How a devalued British pound affects British expats and options to minimise the impact

With GBP falling to it's lowest level against the dollar, British expats are among those who have been the hardest hit. Since the Brexit referendum in June 2016, GBP has been a long more susceptible to extreme volatility due to global and local economic and political changes.

Ever since the UK left the EU at the beginning of 2021, these fluctuations have seen GBP both rise and fall spectacularly, with the collapse of GBP against the US Dollar in late September resulting in historic lows of £1 to $1.04 in late September.

With the US Dollar gaining strength over the same period the scale of the exchange rate fluctuations are becoming virtually impossible to predict leaving expats and experts look for solutions to ease any future shocks.

For the UK economy and people with connections to the UK, this has huge ramifications with the impact being felt on interest rates, mortgages, pensions, rental income, investments, house prices and the general cost of living, some of which could be felt for the next few years at least.

For British expats, there are two general rules. If you are receiving money in any way from the UK in GBP to a foreign bank account, that income will be worth a lot less. Conversely, if you are paying for something in the UK using a foreign currency, those goods or services will be cheaper.

In both cases, there are options and in this article we are specifically looking at the impact of the record lows of GBP on British expats, which can be both positive and negative, as well as creating opportunities, and the potential options available.

This article does not constitute financial advice and you should always seek help with matters around exchange rates either from currency experts or independent financial advisors.

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Rent from UK property

Expats and non-UK residents who own and rent out UK property are going to be negatively affected as the falling value of GBP means that any income received will be worth less to the non-UK resident.

If the income is essential and has to be received, while there is not much that can be done, payments can be made to an international currency exchange service, such as Moneycorp, where exchange rates can be set and the money converted to your local currency when it reaches that mark.

You will also avoid potential fees and charges imposed by your bank and avoid any risk that the payment will be converted from GBP to your local currency when the GBP is unexpectedly lower than usual.

Another option would be to increase the rent on your property, however with the cost-of-living crisis in the UK, this could also mean that you struggle to find a tenant.

Pension income

UK pension payments, whether private or State and much like UK rental income, is going to be negatively affected as the income will be worth significantly less in your local currency.

If these payments are made to your foreign bank account, unless you can defer payments or request payments be made to a UK bank account, there is not much you can do.

If you have not yet started to receive your private pension, you may wish to consider transferring the funds our of the UK and into a ROPS which will allow you to take payments in your local currency and negate future currency fluctuations. This option is more viable if you plan to remain in your country of residence for the rest of your life, which will ensure you are not exposed to transfer fees.

Interest rates and mortgage repayments from abroad

With inflation in the UK increasing on a monthly basis to near unprecedented levels, a weak pound will exacerbate the effect on inflation due to more expensive imports to the UK.

The Bank of England has several measures to try to restrict and reduce inflation and also to strengthen GBP – and the primary option which they tend to use is increasing interest rates.

If you have savings in the UK, this means that increased interest rates will increase.

However, if you own a UK property and have a mortgage that is not fixed, or is imminently coming to an end, your mortgage payments will increase. If you are looking to fix your mortgage, it is important to understand that lenders are increasingly cautious about lending to overseas borrowers and even UK borrowers – with some mortgage providers limiting and even halting lending options altogether.

If your rental income is used to cover any mortgage payments, you may need to supplement this with your own income if you are unable to increase the rent your tenants pay.

If you do not transfer any of the rental money out of the UK, it would make sense to overpay any mortgages with GBP or your foreign income to reduce the impact of potential interest rate raises.

If you'd like to speak to a UK mortgage specialist, please request a free introduction to one of our trusted partners >

Savings and investments

If you have savings in the UK, any rising interest rates will be a welcome relief to a degree – however, it’s unlikely that the Bank of England will raise interest rates to be above the rate of inflation so while it might feel like you are in a better situation, the effects will be limited as the real value of your savings will be decreased, even after interest is taken into consideration.

Any savings or investments that are kept in GBP will also devalue significantly if you decide you wish to switch them to a different currency. The best option is to review any savings/investments from a UK perspective while understanding that GBP is likely to recover at some point and potentially creating a financial plan with an independent financial advisor who would be able to enact the plan when the time was right.

Property options

UK property markets have shown over time significant growth patterns, even with economic turmoil. Gone are the days when a property was a place to live and now properties are seen as relatively safe investments.

If you do not yet own a UK property, but you have savings and income in a foreign currency, now may be a good time to evaluate your options. The decline in GBP of over 20% in 2022 has meant that, to investors living abroad, property prices have decreased in real terms over the same period making now a great time to buy, especially for cash buyers.

However, it is important to highlight that buying a UK property, even when a cash buyer for new build, the process can take between 1 and six months in total. If you are keen to act now, it is important to realise that GBP may gain strength over that period. In the UK you only pay when you complete on the property, so you will benefit from speaking to a currency exchange specialist who may be able to lock in today’s exchange rate. We have written an article which looks in more depth at how fluctuating exchange rates can impact property investments.

While now is a great time to buy property for non-UK based cash buyers, experts are also predicting that UK house prices could be at their short to medium term peak and some analysts are predicting that increasing interest rates, the overall cost of living and other factors are likely to see house prices in the UK fall over the next 12-24 months – potentially by up to 10%.

While such forecasts have been made before, the UK is in an unprecedented situation, so any accurate prediction is incredibly difficult. As with any investment, you could risk losing money if you proceed.

Buying products and services in GBP, including tax and loan payments

For British expats and non-UK residents, UK products and services and even tax bills, much like house prices, have fallen considerably as a result of a devalued GBP.

If you have any outstanding debts or tax bills which you normally use for such payments, now is a great time to lock in the exchange rate and pay any outstanding bills that you have.

If you are required to complete a UK tax return, pay a CGT bill or anything similar, you should engage a UK tax specialist who is happy to be paid in GBP and proceed as soon as possible while their services and the tax bill is lower than expected.

Options to mitigate impact of fluctuations

As has been discussed throughout this article, there are options available to you if you are affected by the significant exchange rate fluctuations, however you should always speak to an independent expert before you make any plans or decisions.

Unfortunately, even the experts are unsure what is going to happen next. Our Foreign Exchange partner, Joe Calnan from Moneycorp shared this week that “We are in unchartered territory now, so there will be a lot of volatility when UK and US markets open. GBP is recovering slightly, but there is no telling what may happen over the coming days.”.

The expectation continues that the Bank of England will raise interest rates but that would likely “put more pressure on U.K. growth over the medium-term (1-2 years).”

The most worrying aspect, according to Joe is that “The absence of a plan for how the U.K. government will pay for the extra spending and tax cuts, estimated at £40 billion per year, has resulted in investors fleeing the Pound.”

With the UK Government threatening yet more tax cuts which are expected to be paid for by borrowing, we really do not know what is around the corner, and the decline of GBP is not necessarily over yet.

“It’s a mess but it’s still important not to panic”

Robert Hallums, Founder of Experts for Expats has said that “while this is obviously a really difficult time for so many expats with UK assets, it’s vital they don’t panic and make rash decisions.”

“Working out the best course of action can be so complex due to the potential fluctuations in the short and long term and looking at all elements of your life is key. It really isn’t as simple as selling your UK assets or forcing a move back to the UK – there are plenty of options and help available if you seek it.”

“Therefore, it is imperative you talk to people who have experience helping expats in turbulent times before making any decisions that could affect your future.”

If you would like to speak to either a currency exchange expert or an independent financial advisor, or even a tax advisor we can introduce you, for free, to partners that we have approved and trust.