexit will affect your property investment in Europe, please feel free to get in touch with one of our experts today.