Today, the UK triggered Article 50, beginning the process of leaving the European Union.
“I want us to be a truly Global Britain – the best friend and neighbour to our European partners, but a country that reaches beyond the borders of Europe too,” said UK Prime Minister Theresa May in a speech to Parliament.
“I have set out a clear and ambitious plan for the negotiations ahead. It is a plan for a new deep and special partnership between Britain and the European Union. A partnership of values. A partnership of interests. A partnership based on cooperation in areas such as security and economic affairs. And a partnership that works in the best interests of the United Kingdom, the European Union and the wider world.”
In the UK’s letter to Donald Tusk, the President of the European Council, the government confirmed its decision to activate Article 50 of the Treaty on European Union, opening a two-year window to negotiate the terms of Great Britain’s exit from the EU.
May wrote that the negotiations ahead should be based around several key principles, including engaging with one another “constructively and respectfully,” putting citizens first, securing a “comprehensive agreement”, minimising disruption and giving as much certainty as possible, and working together to “advance and protect our shared European values”.
What happens now? Stay in the know with our Brexit pocket guide for property investors.
Why is the UK leaving the European Union?
The UK is leaving the European Union because on 23rd June 2016, a majority of British voters elected in a referendum for Britain to stop being a member of the EU.
When is the UK leaving the European Union?
There is no fixed date, although today’s triggering of Article 50 has given the UK a two-year window to negotiate an exit deal. An exit deal may be reached before the March 2019 deadline, but if not, the UK will nonetheless have to leave at that point, with or without an agreement in place. This deadline can be extended, but only by a unanimous vote from all EU member states.
Will EU citizens in the UK and British expats living in the EU still have the same rights?
Prime Minister Theresa May has stated before that she intends to protect the rights of the 3 million EU citizens living in the UK, although this will depend on the EU granting reciprocal rights to the British expats living overseas in other EU member states. Individual property rights are supported by both UN Human Rights and the European Convention on Human Rights, so current ownership of holiday homes and similar assets will be unaffected, while the broad practice of buying real estate is expected to remain unchanged. Taxes on rental income, stamp duty and other fees may change, however, depending on how negotiations proceed, and whether the UK negotiates a “soft” or “hard” Brexit.
Update 23rd June 2017
Theresa May has outlined a proposal for the government’s offer to deal with EU citizens’ rights in the UK. This is based on the introduction of a new immigration status: “UK Settled Status”. This will be created for EU citizens who have been living legally in the country for five years or more and would give them rights to pensions, healthcare, benefits and education for life.
May has said that there would be no “cliff edge” and it is understood that no EU nationals currently living in the UK would have to leave the country immediately upon Brexit occurring.
More details on the offer have not been revealed yet, but it is dependant upon UK expats in other EU countries getting a reciprocal deal.
What is the difference between a “hard” and “soft” Brexit?
A “soft” Brexit would see the UK’s relationship with the EU remaining very close to the way it is now, maintaining the existing four freedoms that are included under European Union membership: freedom of movement for goods, capital, services and people. This means that EU nationals would be able to continue to live and work in the UK without disruption (and vice versa for British expats), while the UK would be a member of the European Economic Area, giving UK businesses access to the single market and avoiding any new tariffs or charges. A “hard” Brexit would see the UK leave the single market, which would mean that trading with other countries could be subject to extra tariffs or charges, rights for expats, such as healthcare, could be changed, and the UK would have full control over immigration from other countries.
Will Brexit impact the UK housing market?
The fundamentals of the UK housing market remain the same as they did before the EU referendum, with supply falling short of demand, underpinning both house price growth and demand for rented property. Brexit is therefore unlikely to impact the UK housing market directly, although the uncertainty surrounding the UK’s negotiations with the EU has combined with other factors, such as rising prices, to slow down activity since 2016’s vote.
New research from the HomeOwners Alliance and BLP Insurance show that more than 1 million adults have shelved plans to purchase a new property because of the vote to leave the European Union. Other factors involved in postponing their house move include property values, a rising cost of living and trouble in securing a mortgage.
“I believe that the UK property market will cope well in the short term (over the coming six months or so) with Article 50 being triggered today,” says Jean Liggett, Founder and MD of real estate investment agency, Properties of the World.
“The government has done what it can to prepare for the impact of the formal start of the Brexit process. Many experts predicted that the housing market would crash after the EU referendum in 2016 and their fears proved unsubstantiated. Although we’ve seen a cooling off of the prime London market, the UK overall has continued to enjoy property price rises. While the outcome of the referendum came as a shock to many, the triggering of Article 50 has been planned for months, so the shock factor should be eliminated in terms of the housing market’s reaction.”
Will Brexit change UK house prices?
