Suddenly the unthinkable looks all too possible; a chaotic no-deal departure from the EU in less than eight months. UK Trade Secretary Liam Fox says there’s a “60-40” chance of a no-deal Brexit and even Bank of England governor Mark Carney has said it is not impossible.
For anyone planning on moving to an EU nation, or with a large currency transfer anywhere in the world (as all currencies will be affected, not just the GBP/EUR), it is more vital than ever to make serious plans for a no-deal scenario. A no-deal Brexit could cost overseas property-buyers thousands – here’s how you can protect your money.
What is the chance of a no-deal Brexit?
Liam Fox, Secretary of State for International Trade, told The Sunday Times in an interview this weekend that he believes the chance of a no-deal Brexit are currently “60-40”. According to Fox, the process of the negotiations at the moment “is pushing us towards no deal”. Equally, Mark Carney, Governor of the Bank of England, said last week that “the possibility of a no-deal is uncomfortably high at this point.”
Following Fox’s comments, the pound went down to 1.1207 against the euro, while the rate against the dollar dropped to 1.291, its lowest in 11 months.
If Britain exits the European Union without a deal, it will fall under WTO (World Trade Organisation) rules. This would mean tariffs for UK goods going to the EU and vice-versa, as Britain would no longer be in a free trade area or customs union. It would also mean that market access would not be guaranteed.
In other words, investors are cautious about Britain’s ability to offer as stable a business environment as before. And this can have a big impact on the pound.
What does this mean if I’m sending money overseas?
Above all, this volatility means that no-one can tell you where the pound will be in March 2019 – or afterwards. Not even the banks know: there’s an 8-cent difference between the banks’ predictions for where the GBP-EUR rate will be in six months’ time, for instance.
This is a big risk for your budget.
Imagine you’re purchasing a property in Europe. You put in an offer in euros and that offer is accepted. The exchange rate will change between that offer and you paying the deposit. The risk is that if the change is even 1%, you’ll end up paying a lot more than you’d bargain for. Over the last month alone, depending on when you paid, a €200,000 property could have cost almost an extra £3,000. Extend that to the last 12 months, and the difference is over £13,700.
A no-deal Brexit will undoubtedly cause significant movement in the pound, particularly in the immediate period following Britain leaving the EU.
Over the last month alone, a €200,000 property could have cost almost an extra £3,000. Extend that to 12 months, and the difference is over £13,700.
That’s why it’s key to move your plans forward where possible. If you’re property-hunting, buying before March 2019 could give you the peace of mind of having everything already in place and complete before Brexit. It could also save you a significant sum of money.
Is there anything I can do to control the risk?
Fortunately, there are still ways you can control the risk in case of a no-deal Brexit.
One of the easiest ways is a forward contract. This is where your currency exchange specialist can lock into a chosen exchange rate for the future. In other words, if you’re not quite ready to send money yet, but will soon – and you’re concerned with the pound dropping in the future – you can reserve today’s exchange rate. Normally, you would pay 10% of the money now and the rest within the year.
However, even if you do want to lock in an exchange rate, it is still worth doing it sooner than later – in case the rates drop before you’re ready to lock.
Smart Currency Exchange, the UK’s only currency specialist for international property, can help you with a forward contract. To get started today, simply fill in the form below to be put in touch with one of our expert personal traders. You can also follow our daily market updates on the GBP-EUR exchange rate, or download our free, comprehensive guides to currency for property owners.