Brits buying European holiday homes seek ‘Brexit break clauses’

Property advisers to British buyers of holiday homes in the EU have been asked to include a “Brexit break clause” in another sign purchasers are becoming unnerved by the uncertainty surrounding the EU referendum.

One buyer of a €700,000 ski property in the French Alps has told advisers to include a clause that allows him to pull out — with his deposit intact — should the UK vote for Brexit in the interval between exchange of contracts and completion.

Clauses suspensives are common in French property purchases, but are usually applied where buyers want legal certainty over issues such as planning permission or threatened changes to planning rules, not to mitigate UK political risk.

Others are threatening to pull out of deals without greater clarity on Brexit risks. Andy Eggleston, partner at Sareg, an accountancy firm which advises UK buyers on French property purchases, pointed to a client who was considering buying a €1.8m property via a company structure.

He was asking the vendor for an extension to the deadline for exchange in order to assess the risks of owning EU property through a UK company when the country might have departed the bloc. Without more time, the client warned he would drop out of the deal.

British buyers overall seem to be curbing their appetite for EU holiday homes as the referendum approaches. John Busby, director of French Private Finance, said the number of enquiries had fallen by 20-30 per cent in recent months. “People are taking a break ahead of the vote.”

Simon Smallwood, joint managing director of mortgage broker International Private Finance, which is arranging the Brexit-qualified home loan, said that while the volume of inquiries had held steady since the start of the year, the number of transactions had fallen. “Things are definitely quietening down.”

He expects sales volumes to decline further as the poll date gets closer. But he said people were less worried about legal uncertainty under a Brexit scenario than the costly effects of a fall in sterling against the euro and any administrative hurdles that may be applied to travel.

Last summer, an exchange rate of 1.40 euros to the pound coupled with ultra-low mortgage lending rates drove a surge in the number of holiday home purchases. Today, a fall to 1.26 — partly triggered by fears over the referendum — is causing potential buyers to reconsider a purchase or restructure their terms.

Some are reducing the amount of cash in the deal and loading up on a euro-denominated mortgage to reduce the risks of sterling volatility. “We saw exactly the same thing after the financial crisis,” Mr Smallwood said. “Buyers felt much more vulnerable in sterling.” The European Central Bank’s expansion of quantitative easing had offered further reassurance for euro mortgage borrowers, he added.

You only get one shot to get something fairly central in Méribel

Mr Busby said that while buyers of cheaper properties were now holding back, those at the top end were still willing to commit, particularly where they had been waiting in some cases for years for a particular type of home in a specific location. “You only get one shot to get something fairly central in Méribel,” he said. Off-plan purchases had been performing much better than conventional transactions, he added.

Mr Eggleston said enquiries for tax advice on properties between €150,000 and €1.5m had halved in the past six months, but there had been little effect on the “heavy hitters” buying above €2m. “The level of property asset purchases for these clients is not material in terms of their overall asset base,” he said.

Historic interest rate lows have helped assuage concerns among buyers over the exchange rate. “For the most part, clients are leveraged at ultra-low rates and so the increase in the sterling cost of the deposit is minimal,” Mr Busby said.

Those yet to buy but wanting to complete before polling day may be hard-pressed to meet the June 23 deadline, brokers said — particularly in France, where the administrative process of purchasing takes longer than in the UK. “We’re getting into the time period where people starting now will probably complete after the vote,” said Mr Smallwood.