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Catch a Falling Knife: How to Make Post-Brexit Exchange Rates Work For You

September 23, 2017Article by Kirsty Rose

Post-Brexit Exchange Rates And You

While the pound has recovered a few percentage points after its spectacular post-Brexit drop, it’s still feeling the effects of the Leave vote.

Then in August, the currency reacted sharply to the Bank of England’s interest rate cuts, down to 0.25%, with another steep decline. That interest rate drop was the first in seven years, according to MarketWatch, and the lowest in the bank’s long history.

As if that weren’t enough, “Gov. Mark Carney and fellow policy makers also revived a dormant U.K. government bond-buying program,” Marketwatch continues, “announcing that expanded bond purchases will begin in September.” While reducing government debt is good for any country, the move also means that there will be less cash. Social, healthcare and education programs might be impacted and consumers can expect, at least in the short-term, to have less money to spend.

And while interest rates could still fall to zero, going into negative rates is still not being considered, at least on a widespread basis. Yet.

What it all seems to mean is that the sterling will likely be depressed against other major currencies for some time to come — which translates to opportunities to save and make money.

We’ve gathered expert advice on how to take advantage of the low British pound and opinions on post-Brexit opportunities for investors.

Property Buyers From Abroad

The weak pound almost immediately heralded a surge of interest in property investment from foreigners. Marc Da Silva, features editor of Estate Agent Today, says the combination of the depressed sterling and low interest rates (which effectively weakens the pound further), is contributing to a sizeable rise in interest from overseas buyers.

“We’ve seen a noticeable surge in enquiries from overseas buyers thanks to the drop in the pound’s value, with those buying in dollars and index-linked currencies delighted by how much more they can now get for their money in the UK,” Ray Withers, CEO of Property Frontiers, tells Da Silva.

It’s not just the weakened currency that attracts investors. The sharp increase in demand can also be attributed “primarily to the fact that the ongoing fundamental strengths of British residential property investments remain intact,” Da Silva writes.

On his blog, Withers talks about how investors can also take advantage of the UK’s continued new housing shortfall. With the combination of that shortfall, the construction that low interest rates spur, and the favorable exchange rate, there are a number of ways overseas investors can benefit.

“Strong demand and an interest rate cut are a great combination for buy-to-let property investors,” Withers writes. “While interest rates have gone down, yields have remained the same, meaning that the buy-to-let profit margin has effectively gone up overnight. Even overseas investors can benefit if they borrow in sterling to fund their U.K. property purchase.”

Chinese investors make up just one group interested in UK high-end residential and commercial properties, Carla Mozee writes at MarketWatch. While the Chinese are looking for a good bargain, they also have faith in the UK.

“The well-regarded educational system, London’s position as a leading global financial center and a perceived higher level of safety compared with other EU countries is what attracts Chinese investors to the U.K.,” estate agent David Wei tells Mozee.

As Chinese investors look to distance themselves from a depreciating yuan, Britain’s low interest rates and the 18.9 percent average return on investment for Greater London rental properties some investors are seeing are particularly attractive.

>> Read the full article from Currency Fair


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