What could a change in government mean for landlords?

On 12 December, the British public will head for polling stations across the country in a snap general election aimed at breaking the Brexit deadlock.  But while resolving the Brexit issue may be the focus of most headlines, we ask what might a change in government mean for landlords?  Landlords have just had to wade through a number of new buy to let regulations put in place by the current government. And a potential party change could have an even bigger impact on the buy to let market.

Beyond recent Conservative moves to better protect tenants, Labour has made a wealth of headlines with bold proposals for the buy to let sector. The Liberal Democrats also made a lot of noise about the private rented sector in their 2017 manifesto.

At the time of writing, dates were yet to be confirmed for each parties’ launch of their manifesto, but they are likely to be released in the week of 18 November. Parliament was however dissolved on 6 November, triggering the official start of the campaign and kicking off the period known as ‘purdah’ – the convention that the government does not make any policy announcements or significant commitments during the campaign.

So, we’ve picked out the key moves and proposals made by all three main parties in the press in recent times, as well as their previous manifestos, and discussed them with Hamilton Fraser CEO, Eddie Hooker.

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Labour government

From recent headlines, it looks as through a Labour government under Jeremy Corbyn is keen to make some major changes to the buy to let sector.

 

Right to buy

Shadow Chancellor John McDonnell has discussed a ‘right to buy’ scheme that would allow private tenants to buy the homes they are living in under a Corbyn-led Labour government – potentially at a price below market value. The plan could appeal to a lot of young people and would, in theory, help first-time buyers make their first steps onto the property ladder without being uprooted from their homes.

Whilst the announcement was quickly changed by Labour to confirm that the policy was aimed at ‘landlords with larger portfolios’ so as to pacify the majority of investment and pension landlords with one or two units, this proposal has quite rightly made a number of landlords uneasy, says Eddie, and will certainly be extremely difficult to enact.

“It’s a great headline aimed at the younger voter and long term renters and mirrors the Thatcher policy of the early 1980s. Who wouldn’t want to own their own home at a fraction of the market price? But who sets the price and what will it be based on? The rateable or council tax banding value?”

“Aside from the chaos that would ensue to current valuation infrastructure, is it fair that the landlord has to pay market value for the property but sell at below market value? What if there is a mortgage on the property and the value arbitrarily set by the government is below the mortgage redemption value?”

– Eddie Hooker, CEO of Hamilton Fraser

“This proposed policy shows a distinct naivety on behalf of the Labour Party on how the private rented sector works. They should be focusing on building more affordable houses to support the sector rather than ‘selling off’ the existing stock.”

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Rent control

Labour also has aspirations to reintroduce rent controls into the private rented sector.  It’s an idea that has been introduced elsewhere in Europe – notably Germany and Ireland. But Eddie has his concerns.

“If you try and cap rent then someone or a specific organisation is going to have to set that rent level,” he says. “The rent level will be different for one property in one area compared to a similar property in another.

“You can’t just say that a two bedroom property should be rented for £2,000 a month regardless as to whether the property is located in Kensington or Enfield. It sounds great in principle but the permutations would possibly be endless. It would take years to implement and even longer to clear up when it goes wrong.”

“I really think this policy would be the last straw for many landlords. If they are restricted from charging market rates for rent then many will just exit the sector. Or worse still move to a short term or holiday let strategy or just leave the property empty.”

“A possible strategy of restricting rent increases to inflation levels might have some legs,” Eddie suggests as an alternative. “But again this would be dependent on getting the base rent right in the first place and would also depend on supply and demand. The main issue with this approach would be that all landlords would impose increases as par for the course. Whereas now, many landlords apply no increases or in fact reduce rents under certain circumstances.”

Universal credit

Labour has also pledged to scrap Universal Credit as we currently know it. While the basic structure might remain – though this is still unclear – Jeremy Corbyn’s party has proposed a £3 billion package of emergency reforms.

The Labour Party would look to reduce the current five week wait for the first payment with a view to scrapping it and also phasing out the two-child benefit limit.  Details are currently sparse.

For landlords the main issue with the current system is the ban on direct payments to landlords other than when the tenant is in arrears.

The current administration is looking at reintroducing direct payments and trialing a new online payment system to speed up much needed payments.

“Rather than start again, as Corbyn is suggesting, we need to make the current system fit for purpose.”

– Eddie Hooker, CEO of Hamilton Fraser