What could the current political turmoil mean for the rental market?

Written by
Tahir Farooqui
CEO
Agents
September 16, 2019

It’s been a busy and dramatic few weeks in the political sphere, with Boris Johnson winning the Conservative Party leadership election in late July and crowned the new Prime Minister a short time later, opting to prorogue Parliament for five weeks in late August and then losing his first vote in the House of Commons when MPs – including 21 Tory rebels – voted to block Britain leaving the EU without a deal.

The defeat – a serious early dent to Johnson’s authority and his ambition to Brexit on October 31, ‘do or die’ – means the prospects of an early snap election have risen dramatically.

After the result of the vote to block a no deal Brexit was revealed, Johnson said he and his government would be tabling a motion under the Fixed-Term Parliament Act to call a general election.

Jeremy Corbyn and Labour – who Johnson will rely on to get the two-thirds majority needed in the Commons to hold a general election – have said they will only vote for one once the legislation to block no deal has received Royal Assent.

We are in uncharted territory, both politically and constitutionally, with opposition MPs and Conservative backbenchers taking control of the parliamentary timetable and Johnson losing his majority of one as Philip Lee defected to the Liberal Democrats. Johnson has also sacked those who rebelled against him, saying they won’t be able to stand as Conservative candidates at the next election.

But what impact is all the turmoil and uncertainty having on the private rented sector?

No deal now far less likely

The chances of a no deal Brexit have now fallen considerably, although it is technically still the UK’s default position if no deal is struck by Halloween – or if a further Brexit extension with the EU isn’t agreed.

A no deal Brexit had seemed far more likely as soon as Johnson won the Conservative leadership contest, with preparations for a no deal exit ramped up dramatically – billions more spent on contingency plans, an £100 million PR campaign to get people Brexit-ready, etc – but now that Parliament has flexed its muscles crashing out of the EU with no deal in place doesn’t seem like the most likely route.

A general election – with parties campaigning on different Brexit platforms (some for Remain, some for a second referendum, some for Brexit at all costs, others pushing for a revised deal) – now seems the most likely course of action.

It’s hard to have too much clarity over the future at present, but here are a few possible scenarios and how they could affect the PRS.

A no deal Brexit: this could mean an immediate halt to free movement of people, which could affect demand – particularly in major cities like London – as the majority of EU nationals living in the UK rent. Equally, there are fears the country could be plunged into recession, with the value of the pound falling to even lower levels, which could affect the ability of tenants to pay their rent or see landlords pull out of the market altogether.

On the other hand, some say the fears of a no-deal Brexit have been overblown, that the property market has shown its ability to bat away economic and political uncertainty, and that things would carry on pretty much as they are once the new landscape had been adjusted to.

Some also say that a no deal Brexit would offer clarity and certainty to a property market hampered by chronic uncertainty for the last few years, with landlords maybe more willing to invest again and tenants more willing to move homes.

Boris Johnson with a mandate: at present, even though he’s still PM, getting anything through Parliament will be very difficult with no working majority. It means any property-related measures, already relegated to any other business thanks to Brexit, are unlikely to be passed through very quickly.

If he holds an election and wins a majority, however, that could change. But where does Johnson stand when it comes to the private rented sector? He previously voted against the plans to ban letting agent fees charged to tenants and has been a vocal critic of rent controls, while he seems to favour a non-interventionist approach with regards to the PRS. Previously, he has spoken out about over-regulation of the sector.

In the past, his comments have suggested he favours home ownership over renting – which could be a cause of concern for letting agents and landlords, who already feel like they have been targeted and punished in recent years with a sea of new regulatory and tax changes.

During his leadership campaign, he made a number of noises around stamp duty – although nothing in relation to the additional 3% stamp duty surcharge introduced in April 2016. A trade body, the Association of Accounting Technicians (AAT), claimed that Johnson was open to adopting its long-held policy of switching the burden of stamp duty to sellers.

A Jeremy-Corbyn led government – if Labour were to win power at the next election, or form a Lib/Lab pact, possibly with the support of the Greens, SNP and Plaid Cymru, the private rented sector could face a radical shake-up.

Corbyn and London Mayor Sadiq Khan are known to be in favour of some form of rent controls – Khan recently released his blueprint for transforming the PRS in London, asking for powers from central government to better regulate and control rents in the capital – while Labour’s latest policy, a Right to Buy scheme for private rented sector tenants, has been slammed by the industry as something which would kill off the PRS entirely.

The proposals, which could force landlords to sell homes to tenants for less than market rates, were announced by Shadow Chancellor John McDonnell in an interview with the Financial Times.

You can find out more about Labour’s plans for private renters here.

For now, unfortunately, the only certainty continues to be endless uncertainty.

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