Brexit debate’s impact on FX rates already having knock on effect on overseas holiday home market

  • Opinion polls currently showing 52% of people in favour of Britain remaining in the EU (What UK Thinks)
  • Many UK buyers of overseas property adopting a ‘watch and wait’ approach (easyMarkets)
  • Changing FX rate can mean gaining or losing thousands of euros in a matter of days when buying a second home overseas (easyMarkets)

From UK-based business owners trading overseas to individual savers looking to purchase a second home abroad, all eyes are on the ‘Brexit’ debate when it comes to the potential impact on currency exchange rates.

Nikolas Xenofontos, Director of Risk Management at leading online trading services provider easyMarkets, explains,

“Brexit isn’t just about the impact that Britain leaving the EU could have on exchange rates in the event of an ‘out’ vote, it’s about the effect that the uncertainty around the whole process is already having on exchange rates. Sterling has already been influenced by the Brexit debate and will continue to be as the referendum approaches. There’s a real sense of caution afoot at the moment. We’re noticing everyone from holiday home buyers (or would-be buyers) to business owners is taking a ‘watch and wait’ approach and there are going to be some interesting market movements as 23 June approaches.”

The case of second home buyers is a particularly interesting one. Since the referendum’s announcement, sterling has weakened and recovered on more than one occasion as a direct result of Brexit developments. At the time of writing it is trading at levels seen before the announcement, reflecting a range-bound path that sterling is expected to maintain against its peers until a clear indication as to the outcome of the referendum is known.

A second home buyer who exchanged £200,000 for euros on 19/02/16, would have found himself with €258,906 to spend on his dream home overseas. However, had he made the exchange on 21/02/16, he would have had just €256,213: as loss of €2,693 in just two days.

“Brexit may have a big impact on the purchase of overseas property,” continues easyMarket’s Nikolas. “Many potential buyers are pausing their plans until later in the year, waiting to be certain of the outcome of the referendum before they go ahead and invest their capital in a second home abroad. Turbulent exchange rates and the uncertainty over factors like freedom of movement are likely to put the brakes on the overseas property market for the coming months, so far as UK buyers are concerned.”

Of course it won’t be a case of the market simply stalling until 23 June and then picking up again post-referendum. Some buyers will judge the likely outcome for themselves well in advance and act accordingly. Others will wait until the weeks before, when a clearer indication of the outcome can be predicted, although the UK’s 2015 election demonstrated that opinion polls don’t always get it right. Currently the What UK Thinks: EU Poll of Polls is showing 52% for the ‘remain’ camp and 48% for the ‘leave.’ The figures have moved no more than three percentage points further apart for the past six months.

In all likelihood, the anticipation of an exit vote would be likely to weaken the pound, while a predicted vote to remain in the EU would be expected to seriously strengthen sterling’s position across the board. In the meantime, all eyes will remain on the exchange rate as the referendum date approaches.

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