Welcome to the 2020 property market expert commentary post…
Reactions to the Tory landslide and, unsurprisingly, the impact on property resulting from UK’s imminent departure from the EU pervade across many of this year’s contributions (the ‘B’ word is mentioned no less than 88 times!).
Housing affordability also continues to raise cause for concern for the medium-term sustainability of the market, particularly in the South. A broad consensus remains that financial accessibility and high deposit requirements will remain a constraint to aggressive price growth witnessed over the first half of the previous decade. Nonetheless, for investors, the opportunities presented in areas across the Midlands and the North shouldn’t be ignored.
As financially leveraged landlords brace themselves for the final crank in the phasing of Section 24 this tax year, alongside further regulation, it will be interesting to see how the sector professionalises and co-exists with the ever-strengthening build-to-rent developments across the country.
To automatically scroll to the specific commentary link of your choice, click on the links in the drop-down contents box above. You’ll also see an arrow towards the right which can be used to return to the top of the post.
A massive thanks to all our experts who took the time out to help, particularly those contributing for the first time. We hope the content that follows will have a positive influence on your investment decisions in the coming year and beyond.
Economist at the Royal Institute of Chartered Surveyors (RICS), Tarrant Parsons
“Momentum across the UK housing market has remained relatively subdued, with new buyer demand showing little impetus going into the New Year. That said, with the Conservative party winning a clear majority, the Withdrawal Agreement will very likely be ratified at the start of January. This could see some confidence returning, at least for a brief spell, meaning activity may see some uplift.
Challenges around affordability and low stock levels will continue to drag on the market, and Brexit uncertainty could resurface as the next deadline draws closer. As such, we expect house prices to rise by just 2% next year, with the outlook for overall sales volumes broadly flat.
Rents are also expected to rise in 2020, and at a faster pace. As the sector continues to struggle with a lack of supply, the RICS survey data suggests rents will rise by 2.5%. In fact, the number of new landlord instructions has been stuck in negative territory for fourteen successive quarters, which is the longest run since 1999. In London, rents are expected to rise at an even faster pace of 3%.”
UK Head of Engagement and Cities Strategy at the Royal Institute of Chartered Surveyors (RICS), Hew Edgar
“In the past, many Government administrations have implemented a piecemeal approach to housing and tinkered around the edge of the main issues.
This needs to stop in order to make real and substantive enhancements to the UK’s housing sector – whether that is the pace and quantity of housing delivery, quality standards, or energy efficiency.
Mr Johnson’s parliamentary majority provides an ideal opportunity to do this; but he, and his team, must grasp the nettle.
It is imperative that the new administration hits the ground running and makes headway into the plethora of housing pledges within the Conservative manifesto – ensuring they actually deliver holistic policy, as well as moving the housing sector forward with a consistent and long-term approach.”
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.”
Director of Savills Residential Research, Lucian Cook
“We know that across the mainstream market, political and economic uncertainty have held back market demand and supply being brought to the market.
Within the prime markets in which Savills operates, there has been a strong build-up of applicant demand among those waiting for the fog of political uncertainty to clear.
In addition, there are a number of agreed deals that have been put on hold pending the outcome of the general election.
December’s election result should unlock some of these deals and mean prospective buyers are more committed, bringing a greater sense of urgency to the market.
However, there is a possibility that it will also harden some sellers’ price expectations.
The election of a Conservative majority government is in line with the assumptions which we made when we prepared our house price forecasts back in November.
These suggest only modest price growth in 2020 on the basis that, despite domestic political uncertainty receding, some economic uncertainty will remain until a trade deal is agreed with the EU; even if, as is widely expected, the UK leaves the EU by the end of January without a further extension of article 50.
This could mean a bounce in demand in the first part of 2020 proves difficult to sustain through the summer months and into the autumn market.
There is a possibility that some buyers and sellers hold out for a stamp duty cut that was floated by Boris Johnson during his Conservative party leadership campaign over the summer. However, this was noticeable by its absence in the Conservative Party manifesto. Instead, we saw proposals for a further 3 per cent stamp duty surcharge on buyers who are not resident in the UK.
If anything, we think this is likely to support demand from overseas buyers in the short term as they seek to buy before it is imposed.
