Second homes: What influence will the UK election result have on demand for second homes abroad?

Last week the Conservative Party won a majority in the UK general election. As a result, the UK is likely to leave the European Union on 31 January 2020, with a vote in Parliament and a Queen’s Speech expected before Christmas. With some sense of clarity emerging we look at what this means for prime second home markets abroad – particularly those in Europe, the US and the Caribbean.

Words: Kate Everett-Allen, Knight Frank

December 16 2019

2 mins to read

Clearly, currency shifts will be highly influential. To date, sterling has jumped from a low of €1.07 in August 2019 to €1.20 on the morning after the election. In real terms, this means a British buyer purchasing a €1 million property in August 2019 would now benefit from an effective discount of c. £95,000.

 

For buyers seeking a bolt hole in the United States (including the 24+ countries whose currencies are pegged to the US dollar – including Dubai, Barbados and much of the Caribbean) a $1 million property would have cost around £829,000 in August 2019 but would now be attainable for £741,000 – a potential saving of £88,000.

 

Low interest rates & Golden Visas

Aside from currency, historically low interest rates across much of Europe and the US, as well as investor incentives for non-EU nationals such as Golden Visas, are already a key draw for international buyers seeking a home in Europe.

UK interest rates are likely to begin a gradual process of normalisation in 2020 as Brexit risks fade, this could mark the end of a period of ultra-low mortgage rates, encouraging more buyers to seek finance in their purchase location.

Europe and the US competitive on purchase costs

A move by policymakers in some parts of the world to tighten regulations and hike property taxes has increased the cost of second home ownership for non-residents considerably. Markets in Europe, the US and the Caribbean by comparison, are not only highly competitive when it comes to purchases costs such as transfer taxes, stamp duties, legal costs and notary fees but they are also highly transparent enabling buyers to have a clear understanding of total sale costs before transacting.

Moving off the side-lines

Enquiry numbers have strengthened in 2019, however many did their due diligence and some viewings before taking to the side-lines, opting to allow the Brexit negotiations to run their course before making an offer. With a degree of stability now added to the UK landscape this may be the stimulus some British buyers have been waiting for to move forward with their second home plans.

However, the risk of a no-deal has not completely disappeared – December 2020 marks the end of the official transition period. This deadline could be used as leverage in negotiations between the UK and EU and therefore raise the spectre of a no-deal in the second half of 2020, this could put downward pressure on the pound encouraging serious buyers to act early in 2020.