Overseas Property Buying – The Brexit Rush and the Impact of COVID-19
Posted by Laura Parsons on October 7th, 2020.
For many of us, 2020 will go down as one of the most turbulent years in modern history. This is particularly true for Britain – not only is the UK fighting a global pandemic, it is preparing to officially leave the EU on December 31st.
However, despite the uncertainty caused by these two colossal events, there are many British people who are still looking to invest overseas and seem unfazed by the uncertainty of current events. In fact, Brexit is causing many Brits to push for an international move prior to December 31st.
This is for one key reason – the Withdrawal Agreement guarantees British citizens, who are lawfully resident in EU member states, broadly the same rights as they have always had and these same rules apply to British citizens moving to the EU during the transition period. They can continue to live, work and travel in EU member states (although these rights would cease to exist after a period of absence of more than five years).
Given that demand in the international property market remains high, we take a look at some of the most popular destinations for Brits to buy in Europe and how coronavirus is impacting the current performance of their housing markets.
This research and analysis was conducted by Money Transfer Comparison, a prominent guide in the international money transfer space, with more than 1m expat and small business readers since its inception.
UK – House prices at all-time high
UK house prices hit an all-time high in September. Despite coronavirus concerns, a benign housing market continued to welcome buyers following pent-up lockdown demand. According to Nationwide, the average UK house price rose by 5% in September when compared to the same month last year, taking UK house prices to an average of £226,129.
This may come as a surprise given the general pessimism around the UK economy, but the combination of demand from backed-up buyers and temporary cuts to stamp duty has sustained sales.
The headline figures don’t tell the whole picture though – whilst some areas of England are enjoying a welcome boost following the changing demands of buyers, many parts of the UK are still suffering.
Areas of Scotland, for example, have seen house prices fall YoY.
There are also warnings from economists who are forecasting a significant increase in unemployment over the coming quarter, with October marking the end of Rishi Sunak’s coronavirus furlough scheme.
We also have to bear in mind the fact that Nationwide are reporting notional figures, real figures (accounting for inflation) would see a much smaller increase. Nevertheless, this would still signal an increase in house prices in the UK despite the turbulence of 2020.
France – House prices fall in Paris, Marseille and Toulouse
Similar to the UK, France’s housing market has found its feet again after a period of stagnation during lockdown.
That’s not to say there hasn’t been a knock on impact on house prices in France.
Three cities experienced a post-lockdown slump in real estate prices – Toulouse (-0.5%), Paris (-0.4%) and Marseille (-0.5%). All other cities have reported a positive trajectory in house prices, however, albeit at a much slower rate than prior to the pandemic.
We shouldn’t write off the city life too soon though. One trail of thought says that whilst the romantic idea sees more people moving to the countryside as they realign their priorities after the pandemic, the reality is that the looming recession will drive people to the city for work out of necessity – particularly young people looking for their first role.
Paris remains easily the most expensive area of France, with data from meilleurs agents indicating an apartment will still set you back on average €10,540 per m². House prices in Paris are expected to recover in Q4 and are still projected to be slightly up by the end of the year.
Portugal – House prices expected to fall in 2021 and 2022
Unlike many European countries, Portugal actually saw mortgage lending volumes grow in the first half of 2020, supporting YoY nominal price growth of 8.12%.
This is slightly lower than the previous year’s 10.09% growth. On a quarterly basis though, house prices fell slightly by 0.3% in Q2 2020.
Despite the positive numbers coming out of Portugal, Fitch Ratings are forecasting a 2% fall in house prices over the next two years.
Question marks over cash and overseas buyers (who account for over half of housing market activity in recent years) and reduced domestic demand will cause the drop, according to assumptions made by Fitch.
Portugal witnessed a surge in COVID-19 cases in late September 2020, prompting the Portuguese Government to extend the country’s State of Contingency until 14 October.
Spain – housing market hit hard by coronavirus
Few places have been as heavily impacted by the coronavirus pandemic as Spain, and this has definitely filtered into the performance of its housing market.
In fact, Spain has seen fewer sales during every month in 2020 than it did in the same month of 2019.
According to the Spanish Notaries, there were 48,586 home sales completed in July 2020, which is 5% below the same month in 2019.
Despite reporting a YoY loss, it’s a drastic improvement on the 70% YoY decline in sales in April, 52% decline in May and 20% decline in June.
However, just as we are seeing in the UK and France, it is believed that many of the property sales in Spain in July were the result of pent-up demand that was frustrated in previous months.
The latest data also shows that house prices in Spain were down 9.4% as a national average to €1,377 per m². New mortgages were down 3.3% and the average loan value was down 9.9%.
Sweden – house price index back to pre-pandemic levels
The SEB Housing Price Indicator moved to 46 for September (up from 40 in August) meaning the index is now back to where it started in February prior to the coronavirus outbreak.
The improvement over the past six months suggests it could be one of Sweden’s fastest and shortest housing market crises on record.
If we look at 5-10 year house prices, Sweden has enjoyed considerable growth but more recently the housing market has wobbled, with high household debt levels and a price decline. Having said that, the short-term price shock from the crisis remained relatively small.
The absence of a full lockdown in Sweden meant buyers and sellers were still able to move house.
What makes Sweden interesting is the stance it has taken on coronavirus. With infections rising in Europe, the key focus will be on whether we see a renewed and more serious spike in Sweden.
Given the debate surrounding herd immunity, all eyes will be on Sweden to see how cases pan out but with ING forecasting a 3.5% fall in Sweden’s GDP, it would represent a much smaller decline in economic output than is expected in the UK.
The European housing market summary
Housing markets in Europe are showing small shoots of recovery after a severe drop in sales throughout Q2, and some countries are seeing a recovery in house prices as well.
However, exactly how long this situation will last is anyone’s guess due to the unprecedented times we find ourselves in. Much will depend on how the coronavirus pandemic plays out and the severity of future ‘waves’.
If you believe there will be more disruption you may see the housing recovery as simply a dead cat bounce, but if you’re bullish about coronavirus cases falling it could mark the beginning of a continued recovery. Sweden, with its herd immunity approach, will be a very interesting case study to compare with the rest of Europe.
Everyone’s situation is unique. Right now, some will feel more compelled than ever to make the transition into expat life, while others may prefer to remain put until the current situation eventually comes to an end.
What seems clear though is that those who are willing to make the move can benefit from reduced prices in many European territories.
As always, choosing the right international money transfer provider will have a big influence on the amount you end up paying for your overseas property.
The timing of your transfer will be important to – a GBP/EUR trade in 2020 could have achieved a rate of as much as 1.20 or as low as 1.06 depending on when the transfer was made. On a transfer of £100,000 this could be the difference of €14,000.
Get in touch with our team to learn how you can target a rate, fix an exchange rate for the future and find out how you can move your money abroad at excellent exchange rates, with no transfer fees.
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