A new year will often focus the mind into planning for the year ahead and indeed the future, ensuring you build on the success you’ve had or making sure you learn from your mistakes. Given the political upheaval since the Brexit referendum, the recent general election, and the pace at which the PRS has grown, then it’s no wonder that 2019 proved at times to be stressful, tiring and frustrating for some.
Now looking forward in 2020, once again, Property Solvers have released their 2020 Market Forecasts provided by an array of experts from within the property industry. Released on the 1st January following the results of the late 2019 general election, the information within the report is current and relevant for any property investor.
The experts provide an opinion on the impending departure of the UK from the EU and its impact on property, as well as opinions on housing affordability, particularly in the South, and opportunities continuing to attract investors to the Midlands and the North.
We’ve pulled out a selection of comments that are focussed on the PRS and portfolio landlords in particular, but the full and original report can be found here.
Co-Founder of Property Tribes, Vanessa Warwick
“I think 2020 will be another challenging year for landlords, although, following the Election result, some will be feeling more optimistic about the sector. As with the rest of the population, many landlords have been in a kind of holding pattern, “treading water”, and in the first quarter, I expect to see them becoming more active and making decisions about the future of their landlord business.
On a positive note, the removal of uncertainty about Brexit and which political party will be in power, will kick-start the property market in early 2020 and we will see a lot more transactional activity, which is healthy.
One thing we will also definitely see is landlords beefing up their tenant referencing procedures, and I think many more landlords will be more robust in their referencing, and also asking for a home-owner guarantor. I expect that there will be an increased awareness and use of Rent Guarantee Insurance as well.
For my part, I am not purchasing any new property, and just focussing on maximising my existing portfolio by up-grades and improvements.
Throughout January on Property Tribes, we will be running our “Landlord 2020 Vision” campaign with a new video each day from an industry commentator with practical things that landlords can do to make 2020 a profitable and successful year. Contributors include property investor of 40 years, John Howard, and Economics Editor of the Sunday Times, David Smith, along with landlords and other industry experts like Douglas Haig of the RLA and property analyst, Kate Faulkner.”
Vanessa Warwick @4_Walls – Co-Founder of Property Tribes
Partner and Head of UK Residential Research at Knight Frank, Gráinne Gilmore
“The sales market will see growth in both demand and supply … but will remain price sensitive: The result will, for the time being, end the uncertainty of a no-deal Brexit and pave the way for the release of some of the pent-up demand that has built in the housing market in recent years. The extent to which this translates into transaction activity in the short-term will depend on the size of pricing expectations between buyers and sellers.
Supply is likely to rise in the short to medium term as vendors anticipate stronger market conditions. However, while some may expect these conditions to support higher prices, growth in supply will temper this somewhat. Accurate pricing will remain key to securing sales.
Rental supply shortage: The current shortage of supply in the prime London lettings market may be further exacerbated as owners attempt to capitalise on any perceived ‘bounce’ and list their property on the sales market, which could put upwards pressure on rental values.
Tax proposals and the pound may encourage buyers to act: The first Budget for the new government is expected in February. The prospect of future tax changes – in particular, the proposed additional rate of Stamp Duty for non-resident buyers may prompt some purchasers to accelerate their plans in coming weeks.
At the same time, sterling rose to about $1.34 shortly after the election – which compares to $1.21 in August this year. Some analysts believe it will climb as high as $1.40 as the threat of a disorderly Brexit recedes and inflows of pent-up private capital and higher levels of public spending stimulate the economy. Some buyers may be encouraged into the market as a result.
Finance costs may begin to rise in the medium term: Even if we accept that Brexit is likely to create some short term economic uncertainty, interest rates are likely to begin a slow but gradual process of normalisation in 2020. This means that the window for locking in current ultra-low mortgage rates could begin to close – again a process which may encourage buyers to accelerate their plans.
First-time buyers will be a key policy focus for the new government: The Conservative Party has said it will refocus its efforts on homeownership, particularly for first-time buyers. Though the manifesto reiterated the Help to Buy Equity Loan Scheme would be scaled back in 2021, subsequently ending in 2023, it pledged a review of methods to support homeownership follow its completion.
It is also worth bearing in mind the potential impact in Scotland in the medium-term as a big SNP win looks likely to increase pressure for a second independence referendum.”
Grainne Gilmore @grainne_gilmore – Partner and Head of UK Residential Research, Knight Frank
Property Market Analyst and Commentator, Kate Faulkner
“As long as there are no external economic shocks, 2020 should be a stable and therefore good year for the property market, as booms and busts rarely help anyone. I expect prices will rise over the year, but more at the start and then less growth in the second half of the year.
This is because we are expecting a bit of a ‘Brexit bounce’ post the election. People have held off buying and selling for the last 15 months, since the Bank of England was misreported as saying prices post Brexit would drop by 35%, some hoped this would happen while others feared it.
