2017 Election Impact on the Buy to Let Market

To say the election result was unexpected is an understatement!

 

But now the dust has begun to settle and the Conservative’s organise a supply and confidence arrangement with the DUP to continue in government, it’s worth considering how this might affect the rental sector.

 

Both the main parties had manifesto pledges that impact the private rental sector, but it now looks like the Conservative’s ban on letting agent fees announced in the 2016 Autumn Budget Statement will go ahead as planned. The likely outcome of this will be for letting agents to pass all or most of the lost revenue on to landlords in the form of increased lettings fees, who in turn will attempt to pass these costs onto tenants. This could add £100 to £200 per year to rents.

Agent fees were banned in Scotland in 1984, with tenants only liable for the deposit and rent, but this has led to agents doing less in the way of pre-agreement checks, often omitting a credit check, leaving landlords more vulnerable.

 

With no resounding mandate from the electorate, Mrs May is unlikely to replace Philip Hammond as Chancellor. Thus we can’t know whether any replacement would have been friendlier to private landlords or not, though in these uncertain times, how long Theresa May will last in the job and when or if another election is called are questions for astrologists!

 

With a Labour led coalition unlikely to come about (the outright numbers don’t add up), some relief will be felt by landlords that their manifesto pledges to control rents and how landlords operate will not happen. Under Labour, councils would have got new powers to license landlords and apply tough sanctions on those who tried to bend the rules. Their manifesto also included pledges to limit rent rises to inflation and make three year tenancies the norm as well as re-instating housing benefit to 18 to 21 year olds.

 

The abolition of mortgage interest tax relief does look set to continue, with the phasing out period ending in 2020.  This, along with the previously implemented increases in stamp duty on second homes, has acted as a disincentive to landlords either entering the market or increasing their portfolios. Indeed, many landlords and investors will be are looking to reduce their portfolio of rented property in order that they can reduce their level of borrowing. Note though that this does not impact landlords / investors that own their properties through a company. One upside to this for landlords that are not highly leveraged is that any decrease (or minimal increase) in the properties available for rent will put upward pressure on rents as demand continues to grow. (Need a conveyancing quote? Click here)

 

Figures for May have shown a continued downturn in the number of property transactions taking place across the country. New instructions are down and the pool of available property is shrinking. Many homeowners, concerned with moving costs that have increased significantly with the changes to stamp duty, have decided to stay put and extend / improve. This reduces the number of people / families moving up the property ladder and the availability of first time properties available for new buyers to move into.

 

In conclusion, the election result will continue to put financial pressure on highly leveraged landlords and those looking to increase their portfolio whilst those with lower borrowings may well benefit from shortages of rental property and the consequential upward pressure on rents. The one proviso is that with a minority government and weakened leader, we might be facing another election in the autumn or next spring leading to a complete change of government!