Britain’s unexpected decision to leave the European Union, following the referendum in June, has meant the world’s fifth largest economy has essentially filed for divorce from the other 27 member states; a process that will begin in earnest once the incumbent government triggers Article 50 — the two-year notice period the UK must give to leave the EU, during which a withdrawal agreement will be negotiated.
The result created fresh volatility in the foreign exchange market and will continue to have a significant impact for the foreseeable future, as heightened political and economic uncertainty takes hold. And, depending which side of the pond you are on, the ramifications of this historic decision will be felt by anyone looking to purchase property overseas during these volatile times.
Buying a property in Europe
For any Brits harbouring dreams of owning a home in a sun-kissed corner of the Eurozone, sterling’s rapid descent in value against the euro has driven up property prices, putting a serious dent in budget and affordability. Now, more than ever, a competitive exchange rate is vital when buying a home abroad. In July 2015, when the pound hit a seven-year high of 1.44 against the euro, a €250,000 property in the Eurozone was priced at around £174,000. Fast-forward one year and the pound is currently close to a a 31-year-low at 1.1800 in the wake of the shock referendum result, making the same property cost £211,800 - an increase of £37,800 simply due to market volatility.
For Americans interested in buying property in the Eurozone or Britain, Brexit has had a more favorable effect on their wallets. As news filtered through on July 24th that the Leave camp had secured an unexpected 51.9% majority, the USD/GBP pair surged from 0.6660 on polling day to 0.75 just twenty four hours later. Consequently, a £500,000 property in the UK would have decreased in value by around $84,000 overnight, courtesy of fluctuating exchange rates. This volatility has led to a period of strength for the U.S. dollar, against both the pound and euro, reducing the cost of property in both the UK and Eurozone for prospective American buyers.
Securing the best exchange rate
If you’re thinking of buying property overseas during this turbulent time, one priority is to secure the most competitive exchange rate. A common mistake most people make is relying solely on their banks to make international money transfers. A foreign exchange specialist like CNN Money Transfers may give you a better exchange rate, typically 3-4% more than banks, and offers free online transfers. That’s a considerable saving if you are moving a large sum overseas: it could make an $8,000 difference on a $200,000 transaction. That could be enough to cover your legal fees or even pay for renovations to your new home.
And the best part? With CNN Money Transfers, you can use a forward contract* to fix an exchange rate for up to two years ahead. So, if you’re happy with the prevailing USD/EUR or USD/ GBP rate - as well you might be in light of recent events - you could secure it and avoid any subsequent fluctuations. This could go a long way towards giving you peace of mind and allow you to budget ahead with certainty.
Navigating the new post-Brexit economy can be daunting, but with a little help from a foreign exchange market specialist like CNN Money Transfers, there’s no reason why you should put off your dream of owning your own house in the sun.