I watched the Exit Poll result on Thursday night but didn’t stay up to watch the individual returns – I was pretty confident the Exit Poll wouldn’t have been far off the mark given the accuracy of the previous five elections. What did surprise me was how large the Tory majority was given the opinion polls of the previous week. And there were some surprising turn-arounds in a number of what have always been ‘safe seats’. The mood of the people has certainly been stirred up in this election.
There is clearly going to be a very mixed reaction from the public to this result but whichever way the voting went, I had planned to do what I have always done over the last 40 years, and that is develop a plan for moving forward based upon the manifesto of the winning side; as an estate agent there’s no point in my crowing or moaning about a result – at the end of the day we have to get on, look after our clients and look after our business.
The Tories promised first time buyers an additional one million homes in the next 5 years, 29,000 of which would be offered with 30% discounts for local people. This is similar to the set-up the Housing Association offer, therefore I’m assuming this proposal will be run through that existing system? Just how the Associations are going to manage to find the land in areas where the homes are needed, get applications through planning and get the houses built within 5 years looks a little optimistic to me. Last year saw 159,000 new homes built, down from 160,000 in 2017. In 2016 there were 141,000 completed new homes, down from the 2015 figure of 143,000. 2015 was 21% up on 2014! As I say, seems optimistic given that it will take 12 months probably before any legislation filters through the system leaving only four years to complete 250,000 new homes per year. I suspect demand will continue to outstrip supply for many years to come.
Mr Johnson promised the introduction of long-term fixed rate mortgages with a 5% deposit to help first time buyers and young families have stability. That’s all well and good in theory, but at what interest rate? There are already 10-year fixed rate mortgages available in the market, but with interest rates significantly higher than the 2 and 5-year fixes, and some very steep early redemption penalties if one has to sell up early, why would anyone bother. A good ‘headline’ but impractical. I suspect this will be ‘kicked into the long grass’.
One Tory manifesto pledge I do believe will come to fruition is the 3 per cent stamp duty premium on foreign buyers purchasing properties in England. I suspect this is driven by the London market, as there are no issues with foreign buyers purchasing property in Leeds. I rather hope this policy is offered to local councils as a Direction, a policy they can enact regionally to suit local markets if deemed appropriate. I don’t see the need for it to be imposed unilaterally across the country.
On the rental front, I have grave concerns over the plan to get rid of Section 21 Notices, to end what they refer to as ‘No Fault’ evictions. I cannot recall the last time any of our clients evicted a tenant for no reason. Why would they? As a landlord I would never evict a tenant for no reason – I like my tenants and I like the rental income! As managing agents, the only possible reason for evicting a tenant for no reason would be to charge our client another re-letting fee. But only morally corrupt agents would think to do that as it certainly isn’t in the interest of the client. And I suspect it wouldn’t take long for landlords to pick-up on the ruse, resulting in the agent being sacked! Not a good long-term business strategy!
We do recommend issuing Section 21 Notices where the tenant persistently pays the rent late, where the payments are erratic or where the tenant is causing a nuisance or damage to the property. We’re very keen where a ‘No Pet’ or ‘No Smoking’ covenant has been breached, and where the responsibility to maintain a garden is being ignored. Allowing such breaches to go un-addressed will lead to an accelerated depreciation in the property necessitating in premature capital expenditure by the landlord to restore the property at the end of the tenancy. Nipping a problem in the bud saves money – as my Grandmother used to say “a bird in the hand…” or “a stitch in time…”!
We would only issue a Section 21 where the tenant refused to adjust their behaviour. Whether we actually exercise the Section 21 depends upon the severity of the situation and how we/the landlord believes the tenant’s on-going behaviour is going to impact on the future value or let ability of the property. The decision isn’t taken lightly.
If Section 21 is removed agents will still be able to seek a possession order for all the above scenarios I have mentioned but it would be via the Courts, under Mandatory or Discretionary Grounds. This process will take considerably longer and be substantially more expensive for landlords and more traumatic for tenants. The court system is already under strain. I suspect a separate system would be needed to handle property issues, but this will take time and money to implement. I don’t think we’re going to see the abolition of Section 21’s in the next 12 months!
The Conservatives have suggested lifetime rental deposits, that ‘travel’ with the tenant between homes. I can easily live with that, given the fact the Tenant Fee Act came into force this year which restricts a tenant’s deposit to x5 weeks rent – barely enough to cover a month’s rent arrears let alone reinstatement costs if a tenant damages/significantly neglects a property. I foresee a small problem, however. Lets say a tenant is renting from Landlord A and wants to move to a property offered by Landlord B. Landlord A won’t release the lifetime deposit until he’s undertaken a post-departure inspection of the property to make sure there’s no damage. Will Landlord B allow the tenant to move into his/her property on the ‘promise’ of the deposit being transferred? What if Landlord A needs to deduct £250 for cleaning, red wine damage to a sofa and an iron burn in the centre of a bedroom carpet. The tenant challenges this and it goes to the Tenancy Deposit Arbitrator. It can take 2+ months to resolve such an issue with TDS, and if they find in favour of the Landlord is Landlord B going to accept a lower deposit on his/her property if the tenant has no other funds to make good the shortfall? Oh dear – not as simple as it first appeared.
We don’t know what’s in the new Government’s first budget, which I assume will now be in February given that a full cabinet reshuffle is likely in January. I didn’t see mention of any negative changes to Inheritance Tax, Capital Gains Tax or Corporation Tax. Nothing to plan for there by the looks of things. Landlords still have another year to go before the full pain of the removal of mortgage interest tax relief is fully felt, which will impact those with large portfolios and hefty borrowings, or reluctant landlords with high loan to value mortgages. It may be time to consider incorporating, where financially feasible!
If you’re unsure about what to do with your home or investment properties, please feel free to contact me or my co-directors, Michael Davies and Angie Wright, we’d be happy to discuss how we see the market for you going forwards.