In August, new Prime Minister Boris Johnson said unless the UK’s withdrawal agreement with Brussels is reopened and the backstop abolished, there is no prospect of a deal. Johnson has previously stated he believes the Irish backstop is “anti-democratic”, and the EU will not reach a deal while the Irish backstop still remains a problem.
Despite this, when German chancellor Angela Merkel said the EU would consider practical solutions to an impasse over the backstop, the pound rose sharply, erasing the losses made by the Prime Minister’s attempt at renegotiating a Brexit trade deal. Johnson suggested replacing the Irish backstop with “alternative arrangements”, dismissing potential food and medicine shortages as “bumps in the road”. The EU, who are growing tired of Britain’s inability to come up with a proposal they agree with, did not agree with Johnson’s plans and dismissed him.
What is the Irish backstop?
The border which separates the Republic of Ireland and Northern Ireland has been the subject of continual conflict during the Brexit negotiations. The UK and EU agree there should not be a new physical border between the two countries, which has given rise to the issue known as the Irish backstop. As a last resort to maintain a seamless border in Ireland, the UK would need to keep a very close relationship with the EU for an unknown period of time.
If the UK and the EU don’t reach a deal after a standstill transition period, or if the deal they create doesn’t guarantee a soft border, the Irish backstop will come into place. If the UK leaves without a deal in October, it will not apply. The EU insists any Brexit deal must contain the Irish backstop.
The backstop would mean a soft border between Ireland and Northern Ireland. However, in leaving the EU, the UK also plans to leave the customs union and the single market, which would make maintaining a customs-free border impossible, making trading difficult. This is already a problem on its own, but add in the complicated history between Ireland and the UK, and you have a potentially politically explosive scenario on your hands.
What does the backstop mean for property?
At present, negotiations involving the Irish backstop seem to have implications on the value of the pound. When it seems the Prime Minister could remove the Irish backstop from the deal, the pound drops as investors fear business will become harder with new customs and standards checks on the Irish border. But, when the hope of and agreement on the Irish backstop presents itself, the pound has risen periodically.
If they remove the Irish backstop from the Brexit agreement, it is likely the pound will fall. For foreign property developers looking for new opportunities, this will present plenty of property at discount prices and currency exchange rates alter in their favour. This trend is already making its mark on UK property, with developers from Asia and the Middle East snapping up discounted London property in the UK.
Whether the Irish backstop will remain a part of the Brexit deal is unknown. But following the new developments could be good for property developers who are looking for the right opportunity to take advantage of the UK’s lucrative real estate.