However, with Brexit now on the way and with prices having only fallen in areas such as Aberdeen (due to oil price falls) and areas like London where property prices had overheated post the credit crunch, people should be more confident to move and the additional pent up demand and supply is likely to kick in at the start of the year.
It will then abate, leaving the end of the year with prices slightly higher than the start, but only by a few percent ‘on average’, while individually, property prices will be dictated by local supply and demand.
Investors who know their local markets well now and have a good understanding of the infrastructure and supply and demand changes for the future will have an opportunity to find good deals in 2020 to make money in the future, but with little natural capital growth expected during the year, they will have to either buy and add value or secure at a discount.
Those buying and holding with cash eg buy to let investors, will need to work hard to see their asset grow in real value and a return that beats inflation after tax, so they would be wise to double-check their money is still best placed in property versus other assets or consider gearing their investment.”
Kate Faulkner @KateFaulkner – Property Market Analyst & Commentator – Designs on Property | Property Checklists | The Buy-to-Let Show (Online TV) | The Property Hour
Chief Executive Officer at the National Landlords Association (NLA), Richard Lambert
“The new Boris Johnson-led Conservative government must take urgent action to deliver on its pre-election promise to strengthen landlords’ rights of possession by reforming the law courts if it is to stave off a crisis in the private rented sector.
We’re calling on Mr Johnson to introduce a new dedicated housing court and to redefine the terms of Section 8 ‘fault-based’ evictions.
If this doesn’t happen, then we predict there will be a big reduction in the number of houses available for rent and a disproportionately negative impact on the supply of housing for people receiving state benefits.
NLA-commissioned analysis carried out recently by Capital Economics using our most recent members survey found that if the government abolishes Section 21 without additional reforms:
(1) The supply of private rented houses in England would fall by 20 per cent (960,000 dwellings) because landlords would sell-off their rented properties to house buyers rather than other landlords;
(2) There would be a 59 per cent reduction in the number of private rented dwellings available to households which claim local housing allowance or universal credit (770,000 fewer dwellings) because landlords would choose not to rent their property to people with an unreliable record on paying their rent.
The number of homes facing rental increases would amount to 600,000 homes (13 per cent of the sector) because the reduced supply of rented housing would force up rental costs.
In its manifesto, the Conservative Party confirmed that if it won the election, it would press ahead with plans to abolish Section 21 — which allows landlords to pursue fast-track ‘no fault evictions. But it also said that it would “strengthen…[landlords’] rights of possession.
We urge the Conservative government to strengthen landlords’ rights in two ways:
(1) Create a housing court that would unblock the logjam of possession cases that would almost certainly build up when Section 21 is abolished;
(2) Update the terms of Section 8 — which allows landlords to pursue cumbersome “fault-based” evictions—so that landlords can swiftly reclaim their property when tenants fail to pay their rent or commit antisocial behaviour.
We congratulate Boris Johnson on his return to No. 10 Downing Street as prime minister of a new Conservative government. We now stand ready to work with him and his team on the reform of housing regulations in a way that does not do long term damage to the supply of private rented housing.
No-one should be in any doubt about the dire consequences for the supply of private rented housing in this country if the government abolishes Section 21 without any effort to reform the law courts and strengthen landlords’ rights of possession.
There would be nearly 1 million fewer houses available for rent and the people who would be hardest hit would be some of the most vulnerable in our society: those in receipt of state benefits.”
Richard Lambert @NationaLandlord – Chief Executive Officer, National Landlords Association (NLA)
UK Managing Director at BuyAssociation, Sam Hadfield
“2020! While I’d like to sit here and write about PropTech, as I see the year ahead as a big year for the sector and I am genuinely excited about which technologies will make an impact to our living, how tech will help meet the energy targets and which tenant app will win the battle, I’m perhaps best focusing on what I do know.
We sit in an interesting seat, marketing some of the UK’s leading developments and distributing insights to some 26,000 active property investors and aspiring property owners. This gives us a good digital footprint to take a read from.
Transactions
Post-election, the result has been viewed positively. A working Conservative government does seem to be the catalyst needed for retail investors who had previously paused or slowed their plans, with an increase in sales (which commenced even in the week prior to the result).
Developers we work with that have sat on options are now pressing go. On a very raw level, we expect to see both more supply and more transactions over the coming 6 months as a result.
Politics
I only temper the above at 6 months as I think recent years have conditioned me to not look much further ahead! And I expect that the political twists and turns are not over as we navigate our way through a practical Brexit and Trade Deal. However, we also have a pretty clear political calendar that should see this bounce over that term at least.