Those overseas buyers are also likely to want to lock into the weakness of sterling. We’ve already seen sterling appreciate and this reduces the currency play, but we expect this will be outweighed by much greater political certainty.
Sterling is expected to strengthen progressively as political and economic uncertainty clears, with the biggest impact coming after trade deals are agreed with both the EU and other trading partners. That is likely to provide a limited window in which buyers can take the maximum benefit from the weakness of the pound, though it is likely to be the catalyst for a recovery in prices in central London over the next five years.”
Research & Insight Director at Zoopla, Richard Donnell
“The growth in new housing supply over the last five years has been boosted by the Help to Buy equity loan scheme which supports almost two in every five sales in England.
The scheme is due to end entirely in Spring 2023. This may seem a long way into the future, but our analysis suggests almost a quarter of schemes being developed today will still be under construction in 2023.
There is the prospect of a cliff edge at this time, which could disrupt new housing supply. It is important the new Government focuses on transitioning from Help to Buy to a new scheme, modelled around the old Starter Homes scheme as outlined in the manifesto.”
Director & Housing Market Analyst at Rightmove, Miles Shipside
“Given the Brexit track record to date, further political twists and turns should not be ruled out, though with a large majority there is a higher possibility of an end to the series of Brexit deadlines, and the prospect of an orderly resolution.
Rightmove measures the prices of 95 per cent of property coming to market, and we predict that buyers and sellers will on average see a two per cent rise in those prices by the end of 2020.
While this is over twice the current annual rate of 0.8 per cent it’s still a relatively marginal increase as it’s a price-sensitive market.
There will be regional variations. London is finally showing tentative signs of bottoming out, and we expect a more modest price rise of one per cent in all of the southern regions where buyer affordability remains most stretched.
In contrast, the largest increases will be in the more northerly regions, repeating the pattern of 2019 with increases in the range of two per cent to four per cent.”
Property Expert, Henry Pryor
“2020 will be at least as tough as 2019 but politically perhaps not quite so mad. Post-election celebrations by some selling agents is likely to be followed by a post-Christmas hangover as sellers dig their heels in on the news that apparently happy days are here again.
I expect buyers to remain just as nervous this year as they did last with most wanting to hibernate for the next twelve months rather than come out and buy what for most will be their single biggest purchase. For most buyers, there are still some significant events ahead any one of which could impact on their plans.
A formal ‘Brexit’ now looks certain at the end of January. A Budget in February will introduce an additional 3% Stamp Duty for 70,000 foreign buyers and perhaps other changes as well.
Traditionally we get bad weather in March and April which could see a return of The Beast from the East.
Apparently, we are going to get a trade agreement with the EU by December – something those who actually do trade deals would expect to take until 2023.
Sales will still be driven by the three D’s: Death, Debt and Divorce but who has a similar motivation to buy? Most of my buying clients will move but they will want something in return for the risk that they think they will be taking. Most will want a discount on the price. Maybe only 5-10% but this is why I expect prices to slide by 3-5% by Christmas.
There will be a market. You will be able to buy and sell but sales volumes will be thinner than usual and the supply of available properties, or listing, will be smaller than usual. Buyers won’t have as much choice and will need to look beyond the traditional property portals and estate agents windows to find all of the homes that may be available.”
Chairman at Acadata, Peter Williams
“2020 – more of the same?
Well, 2019 came and went with the housing market broadly static as expected –transactions and prices remained subdued. We have seen some real terms declines in house prices even if the nominal rate has nudged up a little.
That of course in combination with rising real wages and an ever more competitive mortgage market (including more 95% mortgages) has eased affordability, notably for some first-time buyers.
However, we share the general view as expressed in these blogs that this is unlikely to translate into a significant property boom in 2020. Indeed given the scale of general uncertainty, the unknown Brexit outcomes and a weakening economy –at least at this stage – it seems reasonable to assume we will see more of the same – low house price uplift and modest transaction numbers alongside a tightening rental market as more of the taxation and regulatory changes feed through.
Governments across the UK – notably in England and Scotland have set out ambitions to give further assistance to first time buyers – the First Home Fund in Scotland which will support the purchase of both new and second-hand homes. This is in place as a replacement for Help to Buy which ends there in 2021. In England, the government has announced it will shortly launch a consultation on a First Homes scheme of its own.
