Economics, EU – Baltic States, Financial Services, Investments, Real Estate

The end of this four-decade collaboration has also heralded the end of David Cameron’s double-term run as prime minister of the United Kingdom after campaigning to remain ahead of the popular vote. He announced his resignation this morning in front of Downing Street and plans to step down by October.

The historic vote brought more than 30 million people to the polls, which is the highest turn out for any vote on the isle since 1992. However, London voted to stay 60% to 40% according to the BBC, highlighting the deep divide between the capital and the rest of the nation.

According to new Mayor Sadiq Khan, half a million jobs depend on Britain’s position in the EU. Furthermore, half of the city’s exports go there and 60% of the world’s leading companies have their European headquarters in London, like Sony and AIB. Leaving the single zone without a favourable agreement could lead to a minor corporate “Brexit” towards the continent according to the Remain camp, but evenpro-EU voters are sceptical. “It has enough inherent wealth to survive and enough money to keep going. Nothing will change, no one knows the terms of the agreement but I don’t see all the companies abandoning the City,” says Michael Stockport, a British business owner in Europe.

For the housing market, the Out vote won't necessarily affect internal demand for property according to Kirill Schmidt, Director of Financial Services at Tranio.com: «I don't think that British domestic demand for real estate will fall because it is largely dependent on mortgage rates and it's widely believed that the Bank of England will maintain an easy monetary policy for the moment.» His colleague, real estate analyst Yulia Kozhevnikova, sees it as an opportunity for foreign buyers. «I imagine we’ll see foreign investors come back to the market because the weak pound will make property cheaper for them”, she explains.

Indeed, for foreign investors the weak pound is an excellent opportunity to return to this leading market, perceived as a pillar of reliability throughout the ages. While stock markets are traditionally volatile and responded violently to the decision, the real estate market in Britain may benefit from heightened foreign interest from this political pivot away from European integration.

As for Britons and their holiday homes abroad, the future is uncertain. This foreign buyer segment dominated many residential markets, especially Spain and France, thanks to a strong pound that spurred on purchases in struggling property markets on the continent. However, with the pound hitting a historical low and in light of the potential consequences of Brexit, which include economic decline, financial instability and job losses, British activity on residential markets overseas is likely to drop off because houses will be more expensive and the financial future a bit more uncertain over the next few years.

Furthermore, it will likely stir up a lot of uncomfortable questions on the topic of travel, visas and aviation in particular. By relinquishing the European ‘Open Skies’ agreement, the Out vote could hamper the low-cost aviation model that has fuelled cheap travel around Europe. The latter opened up the possibility of frequent, inexpensive travel for second homeowners but also provided a window onto European real estate.

The visa question is the main topic of concern for these homeowners abroad, who wonder if they will still be able to own their homes and reside overseas in the EU with the same ease as they have been doing until now. This is the main worry for Andy Sherlock, a pro-Brexit homeowner in Portugal, as he explained: “I think Britain should leave of course, just as long as I can live in my home in Portugal.”

However, it is highly unlikely that travel restrictions would be imposed on the British according to Ms. Kozhevnikova, who is confident that relations between the EU and the UK will remain civilised. “British property buyers still will be able to invest overseas. There will be no restrictions and the introduction of visas is highly unlikely. The UK is not (and will not) be considered a riskier country, so British borrowers will be able to get a mortgage abroad — most probably on the same conditions as before. Some taxes may change though. For example, EU nationals pay 19% tax on buy-to-let rental income in Spain but non-EU nationals 24%. Mainly, if the pound drops for a sustainable term, overseas property will be more expensive for British wallets.”

After the news was announced this morning, the pound dropped almost 10% and is on course for its worst day on record.