What might Brexit mean for landlords and what should you be doing to prepare?

Brexit is fast turning into the never-ending story. But what will it mean for landlords?

A number of Brexit-related issues are, understandably, troubling UK landlords. These include the general impact of Brexit on the economy and housing market, as well as how the departure from the EU will affect the status of non-EU citizens in relation to the UK Government’s Right to Rent Policy. The Government is also under increasing pressure to honour their pre-election promise to improve landlords’ rights of possession. While these situations are particularly worrying to landlords who rely heavily on finance, it is likely that the majority of landlords will be affected by the outcome of Brexit negotiations. 

Here, we will cover those key concerns, collecting all of the relevant information, expert opinions and possible scenarios into one comprehensive guide. 

We’ll focus on where we currently stand in the Brexit saga, how it’s affecting the property market and the buy-to-let market, and how landlords should be seeing through the media hyperbole to the potential beyond Brexit.

 

Where we stand

Brexit trade negotiations continue to trudge onwards, with Prime Minister Boris Johnson stating that a deal must be agreed by 15 October to ensure the UK is ready in time for the transition period which ends on 31 December.

If the UK and EU fail to reach a deal by 31 December, the UK will cease to be part of the single market and customs union with immediate effect. Of particular concern to landlords will be rules on immigration, which must also be agreed before 31 December. 

We know that tenants, investments, legislation, tax, property prices and rental yields are all perpetual concerns for our landlords. So, what might a no-deal Brexit mean for landlords in these key areas of concern?


The property market

According to a monthly poll from RICS investors,published in September in the Daily Telegraph, every part of the UK, apart from London, was experiencing growth in house prices. While the capital remained flat for the previous two months, the rest of the UK reported increases in buyer enquiries, agreed sales and new instructions. 

Naturally, the COVID-19 pandemic has had a significant effect on the property market. In April 2020, the Office for National Statistics (ONS) reported that the UK average house prices increased by 2.6 per cent over the year to April 2020, down from 3.5 per cent in March 2020. Another report from the ONS in July 2020 revealed that private rental prices paid by tenants in the UK increased by 1.4 per cent in the 12 months to July 2020. This figure was down from 1.5 per cent in the 12 months to June 2020.

Pre-COVID market activity suggested that people were becoming more confident about progressing with both buying and selling properties. With the outcome of Brexit seemingly in sight it was time to move forward. Then the impact of lockdown took hold and everything changed.

As the UK and the wider world continues to navigate this unprecedented challenge, it seems for now that confidence in the property market is being restored. Though, of course, we are unable to predict what happens next. The end of the furlough scheme and rises in unemployment will undoubtedly impact on the market. Finance may be harder to come by and the outcomes of Brexit will take their toll.

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The buy to let market

The average monthly rent in the UK is now £985, up 2.1 per cent on last month, and 1.5 per cent on last year. Excluding London it falls to £825, which is up 2.1 per cent on last month, and 2.9 per cent on last year. The average rental value in London is £1,653, which is still 100 per cent higher than the rest of the UK.

Year on year, the average rents in London are down, which shows a 2.1 per cent fall between August 2019 and August 2020. This is the fourth decrease in annual variance in subsequent months. 

The most recent Buy-to-let Rental Barometer from Fleet Mortgages revealed that landlords in the north-west can expect to get returns in the region of 7.6 per cent from monthly rent. This shows an increase of 0.6 per cent in Q2 of 2020, up from 7 per cent in Q2 2019, and places the north-west in pole position.

Monthly rental returns across England decreased marginally by 0.3 per cent in Q2 2020 year-on-year. These figures are brought down by the East Midlands, where yields fell by 2.1 per cent in comparison to 2021, down to 4.4 per cent.

Buy to let legislation

Whilst Brexit might have catalysed uncertainty in the housing market, one area that might offer relief for landlords is in legislation. 

While EU law has given us consumer protection, working hour caps and greater employee rights, it has also given us regulations that make it more difficult (and more expensive) for some landlords to acquire mortgages. Sovereignty from the EU means that certain laws, like the Mortgage Credit Directive – which came into force in 2016 and was designed to ensure that mortgage lenders applied borrowing rules uniformly across all EU member states – could be repealed. It also means the UK will be exempt from any future EU legislation.

However, note that Greenland is the only other member state that has ever left the EU and it is still subject to EU treaties, which means that it is unlikely that EU regulations that are already a part of UK law would become null and void, at least not immediately.

One other major blow that could result in a lot of empty properties is the fact that a no-deal Brexit might put EU nationals at risk of losing their homes in the UK. Under the 2014 Immigration Act, all EU nationals have the automatic right to rent property in the UK. With the UK out of the EU and no longer under any legal obligation to enforce this act, it’s unclear what rights the EU nationals who rent in the UK would have.

According to data from Goodlord, the proportion of EU nationals renting property in the UK dropped again from 18.5 per cent of all tenancies in March 2018 to 14.9 per cent in March 2019. But this still poses a quandary for landlords who might not know whether to renew tenancy agreements for existing EU nationals or make new ones.

After 1 January 2021, landlords won’t be required to undertake ‘retrospective checks’ on existing EU, EEA or Swiss tenants when the new rental system is introduced. After 30 June 2021, EU citizens will be able to apply for the EU Settlement Scheme. Home Office figures from August show that two million EU citizens living in the UK have already been granted settled status, meaning they can remain here permanently after Brexit, with a further 1.5m people who have been in the UK for less than five years given pre-settled status. 

Until the agreements have been made we won’t know exactly what Brexit will mean for the industry and for the country. It will be up to landlords themselves to check the immigration status of their tenants. Satbir Singh, CEO of the Joint Council for the Welfare of Immigrants, feels that most landlords won’t go through the hassle of checking someone’s status, when it would be so much easier to rent to a British national instead. He explains: “Landlords cannot be expected to act as border guards, and to ask them to do so is to play with the lives and livelihoods of immigrants and ethnic minorities. It must stop”.