This will provide homes for local people and key workers at a discount of at least 30 per cent. The discount on First Homes will be secured through a covenant, meaning the homes will remain discounted in perpetuity. There will be a Budget on March 11 when we can probably expect further announcements linked to what was a very pro – homeownership manifesto. Having said that, the government is moving ahead in the private rented sector though there have been no big announcements on an expanded social housing programme.
Taken together it seems reasonable to assume 2020 will largely replicate 2019 in market terms but given the desire to boost infrastructure we might see some significant new housing announcements which will really feed through into subsequent years.
Acadata will continue to track the market closely reporting on cash and mortgaged sales and with timely estimates of prices and transactions at different geographic scales.”
Peter Williams – Chairman, Acadata
Land, Planning & Development Expert and CEO at Millbank, Paul Higgs
“Throughout the complex comings and goings of the past year, I’ve needed to adjust my personal approach in order to mitigate the risks that came with the uncertainty of Brexit.
Primarily, that meant that instead of seeing all development projects through from beginning to end, I might take on an off-market development site, apply for planning permission and handle the negotiations involved, then sell that project on complete with those permissions attached.
This change of strategy allowed me to add value to each project while minimizing the risk to myself and my business. The negotiations involved were still time-consuming and complex, so this in itself took time, but the riskier side of my work wound down to some degree.
In the few weeks since the general election, however, there already seems to be a little more clarity and certainty. While we still don’t have a complete answer to what will happen after we leave the EU, but this has been enough for things to begin picking up already.
Property development companies are beginning to return to the sites and projects that they had “parked” when the market began to slow down.
At the moment, it looks as though the market is likely to bounce. Whatever you think of the concept of Brexit as a whole, the result of the election – which represented, from some quarters at least, a pro-Brexit vote – has been a big positive for the industry as it stands.
As with many property-related matters, this will likely be felt more significantly in London than it will be through the other regions of the UK. There is a slight “lag” in the property industry, as a high proportion of the value of its investment and development is based in the capital. The rest then spreads to the other regions.
This means that London initially bears the brunt of any market boom or crash. For this reason, any industry “bounce” in the coming months will be more notable in London than in other parts of the UK.
Generally speaking, the regions have not been significantly affected by the uncertainty that took hold since we UK originally voted to leave the EU – and some have actually done quite well. It is highly likely that the market in these areas will simply continue to “tick over”, while the most dramatic impacts will – in all probability – be London-centric.
For now, at least, it seems the worst is over. Whatever may happen following our departure from the EU remains to be seen, but despite my risk-averse approach, I feel that there is enough certainty in the industry as it stands to begin undertaking projects at full capacity again.
Where this time last year I might have taken on five sites and sold three on after negotiating planning permission, I would now feel confident enough to see all five through to completion.
My advice for the coming year is that the fundamentals never change. This year has seen the largest number of developers go bust since the financial crisis of 2008. In many cases, this is simply because those individuals had not done their homework.
In more certain times, a developer could coast by simply as a result of natural market growth. This would serve to hide any mistakes and often enable them to make a profit. In more difficult times, this is often not possible.
Development is a high-risk industry. Learning the fundamentals of that industry is vital to assure success whatever the state of the market.”
Managing Director of the Property Developers Academy, Brynley Little
“The continued political uncertainty in 2019 saw the property market continue to soften in many areas. Many developers and funders entered administration as a consequence of overexposure to changing market conditions, with many over-committed on too many schemes at a time and on schemes with falling demand.
We have witnessed many of the volume housebuilders going back to planning to vary their schemes, opting to change 4 and 5-bed properties for 2 and 3 beds. We believe the market for locally and socially affordable homes will thrive in 2020, with our focus mainly on getting permission for mixed schemes of affordable family homes on many of our sites.
With the general election now behind us, and a conservative majority enabling decisions to be made and bills to be passed, we see this as a positive for the housing and land market. There is still the uncertainty of what effect Brexit will have, however, 2020 could certainly be a year of progress after 3 years of stagnation. It is increasingly likely that more levies and taxes will be brought in on land, so it’s important to structure deals that will account for this.
