What does the general election mean for landlords?
- Published: Thursday 31 October, 2019
- Updated: Tuesday 05 May, 2020
- By: Nicola Eaton
Boris Johnson has called for a general election, scheduled on 12th December 2019. Having been challenged by parliament on Brexit, he is seeking clarity from the population on their desire to remain or to leave the EU.
Given the strength of feeling on both sides of the Brexit position and the closeness of the original referendum vote, you might believe the election result is wide open.
However, the bookies have the Conservatives at 5/6 and a hung parliament at short odds.
Party positions on the PRS
Traditionally, the Conservatives are the friend of the UK landlord, albeit they have imposed some pretty testing challenges on the industry in recent times.
Messages coming from the Labour party are very much in favour of tenants, and of suppressing the private rental sector (PRS) further.
At their Autumn conference, the Liberal Democrats echoed Conservative moves to scrap Section 21, but there were speakers both for and against the PRS and landlords.
How to mitigate the risk of uncertain times
Many orators on the subject make the point that the only certainty at present, politically, is uncertainty.
As politics feeds into all aspects of life so fundamentally, there is one way to mitigate against uncertainty, in terms of property investment. That is to secure a fixed rate.
By fixing mortgage rates now, any impact of the upshot of the election and Brexit will not be immediately felt via monthly mortgage repayments.
Buy to let rates remain historically low. So, even if you are of the view that rates could fall further, subject to the political path ahead, there is not far for them to drop.
What if I am still subject to early repayment penalties?
It is very possible to plan ahead if your renewal date is on the mid-term horizon.
Buy to let mortgage offers have a 3-6 month expiry, so any application made now could carry through to April 2020.
This means that, if you are currently subject to early exit penalties, you can still secure a mortgage offer - and rate - ahead of time.
UK rents remain high in September
A September 2019 report on the private rental sector, from ARLA Propertymark, shows that rent increases are down month on month, but up 87% year on year.
August statistics show that 64% of letting agents, versus 58% in September, recorded rent increases from landlords.
However, in September 2018, the number of rent increases reported was less than half the 2019 figure, at 31%.
Geographically, property in the North East of the country experienced the greatest number of rental increases, 86% of letting agents reporting an increase in rental amounts.
The average number of properties being managed by letting agent branches is used as an indication of supply.
In September, this figure was down month on month, from an average of 197 per branch in August, to 193.
The West Midlands peaked at 271 properties per agent branch, whereas the South East was lowest with 152 properties per agnet branch, on average.
London property is in greatest demand, where newly registered tenants number 103, well above the 72 national average.
The number of landlords selling property was static in September, averaging four per agent branch.
Speaking prior to the election announcement, David Cox, chief executive at ARLA Propertymark, called for positive change to the PRS from the government:
“With the possibility of a general election approaching, we hope that the government recognises the importance of increasing supply for tenants and uses it as an opportunity to make the market more attractive for landlords.”
BBC spotlight on subletting
The BBC TV programme Inside Out (London), available on the BBC iPlayer, shone a spotlight on tenants subletting rental property on short-term rental platform, AirBnB.
The story featured in the show is of a Bloomsbury landlord’s experiences.
The landlord’s letting agent uncovered the deception when, on the date of a pre-arranged inspection, they encountered the tenants checking-in another family group at the property.
It became evident from records on the AirBnB platform, that this practice had begun at the start of the tenancy. 70 reviews had been left by satisfied customers, dating back to the tenancy start date.
Subletting the property had many implications, including breaching terms of the buy to let mortgage, buildings insurance policy, local licensing laws, HMO licensing and short term let licensing.
The agent managing the property expressed dissatisfaction with the response from AirBnB, when they were alerted to the problem:
"When we contacted them [AirBnB] and provided evidence that the “hosts” were not the legal owners of the property and were in breach of the landlord’s mortgage and buildings insurance terms, local licensing laws, and both short-term let and HMO licensing, their response was take it up with the tenants.”
RLA on painful reality of rent controls for tenants
The Residential Landlords Association (RLA) has collated evidence, from around the world, to establish whether rent controls would have a positive or negative impact on tenants.
Their assertion is that the evidence clearly demonstrates that rent controls would not be good for tenants.
In a number of countries with rent control schemes, the results over various periods in recent history have included:
From the California Budget and Policy Centre on Los Angeles and San Francisco: Renters struggling with housing affordability. 15% reduction in rental housing supply.
From the National Multi Housing Council in the United States: Reduction in the volume of rental properties.
From the European Commission: Destabilisation of the housing market, house price volatility, negative effects on labour mobility.
From the German Institute for Economic Research: accelerated rent increases.
From the Italian Centre for the Analysis of Public Policies: Radical reduction in supply of private rental property and a 57% increase in market rents versus 31% increase in household income.
Lastly, just this year, the Swedish International Monetary Fund observed that:
“Tackling Sweden’s dysfunctional housing market requires reforms of rent controls, tax policies, and construction regulation. In addition to fully liberalizing rents of newly constructed apartments, there is a need to phase out existing controls, such as by applying market rents when there is a change in tenant.”
Speaking out on support for rent controls, that have come both from the Labour party and Sadiq Khan, the Mayor of London; David Smith, Policy Director for the Residential Landlords Association proposed that an increase in supply is in fact the solution to more affordable rents:
“Rather than resorting to simplistic and populist ideas which have shown themselves to fail, the Mayor should instead work with the vast majority of private landlords doing a good job to see what is needed to stimulate the delivery of more homes to rent. Increasing supply is by far the most effective way of keeping rents down.”
This information should not be interpreted as financial advice. Mortgage and loan rates are subject to change.