February
The first budget of this government in February will provide further positivity and momentum, and while the message of real Stamp Duty reform seems to be softening, I do expect some change with proposals for a 3% stamp duty surcharge on buyers who are not resident in the UK looking likely. However, this is likely to drive up sales from Hong Kong, China and the Middle East in the short term as investors look to capitalise on the weaker sterling and get in before any change is formally implemented.
May
We have Mayoral Elections in May, across five City Region Mayors. London will take centre stage, but elections in Manchester, Liverpool, Birmingham and Teesside are all taking place too, and all regions are more confident than ever of attracting investment.
Boris in his spell as Mayor really pushed infrastructure projects. I expect the current government to announce a number of projects in the northern regions and see them pressing forward with HS2, the Heathrow expansion and Northern Rail.
Prices and rents
While our Prime Minister is pushing the “One Nation” narrative, I think the housing market is anything but. People want a figure so I’ll go at 2-3% blended across the country, but I think the disparity across the regions is as big as ever.
I see London prices recovering but perhaps only marginally, with the best gains still being made in cities like Manchester, Birmingham, Liverpool and Leeds.
Rents will rise, but less than prices. I am keen to see what effect the PRS has on house price vs rent. This stock is in the rental market but won’t reasonably partake in the sales market in the traditional way.
What’s new
So the above is just another man’s drivel on the known and the norms.
Will we see anything new in 2020? Yes. We will see a lot of branded PRS and build-to-rent (BTR) stock delivered. We will get a first real look at how this impacts the regional cities – who actually performs, who doesn’t and how this all affects the private landlord.
I think we will see further segregation in property asset classes that are available to the retail investor.
Holiday lets and senior living interest me most. Tax and market conditions will see more homes converted into short-term let businesses and holiday lets, while senior living is a space where the right type of developers are starting to focus. Hopefully, this will provide some innovations in the type of stock on offer that may create a catalyst to seeing elderly homeowners moving from homes that no longer deliver the lifestyle they want, and free up stock at that end of the market.
We will see the emergence of a few brands looking to make real changes for an ever more diverse tenant. We will see branded accommodation venture into high HMOs, branded community living, multigenerational living and sustainable living ventures all hit the market.
Where am I investing? Holiday lets and regional cities.”
Sam Hadfield @BuyAssociation – UK Managing Director, BuyAssociation
Founding Director of Less Tax 4 Landlords, Tony Gimple
A taxing time for landlords
For landlords who decide to sell their BTL property, there’s no concession on the capital gains tax (CGT) payable, being 18% (for gains falling into the basic rate) or 28% (for those in the higher/additional rate bands).
So what happens to highly geared landlords if the tax relief restriction and other measures push them into the 40%, 45% or 60% tax bands and turn their business into a loss-making venture, thus forcing them to sell, only to discover that due to high gearing they may not have enough free cash after the sale to pay the CGT.
And to make matters even worse, for sales happening after April 2020, the CGT bill could be payable within 30 days of the disposal leaving no time to release funds from elsewhere, assuming there are any of course. Sure, you could always remortgage the family home, but as your income has now dropped like a stone no prudent lender will let you!
By the way, the first monetary impact of S24 hit BTL landlords in their 2017/18 self-assessment with the tax paid at the end of last January; and with the second year, fast approaching and the tax due by January 31st 2020, the pain will soon get acute, especially for higher-rate taxpayers making payments on account and the effect it will have on their ability to borrow.
If you’re calculating how you’ll be affected, then don’t forget that once you cross into the higher and advance tax bands (S24 alone will do that with its eyes closed and both hands tied behind its back!), you’ll lose child benefit, your personal savings allowance goes and the amount you can contribute to a pension is reduced.
And lastly on the tax side, remember that non-mortgage interest expenses and the like are now only allowable in the tax year in which the money was actually spent regardless of whether that was a loss-making year or not, and thus cannot be carried forward.
Of course, this is all before: –
- the tougher (but sensible) Prudential Regulation Authority (PRA) regulations insisting that BTL mortgage providers take a much more considered/tougher view before lending money to the sector, and
- the proposed abolition of S21 which, if enacted, will make it significantly harder to end a tenancy.
Worst of all, when the landlord defaults as a result of all the above and the lender can’t gain possession, the whole thing gets held up in court!
Ultimately, the net effect of political ignorance, continuing knee-jerk reactions and the poorly thought through unintended consequences is that the State will have created an even bigger problem when it has to bear the massive financial burden of private landlords being forced out of the market and throwing those who benefit the most on to the streets or having to rely on cash starved local authorities who simply do not have the means to cope.
No wonder that David Miles (a former member of the Bank of England’s Monetary Policy Committee) said in a recent article for the RLA that; “The government’s approach to the private rented sector is incoherent”.
A different approach is sorely needed!
To view the full report pulled together by Ruban Selvanayagam of Property Solvers please click here.