Britain’s population is ageing, and it is projected that by 2026 households of 65+ will represent almost half (48%) of all household growth (source: Department of Communities and Local Government).
This represents an opportunity for developers to provide quality housing and care facilities to cater specifically to this demographic. Well connected, well-serviced developments of bungalows, assisted living accommodation and single-level housing will be in high demand.
Developments of affordable starter homes, family homes and suitable accommodation of over 65’s will go a long way to reviving communities. 2020 is a year for developers and landowners to come together to create and share value, producing developments that can make a real difference.”
Chief Executive of Optivo & Honorary Professor at UCL Bartlett School of Construction and Project Management, Paul Hackett
“2019 has been a challenging year for housing associations. The ‘perfect storm’ of a weak housing market, cladding removal and remediation costs for tall buildings – combined with political and regulatory uncertainty are having an impact on housing association capacity. These trends particularly affect some of the bigger London landlords with large portfolios of buildings over 18 meters and significant market sale and shared ownership exposure. Add to this the cost of retrofitting older homes to achieve net zero carbon by 2050 and it’s hardly surprising that some of London’s largest housing associations are ‘pausing’ new commitments and converting unsold homes to rent.
Despite this doom and gloom, there are a number of positives to reflect on in 2020 – starting with the sector’s first rent increase since 2016. Government rent policy saw rents cut by 1% each year from April 2016, but from April 2020 rents are due to increase annually by up to CPI+1% for the next five years. New homes delivery will also be carried forward, (at least initially) on momentum built up since the introduction of strategic partnerships with the GLA and Homes England since 2017. I expect to see a growth in net additions over the next eighteen months as the 61,056 affordable homes that were started in 2018-19 complete. Starts were up from 55,555 the previous year – reflecting a ramping-up as a result of strategic partnership grant allocations.
According to the Regulator of Social Housing’s latest review of sector risk, housing associations are forecasting starts to peak at 87,100 in 2022. To help fund this increase in supply, the sector is forecasting £37 billion of sales by 2024. This is a mix of fixed asset sales, shared ownership first tranche sales plus revenues from market sale. Housing associations are expected to deliver their current completions targets by the end of Q4 in March 2020. However I would offer a word of caution – the key indicator to watch will be starts in 2020-21. If building safety costs are higher than expected and if it looks like sales forecasts of £7.4 billion in 2020-21 will not be achieved, then I expect we’ll see a corresponding reduction in starts. Housing associations tend to wait to receive sales receipts before entering into fresh land and build commitments, so slower sales and lower receipts will almost certainly result in fewer starts.
Another key driver for housing association development beyond 2022 will be government housing and planning policies – with consultation expected on both in 2020. The Queen’s Speech confirmed the Affordable Homes Programme will be renewed. White Papers for both housing and planning are due. Government are also proposing changes to shared ownership and will consult on First Homes – a discounted sale product to be delivered through Section 106 agreements. In respect of the former – the design of the shared ownership model is key to scheme and programme viability. We await the detail, but if for example, a reduction in the rent on the unsold equity, or a sharing of repair liabilities was proposed – although good news for buyers, would require more subsidy to maintain financial returns. In respect of First Homes, if embraced by developers, it could accelerate the current trend of housing associations moving away from Section 106, in favour of land-led development.
The reason housing associations exist is to provide affordable housing. With 320,000 people homeless in the UK and with hundreds of thousands living in insecure, unsuitable or unaffordable homes, the sector must do all it can to continue building genuinely affordable homes for those in need. With historically low interest rates – and with a government with the biggest majority in decades, now is the time to take long-term action to fix a housing crisis that has been decades in the making.”
Director of Real Estate Policy at the British Property Federation, Ian Fletcher
“The most fascinating political battles of 2020 will take place in the regions. If you are sick of elections the bad news is that 17m of us in England will have the opportunity to trot off to the poll booths once again to vote for five city-region mayors in May. Centre stage will be London, where last year I predicted a strong independent candidate would run and Rory Stewart duly obliged – Nostradamus or fluke?
The ethos of Prime Minister and Mayor have not always been in tune, think Blair and Livingstone, Brown and Boris, but there has generally been an effort to work together in recognition that investment in London was good for the country. Mayoral policies and personalities have never felt so far apart as now, however, and that disconnect is unhelpful and I suspect will get more fractious.
By contrast, the other city regions in line for Mayoral elections – Manchester, Liverpool, Birmingham and Teeside have never looked so confident in their ability to attract investment and with a national Government now keen to be more supportive of ‘the regions’ I expect that attractiveness to be maintained and their prospects improving.
In its mini spending review in September, the Government set out its current spending plans, but capital spending remains unfinished business and there is scope to be ambitious. With a large majority now, there is also no excuse why the Government should not be cracking on in with projects like HS2, Heathrow expansion and Northern Rail.
A fleeting word about Scotland, the Alex Salmond case reaches court in the new year and the result of it could have significant consequences for the nationalists and their campaign to revive an independence vote.
The two issues that I think the sector will ignore at its peril in 2020 are building safety and sustainability. The spotlight will only increase on building safety and those organisations that are proactive in understanding their stock and how it might be affected will be investing their time and resources wisely. The spending on building safety in the social housing sector alone will be a huge call on its resources in the coming years and therefore Government is going to have to increase spending on the affordable homes programme merely to stand still, let alone deliver more affordable homes.
The target of reaching net carbon zero by 2050 may seem like a long time away, but Government has been working on its energy performance trajectory to 2030 for some time now and therefore again, those who are proactive at aiming for ‘C’ or above will better protect themselves, particularly bearing in mind that some of the buildings bought today will still be in their portfolios in 2030.
I have always hated making predictions, and as a former Chief Economist, I had a distain for forecasting. A relatively safe political prediction is probably that Sadiq Khan will be returned in London, given both recent voting patterns, but also that his predecessors have all got a second term.
I think the next leader of Labour will be female and if they are smart Labour will try and find a unity candidate, somebody like Jess Philips perhaps. In the regions, I think most of the elections will go to the incumbents, but with one surprise!”
Property Investment Strategist and Co-Founder of Anglo Residential, Anna Harper
“Few since Nostradamus could accurately forecast the future. Yet understanding what will drive the future in the property market is essential and hugely valuable. Rather than forecasting hotspots in the residential property market, which are generally outdated by the time they hit the internet, believers in value investing focus on first understanding what is driving market forces – demand and supply. I believe there are five areas above all else that will drive the UK residential property market in 2020 and which my business, Anglo Residential, is basing its decisions on.
- Politics – For the last few years, the impact of Brexit, and the political uncertainty associated, has been the first question investors ask about. The evidence suggests that, in fact, uncertainty was not the underlying cause of structural housing market changes, it simply exaggerated nerves. In 2020 it will become clearer that newspaper headlines were inaccurate in blaming Brexit-led uncertainties for housing market doom. The relative contribution of affordability constraints, new regulations and financing restrictions will become clearer as the determinants of supply, demand and investor profitability;
- Economics – continued long term low-interest rates and the requirement for yield to fund our ageing population (and its growing pension requirements) will mean increasing focus on yield-focused investments;
- Social – We will see a continuation of the trend that younger people are less likely to buy, as homeowners or investors, and more likely to rent. Gradually, we will see a change in perceptions and an increase in respect for ‘access over ownership’ in the housing market, as in consumer business and transport before it. The ‘baby boomer’ generation will begin to accept that homeownership is not a panacea for all, increasing the importance of the Private Rental Sector. Also, the combination of political will, new regulations and technology will continue to increase the relative power of ‘consumers’. In the fastest-growing part of the residential property market, the Private Rental Sector, consumers are tenants, and their power will keep on growing in 2020;
- Technology – The importance of PropTech will continue to grow. Perhaps the most exciting driver of change in 2020 will be in access to data. The information asymmetries that have limited access to opportunities in the property market for so long will continue to shift. In addition, ‘flufftech’ will begin to lose its sheen: investors and operators will continue to get savvier about what technologies they really need, how they should be used, and how they can add value in combination with human input, rather than simply assuming that hot new ideas from Blockchain to Algorithms can be laid over existing business models to cut costs and solve business problems;
- Legal and regulatory – the wave of regulations since 2015 that have affected the vast majority of Private Rental Sector investors – smaller, private investors – will continue to drive concentration of ownership and more professional delivery. The importance of indirect investment over direct ownership by individual landlords will increase. Investors with funding will increasingly specialise in the role of financing investments, and the importance of professionally managed funds will continue to increase in 2020.“
Managing Director at Dataloft, Sandra Jones
“2020 begins with a newly elected Prime Minister who, (allegedly), dreams of being Churchill for the 21st century and is heralding ‘the new economic era’. Whether his dreams will be fulfilled is beside the point – the significance for the rest of us will be the grand gestures he is likely to make in order to unite the masses and rouse the public mood. So, we can expect ambitious spending plans for new infrastructure, investment in the north (and the resurrection of the Northern Powerhouse), support for town centre regeneration and scientific research alongside policies designed to promote and expand homeownership, particularly for first-time buyers – or the ‘youth vote’ as they are sometimes known and an overarching mission to kick-start economic growth.
