What could a change in government mean for landlords? - Total Landlord Insurance

November 6, 2019
Total Landlord Insurance
What could a change in government mean for landlords? - Total Landlord Insurance

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.

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? 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.”– Eddie Hooker, CEO of HFIS

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, 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.” – Eddie Hooker, CEO of HFIS

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

Conservative government

Whilst the Tories have traditionally been the party most ‘on-side’ for buy to let landlords, the current government has lost a lot of their trust. One poll conducted by the National Landlords Association earlier this year found that only 25 per cent of landlords would vote for the Conservative party today in a general election after 69 per cent voted for them in 2017.

This is likely due to the onslaught of legislative and tax changes recently introduced – an attempt, Eddie believes, to appeal to renters and the younger voters. The sheer number of moves by the government to ‘modernise’ the buy to let market has made many landlords uneasy.

Tax changes

One such move is the phasing out of mortgage interest tax relief on their rented properties, meaning landlords can no longer offset their mortgage payments against their rental income, causing some to experience much higher tax bills than they originally anticipated.

The Section 24 changes hurt many landlords, says Eddie.

“They just did not see it coming. Communication by the government was poor and the impact will cause many landlords to rethink their rental strategy. The rationale behind the tax change was that homeowners cannot claim tax relief on their mortgages so why should landlords?”

– Eddie Hooker, CEO of Hamilton Fraser

But, says Eddie, the impact will ultimately be felt by the tenant in increased rents, especially where landlords are highly geared with mortgage debt.

Regulation changes

A wide range of legislation changes came into force this year. Some sought to make renting more affordable by capping deposits at a maximum of five weeks rent, and banning landlords and letting agencies from charging letting fees.

While legislation that better protects the rights and safety of tenants is no bad thing – and some of these new rules were introduced for the direct benefit of landlords – the sheer number of changes left some in the sector struggling to keep up.

It has been pointed out that since the last big housing act in 2004 the number of regulations affecting the private rented sector has increased by over thirty percent, to 156 separate laws. That is not taking into consideration devolution, where we now have different rules in England, Scotland, Wales and Northern Ireland.

On the positive side, a good deal of the legislation has been initiated and influenced by the industry and there are still calls from the trade bodies for better regulation of the sector, particularly in England. The fear is however that this flood of laws creates a lot of red tape, meanwhile existing laws are not being enforced properly.

A 2019 government survey into private letting found that many landlords are not compliant with basic new legislation – with 38 per cent of those taking part not checking a tenant’s right to rent, and 30 per cent failing to provide carbon monoxide alarms. No matter the number of changes, though, it’s a landlord’s responsibility to stay one step ahead of the law.

“Some of the new legislation is quite good, Client money protection and agent redress, for example and slightly older changes such as tenancy deposit protection  (which was actually introduced by Labour back in 2007), are now part of the landscape, embraced by tenants, landlords and their agents alike. However, then you come to things like landlord licensing, where local councils are using it like a tax and there is a lack of consistency throughout the country.”

– Eddie Hooker, CEO of Hamilton Fraser

Section 21

“I would support Section 21 abolition if Section 8 is made more robust, you’ve got to give landlords options if they want to get a tenant out due to anti-social behaviour, unpaid rent, or even if it is because they want to sell the property.”

– Eddie Hooker, CEO of Hamilton Fraser

The Conservative government has also proposed the removal of Section 21 – meaning that landlords will no longer be able to evict tenants using the Section 21 notice procedure and will only be able to end tenancies where they have a legitimate reason to do so.

This would mean relying on Section 8 to bring a tenancy to an end using a concrete, evidenced reason already specified by law. If this change does come into force, however, Section 8 will allow landlords to regain their home to sell or to live in themselves.

“My main concern is that this government is constantly trying to tweak things when what they really need to do is allow a period of acclimatisation for the current legislation to bed-in. This would help us to understand what is working in the PRS and what needs improvement.” Eddie says.

Liberal Democrat government

Many of the policies outlined in the 2017 Lib Dem manifesto regarding the private rented sector might appear on the surface to crib certain elements of both the Labour and Conservative pledges. However, Eddie feels there is promise in their intentions if you read between the lines.

