General Election: What It’s Doing to the Housing Market
With the snap UK General Election looming, it’s easy to get caught up in the stress and anxiety of the unknown. The news seems to very much be doom and gloom, and it can be hard to keep sight of what’s actually going on.
To help us try and see the wood for the trees, we sat down with our lettings expert, Darrel Kwong, whose knowledge of the industry and current affairs gives a valuable insight into the current political climate and how this will affect our industry. Here’s what he had to say:
What colour Christmas will it be? Blue, Red or Yellow or a mixture of Red and Yellow
As we reach the final days of election campaigning we will be having a quick look at how the three main parties in England stand in relation to the private rented sector.
The Conservative Party
A lighter approach to the private rented sector than anticipated, with a manifesto on the private sector which has been described as disappointing by some tenant groups.
Removal of Section 21 Notices
The Tories have already announced and finished the consultation of one of their big pledges which is to remove the use of the non-fault eviction from the landlord. This could turn the current default tenancy (the Assured Shorthold Tenancy) into an Assured Tenancy overnight and set the lettings industry back some 20 years. However, they have tried to keep landlords reasonably happy by promising to strengthen the possession process by decreasing the time taken to evict a tenant who has breached the terms of the tenancy and by creating new grounds for possession for those landlords who have a genuine need to sell. It will be interesting to see how this works in reality because it does have the potential to end up that each proposal cancels out the other, and we arrive back at square one.
Lifetime Tenant Deposits
There is little detail apart from the soundbite and there is a concern this will not work in practice. The proposal is for the tenant to pay only one deposit to a central body and this will be transferred between tenancies as and when the tenants move, therefore removing the need to find additional deposit funds. However, logic dictates that if a situation arises where there is a disagreement between parties at the end of the tenancy, there is a question over how such a deposit is moved to the new property without creating an issue for the new landlord. In short, a pledge most definitely thought up on the hoof.
A hike in stamp duty for overseas owners, which may have little effect if the value of the pound decreases significantly, meaning that properties actually become much more attractive to foreign investors.
The Labour Party
This is a much more radical manifesto, although the devil will be in the eventual detail. However, on first glance the proposals will take the private rented sector back 50 years, with the re-introduction of rent caps.
Open Ended Tenancies
Very similar to the Tory proposal of scrapping the Section 21 notice, this will give tenants much greater security and at the same time provide them with significant flexibility as they will have no commitment to a fixed term. The only loser will be the landlord, as there is no mention of updating the current grounds of possession available to a landlord, so one has to assume this will tip the scales of power considerably in the favour of the tenant.
Labour have stated that the parties will be free to agree a rent level at the start but any annual rent increase will be capped at inflation. At first glance, this seems a sensible idea, although over the last five years, rents have not kept up with inflation, so in theory the tenant in future could be worse off as landlords’ default to increase the rent annually by inflation. However, Labour have added this crucial caveat: that some of the bigger cities can implement their own rent cap. How will this work? Well, we’re unsure, as there is very little detail, but it would be foolish not to assume this could be a City Mayor deciding the maximum that a landlord can charge. If we take Sadiq Khan for example, I don’t think he would be looking to scratch a landlord’s back, so we could see significant selling of rented properties in those cities.
Other announcements include a Property MOT, more funding and powers for local councils for enforcement against bad landlords and agents, the ability of local councils to re-purchase stock from private landlords, abolition of the right to rent checks and re-introducing the direct payment of housing payments made by the Government to the landlord. Interestingly, some of these pledges are more landlord friendly.
The Liberal Democrats
A lighter version of the Labour manifesto.
Promoting Longer Tenancies
The length will be three years or more, and any rent increases will be linked to inflation, with the number of potential rent hikes capped (assumption is yearly but you never know). There is no mention of the flexibility allowed for a tenant, but again, an assumption is made that they can end the tenancy earlier than agreed by invoking a break clause.
Help to Rent Deposits
The cost of moving into a private rented accommodation has been made a little more affordable since the abolition of tenant fees. The Lib Dems, have decided that providing interest-free deposit loans will be a further way of making it even more affordable. The assumption is that the deposit is paid back to the Government over a period of time, and that as and when the tenancy comes to an end, the deposit will then become the tenant’s. This proposal does have the potential to rival the Student Loan debacle in its pay back rate to the Government.
Probably the most interesting other pledge is the requirement for all landlords to become licensed to continue to trade. This could be very similar to the scheme that is in operation across the Severn Bridge, called Rent Smart Wales, where every self-managing landlord has to undergo training and a fit and proper person test to operate.
Whilst the outcome of the vote is, as yet, still uncertain, we will know the outcome by the end of the week. What is certain is that the property industry under any of these leaderships can expect changes in the near future.