The UK’s chronic lack of stock means that property values are likely to continue to rise, as demand continues to outweigh supply. According to the National Association of Estate Agents, there are now an average of 11 buyers chasing every property on the market. Nonetheless, the slowdown in activity that has taken place over the last year means that price growth is forecast to be more moderate in 2017 than previous years.
“The outlook is uncertain, but we, along with most other forecasters, expect the UK economy to slow through 2017 as heightened uncertainty weighs on business investment and hiring,” commented Robert Gardner, Nationwide’s Chief Economist Consumer, in the lender’s house price index. “Sending, a key engine of growth in recent quarters, is also likely to be impacted by rising inflation in the months ahead as a result of the weaker pound. Nevertheless, in our view a small rise in house prices of around 2 per cent is more likely than a decline over the course of 2017, since low borrowing costs and the dearth of homes on the market will continue to support prices.”
What will happen to the pound?
The pound fell against the US dollar today by as much as 0.6 per cent, reports Bloomberg. However, sterling hit a seven-week high on Tuesday, the day before the Brexit vote, indicating the volatility expected in the currency. The pound is expected to continue fluctuating throughout negotiations, but the pound has already fallen by 15 per cent against the dollar since the EU referendum in 2016, which means that many experts think the currency market has already priced in any potential shock from a “hard” Brexit scenario.
Will Brits still buy Spanish property?
The weaker pound has meant that it is effectively more expensive for British buyers to purchase property in favourite European destinations, such as Spain and France. However, record low mortgage rates in France and bottoming out values in Spain, as well as flexible vendors willing to negotiate on prices, have helped more serious buyers continue to make purchases. According to TheMoveChannel.com’s research, Spain was the most popular country among overseas buyers in February 2017, with expat hotspot Benidorm the fifth most searched-for location in Q1 2017 – an indication of continued British interest in Spanish real estate.
“Today’s triggering of Article 50, signalling the start of the Brexit process, will have an unavoidable impact on the Spanish property market,” says Richard Speigal, Head of Research at Kyero.com. “1 in 5 foreign buyers are British and Kyero.com already noticed British enquiries for Spanish property stalling back in February 2017, the first time since the Brexit referendum, as UK buyers adopted a “wait and see” policy.”
“The change has been most noticeable in the over 55 age group. This group faces the most uncertainty as a result of Article 50 being triggered as, while property rights and the mechanics of purchasing in Spain are likely to be unaffected, the same can’t yet be said of healthcare and pensions. Budgeting for a life overseas with so many unknowns can be difficult. The next two years of Brexit negotiations are going to be complex, and we would like to see the government take a position quickly on issues like healthcare and pensions for expats in order to minimise the impact on those who live – or would like to live – in Spain.”
Will Brits still buy French property?
“What we have certainly noticed is that the quality of British enquiries has improved, the people who are looking seem to be serious and ready to make decisions quite quickly,” says Tim Swannie of French property agency Home Hunts, who also explains that France’s “back to back” loans have helped British buyers to avoid being hit by the pound’s exchange rate.
Will Brexit boost overseas investment in the UK?
While the weak pound has been an important factor for British buyers to consider when house-hunting overseas, it has also provided a positive boost for overseas investors keen to take advantage of their improved spending power.
Residential property agents in cities such as Liverpool and Manchester have reported high levels of interest from Chinese investors, while London agents have reported strengthened demand from US investors.
Commercial real estate is expected to benefit alongside residential real estate, as the pound’s weakness, combined with a drop in capital values, has effectively discounted property by 16 per cent, according to JLL. Overall, overseas investors accounted for 48 per cent of transactional activity within the UK market in 2015 and a slightly higher 51 per cent in 2016, with the increase attributed in part to currency movement.
“For many long term investors, sterling deprecation provides an added fillip to the investment case, based on their perception that it will may appreciate once there is more clarity around Brexit and its economic implications, but it is not a case of one-size-fits-all,” says Ben Burston, Head of UK Office and Capital Markets Research at JLL.
“Private investors have responded to the depreciation more than institutions and global asset managers, and as a result they have become a more important driver of market sentiment and pricing. Despite the triggering of Article 50, as 2017 progresses we expect global funds and institutions to return their focus to the UK, in response to relatively attractive pricing and as more evidence of occupational market resilience comes to light.”
“Triggering Article 50 means that negotiations can get underway as quickly as possible, which will give businesses much needed certainty and impetus to continued investment in the UK,” comments Melanie Leech, Chief Executive, British Property Federation.
“We need certainty to maintain confidence in the UK as a great place to invest, which is particularly important for the real estate sector because we attract global investment and those investors commit for the long-term.”
“As the Prime Minister embarks on the unprecedented task of negotiating an exit from the EU, it’s vital that she and the government both understand the real estate industry’s contribution to the UK’s success, and what it will take to ensure that it can continue to deliver growth and productivity,” Leech adds.
Brexit: A Brief Timeline
What will happen next in the Brexit process? Here are the key dates to keep in mind: