WHAT DOES BREXIT MEAN FOR INVESTORS IN UK PROPERTY?

Monday, May 8, 2017

 

We are yet to determine exactly what effect the eventual exit of the UK from the European Union will have on housing market, but it’s wise to speculate as to the possible outcomes both positive and negative. How much Brexit affects domestic foreign-based investment in the UK housing market will be heavily influenced by the kind of deal the UK government can broker with the EU. If you are an investor, then it’s worth keeping abreast of the possibilities.

Best Case Scenario

The best outcome would be the UK managing to negotiate a mutually beneficial free-trading agreement before the expiration of the two year deadline for the completion of the negotiations. If the UK negotiators are successful then there is little to fear from the UK’s divorce from its political spouse on the mainland. Investment opportunities will likely even improve should a good trade deal be thrashed out, as the relationship between the UK and Europe will potentially still be friendly with each happy to benefit the economic health of the other.

Worst Case Scenario

What property investors in the UK don’t want to happen is a failure to make any kind of agreement before the two year deadline arrives. Now that Article 50 has been triggered, even a temporary deal which isn’t ideal for either party would be better than no deal, as far the UK and its property investors are concerned. The EU is likely to stand firm with its stance, certainly at the beginning, so we will be hoping to see the UK make the first move towards a softer Brexit.

Without a deal in place, the two year deadline will see the UK and EU countries having to trade with one another using the minimal terms mandated by the World Trade Organisation. This means there will be significant tariffs involved in trade deals as well as restrictions in place that limit investment opportunities for foreign-based property investors in the UK. This is the worst case scenario and what has become known as the ‘Hardest Brexit’. Hopefully this can be avoided as it is detrimental to Europe as well as to the UK.

Free Trade Benefits Both Sides

The likelihood is still that a beneficial free trade deal will be worked out as it benefits the EU as well as the UK to trade without tariffs that would be imposed by the World Trade Organisation’s mandate in the event of a failure to reach agreement. However, investors would be well advised to hedge their bets and not make any grand assumptions as to the outcome of the negotiations one way or the other, as recent political events in Europe and around the world have shown us that predicting such outcomes does not always go to plan.