Brexit 101 & What It Means To You

July 7, 2016 No Comments

Brexit 101 & What It Means To You


Posted by Trevor Jones in Global Economy, Market Update, Mortgages & Finance, News

Before we dig into Brexit, here are a few trivia questions: How many nations are there in the UK? Great Britain? How about the European Union?

Just in case you still don’t know, Brexit is Britain’s Exit from the European Union. Here’s a quick history lesson:

When World War II ended in 1945, there was a ton of nationalism and countries weren’t exactly getting along.

In 1952 the European Coal and Steel Community community was formed which was supposed to be a first step in the federation of Europe

In 1957, six countries signed the Treaty of Rome, creating the European Economic Community. The European Atomic Energy Community was formed about the same time.

In 1967, the Merger Treaty was signed, combining all 3 communities

Over time, more European nations joined, including the United Kingdom in 1973.

In 1993 it officially became the European Union. Its purpose was to facilitate the transfer of goods, services and people across borders, to make trade easier. The idea is that countries that trade together are less likely to go to war with each other. Currently there are 28 nations in the EU. The UK is still technically a member.

By the way to answer the remaining two questions I posed at the top, do you know what countries are in the UK without looking? Thats right – England, Scottland, Wales and Northern Ireland. Great Britain, on the other hand is ONLY England, Scotland and Wales.

In many ways the EU has been fantastic for the UK.

The UK has become the financial capital of Europe. Many business are centrally located there. Theres no need to have separate offices for each country when trade between the 28 countries in the EU takes place almost as seamlessly as if all countries were one large nation.

With that massive financial benefit comes some things a lot of Brits apparently don’t like – such as giving up some of their sovereignty to the EU. One of the big issues today is immigration. With all the stuff happening in the Middle East there are a ton of refugees. The EU says the UK needs to let them in. Some citizens of the UK don’t love this idea, especially since a lot of the refugees don’t particularly care for the Brits!

Another issue is the amount of money the British give to the EU. The only countries to pay more are Germany and France. Some Brits don’t feel the money is well spent, and that they are supporting less prosperous countries.

So, on June 23 2016 the citizens of the UK voted to exit the European Union. British exit – Brexit. They have two years (from September 2016) to figure out how to make the exit and negotiate treaties with the remaining 27 countries.

Good or bad isn’t for me to say. I’m not British. I’ll let the political hacks debate that for the next 10 years..

But how does Brexit affect us here on this side of the pond?

Brexit has created some pretty intense global uncertainty. No one really know how this is going to work out, or what the UK’s future holds.

Its likely that many large companies will leave London – I’m sure some have started packing already.

Our stock market tanked immediately following the vote, but just a week or so later, its about where it was before.

Real estate is what interests me the most.

US real estate is a relatively sound investment lately – and is especially appealing following Brexit. Foreign investors love us. Five states account for 1/2 of foreign purchases: Florida, California, Texas, Arizona and New York. We’ll probably see more demand now and thus higher prices.

London has some of the most expensive residential real estate on the planet – and a lot of global investors have invested in luxury properties there. But with this new uncertainty, values are down and investors are looking elsewhere. Where else? It’s likely they’ll look in LA and NYC. More demand means prices could be going up in LA and NYC, and possibly the surrounding areas.

What about mortgage rates? With global economic uncertainty, everyone rushes to US Treasury Bonds. More demand = lower yields. Lower Treasury Bond yields results in lower mortgage rates – and, yes, mortgage rates have dipped already. 30 year fixed rates are down to 3.39% this week! They won’t likely go up much any time soon. The likelihood of the fed raising rates – as much as they thought they would last December for 2016 – or at all – is minimal. However, these current ultra low rates may only be around for a few months.

The bottom line: If you wanna buy house, now is a great time! Lower mortgage rates means lower payments and more house!

The United Kingdom’s future is uncertain, but yours doesn’t have to be. Live within your means. Buy what you can afford. Don’t use credit cards. When good opportunities arise – like super low interest rates – be in a position to take advantage of them!

 

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