The ripples of uncertainty surrounding the UK’s departure from the EU are creating unanswered questions for everyone, including UK expats. Here we’re going to take a quick look at the relationship between the property market and currency exchange rates in terms of how that might impact your financial decisions as an expat preparing for Brexit. Where should you keep your money?
What currency should you use for your savings?
As Article 50 was triggered and leaving the EU negotiations began in earnest, the value of the pound plummeted, particularly against the Euro and the US dollar. If you have UK income while living as an expat, this probably meant that your British assets and UK pension were severely reduced.
As an example, if you are a non resident landlord of a UK property, the value of your rental income dropped by 10% almost instantly.
Of course the converse is true for those who have the majority of their income from outside the UK. In these cases, the weak pound is beneficial.
What kind of indication does the property market give me?
It is generally accepted that the state of a country’s property market is a reasonable indicator of the overall success of its economy. This is because of the conditions required in order for a healthy property market to exist. If a large proportion of a population are buying homes then that shows three crucial things: they have confidence in their financial futures, they are earning the requisite amount to pay for property and their debt track record is good.
Adding together all the individual citizens that meet these criteria, gives a solid indication of how that country’s economy is looking.
If house prices fall, should I be worried?
A mass fall in house prices is something to worry about because it means that less people are able to make their mortgage payments and have had their property repossessed. Typically banks sell at a loss, so house prices are lower across the board. Other people hold back on selling in a repressed market to avoid making a loss in a stagnant market. Even property investors and housing developers become cautious.
We’re lucky in the UK because this kind of generalised property crash is rare. The last time was when the pound dramatically fell out of the Exchange Rate Mechanism in the 1992 recession.
What about the current UK property prices?
Currently, the UK property market is relatively stable, in spite of the upheavals in the stock markets and currency rates. Property prices are rising due a growing population; either through people emigrating to Britain, or an increased birth rate. There is more land to build on here because of our regulations and it is viewed as a ‘desirable’ place to live.
The Office of National Statistics (ONS) release a House Price Index summary, December 2017 states: “Average house prices in the UK have increased by 5.2% in the year to December 2017 (up from 5.0% in November 2017). The annual growth rate has slowed since mid-2016 but has remained broadly around 5% during 2017.”
These figures are comprised from information from HM Land Registry, Land and Property Services Northern Ireland and the Registers of Scotland.
Where else can I invest my money?
For expats, the unpredictable changes to currency relationships make choosing investments very difficult. Even if your investment grows, if the currency’s worth changes, it could cancel out any yield. Other than property, you could go for the riskier stocks and shares option, or the safe bonds and gilts choice.
UK Income Tax and Brexit
It has not been mentioned that the tax treatment of most UK income will change because of Brexit. This means all of the usual tax reliefs available for UK expats and non residents will remain the same in the short term.
HMRC allows relief on UK pension income in many countries, non resident landlords to claim back tax paid through their rental agent on their rental income (up to certain limits) and tax to be claimed back if you have left the UK and not used all of your tax free personal allowance in the year that you leave.
The value of the tax relief available to expats and UK non residents is considerable so let’s hope nothing changes too much in the future.
What does the financial future hold for UK expats?
Unfortunately, we just don’t know what the financial future is going to bring for UK expats. There are nowhere near enough details about what leaving the EU will really mean for the UK economy to make any reliable predictions. SO many elements of the deal will affect the status of expats; passporting rights for financial institutions, free movement of people and customs agreements are just a few of the issues that need to be resolved.
Anything could happen. Britain could end up in a better financial position, although this is less likely when we are choosing to negotiate on our own with the rest of the world. A sign that things are heading south for the UK economy would be a drop in house prices. But property investment has always been about the long game in terms of getting a return, so it’s still worth considering when you are planning your financial future.
Keep an eye on our news pages as we will bring you the specifics, and their consequences, as they are revealed during negotiations.