Rent to buy

Under the proposed ‘rent to buy’ policy, young professionals and working families unable to afford a home would be able to buy their first home for the same cost as renting, with each monthly payment steadily buying a share in the home. The big difference being that these homes would be new stock using money previously allocated to the ‘build to own’ policy.

The properties would only be available to those able to meet the criteria of a conventional mortgage and with the ability to afford to pay market rent, without the help of housing benefit. The party said it was not intended as a replacement for affordable rented properties or social housing, and tenants would have the right to sell their property at any time, cashing out their share of the home.

This older manifesto refuses to reverse section 24 changes and also outlines plans to introduce a ‘rent to own’ model, which would put rent payments towards an increasing stake in a property – so tenants would own it outright after 30 years. It also mentions giving tenants first refusal on buying a home they have been renting and establishing a ‘help to rent’ scheme to provide deposit loans for the under 30s.

Eddie feels that the rent to buy model has a lot of parallels with the build to rent model, which is where housing organisations or investment companies get grants from the government to build properties which are put out for rent only. He favours this over Labour’s suggested right to buy scheme, as he feels as if “they’re looking at more investors building properties for rental stock which the tenant ultimately can buy a stake in,” rather than the Labour idea of “taking the existing stock owned by the private landlord and forcing them to sell part of their property to the tenant.”

Longer tenancies

As you would expect, given the reputation the party still holds among some as the ‘party of youth’, many of their policies are engineered to protect tenants – for example, promoting longer tenancies of three years or more with an inflation-linked annual rent increase built in. This would supposedly give tenants extra security and limit rent hikes.

Eddie points out that most surveys completed on this topic have however found that the majority of tenants don’t really want a long-term tenancy, preferring flexibility, and it’s actually more a case of the government incentivising and encouraging landlords to keep good tenants around for longer.

Eddie also feels that the ‘help to rent’ scheme is a workable solution to the affordability crisis whereby councils loan deposit monies to tenants.

Preparing for an election

Ultimately, as Eddie himself admits, “housing is at the top of every political agenda because it impacts everything from the NHS through to transport and education. It’s all about people having a house to call home.”

“A lot of the common rhetoric coming out of all three parties is about appealing to the younger generation, which is overwhelmingly the tenants in the UK. So there is a lot to play for.”

– Eddie Hooker, CEO of Hamilton Fraser

So what does he propose for landlords who might be starting to sweat about the forthcoming election? He says: The current Brexit crisis will play a large part in the decision of who to vote for at the next election. This is understandable.”

“But there is more at stake than just this topic. Landlords need to understand what each party is proposing for the rental sector – each new policy proposal will have profound consequences for the future of their sector. Educate yourselves and bring yourself up to speed on all current and possible future changes.”

Eddie’s overall takeaway? Don’t panic.

“Whichever party gets in will not cause the collapse of the private rented sector. Property is always a good investment choice and what we are seeing is purely a re-balancing of the needs of both landlords and tenants. Understanding the changes will enable landlords to plan better for the future as well as providing decent homes for tenants.”

– Eddie Hooker, CEO of Hamilton Fraser

“There is no silver bullet for sorting out the housing crisis. We need more homes to be built – not just flats but family homes – and they need to be affordable. We need more social housing to help the poorest of our communities. And overall, we need a buoyant private rented sector for the younger market who have to rent or who increasingly want to rent as a lifestyle choice.”

Eddie does, however, caution that if you want to make a ‘quick buck’ property is not the place to put your money.

“Being in the rental market is a long game strategy. It is about providing decent homes for people with the reward of capital growth many years down the road. Whilst it all seems doom and gloom at the moment, things will settle down in the longer term.”

– Eddie Hooker, CEO of Hamilton Fraser

Ultimately, buy to let landlords should prepare for a number of changes – with the removal of Section 21 already under consultation and several parties calling for legislation around longer tenancies, for example.

Other proposals seem larger, more difficult to embed, and depend on certain parties getting into – or retaining – power.

Whatever the outcome of the election on 12 December, landlords should ensure they are 100 per cent up to date with existing legislation and tax rules.

They should also keep an eye on new proposals, and join a landlords association for power in numbers and to boost their voice.

As a landlord, understanding how government and political changes could impact you is extremely important. With different information available everyday it is important to keep abreast of the latest industry news.

Become a Total Landlord.
Get a quote for our award winning landlord insurance.