Most agree that the housing market will be more buoyant in early 2020 than it has been for some time. The challenge for agents in the short term will be to contain asking prices in the face of pressure from psyched-up vendors. There is a real risk of a mini-boom and slump if the market is artificially boosted when what is really needed is a long-term price adjustment to address affordability, rather than short term price acceleration.
That said, infrastructure investment is a sure way to create economic growth. It will increase housing demand and prices in locations that benefit. And the government intends to borrow to spend. It is a departure from recent policy enabled by the prospect of long term low-interest rates. As long as interest rates remain lower than the rate of inflation, the cost of borrowing is effectively negative which means the government can feel confident about borrowing to spend. We will be watching the northern cities closely – Leeds, Sheffield, Hull, Manchester, Liverpool and all other locations singled out for improved transport, broadband and town centre regeneration funds. This is a medium to long term perspective, for investors looking over more than a decade, rather than a year ahead.
Looking to the nearer future, there several big themes that have been developing for some time but are now reaching a level of maturity that means they will begin to influence the behaviour of mainstream buyers, sellers, renters and lenders.
The first is climate change and sustainability. There has been a seismic and permanent shift in awareness. Just as Blue Planet ll put an end to the mass use of plastic-bags, so Greta Thunberg will change the world – and she will change the UK housing market. The enduring image of a vulnerable child with plaits, pleading with adults to protect the planet for future generations, is irresistible to anyone with the mildest parental instinct. The raised awareness will cause behaviour change and a reassessment of priorities that will flow through to demand and price. Features likely to have an increasing impact on value include the EPC rating, sources of heat and power, biophilia and the blurring of boundaries between indoor and outdoor spaces.
Another theme that has reached a tipping point is working from home/flexible working. Headline-grabbing troubles at WeWork have served to demonstrate just how big the movement has become. WeWork might not have perfected the business model but there is no further proof needed of the scale of demand for co-worker spaces and that goes hand in hand with the ability to work remotely from home or somewhere close to home. So, easy access to co-worker spaces, or work from home facilities will affect home design and pricing, as well as workplace design.
One of the many uncertainties that will arise out of the new-found certainty of Brexit is my third theme, and it is the way we access, use and protect personal data. GDPR is an EU regulation. It may well be that the UK continues to adhere to its rules but if we were to follow the US model of data regulation more closely, the ability to access and use personal data would be greatly liberalised. The most immediate and overt impact of GDPR on the residential market has been on the way agents and housebuilders use mailing lists for marketing purposes.
The less visible but more pervasive impact will be on the way the industry understands the demand for property – the priorities and motivations of buyers and renters. It is already possible to use geo-location data harvested from mobile phones to profile local populations, potential buyers and renters. Open banking apps are entitled to sell data about spending habits and they do – generally to hedge funds but it can shed light on what a local population spends on the gym or dog walkers or food delivery apps. If it improves understanding, it benefits the industry – we will design better homes in the right places if we understand what residents really want. The ethics around use of that data is evolving fast and regulation struggles to keep pace. This kind of analysis will become more mainstream in the next year or two and it will be valuable.
Making predictions at this time of year has become a tradition and it is tempting to pull numbers out of the air on the basis that they will only be remembered if they prove right, or to make predictions so safe that they can’t be wrong (there will be further casualties on the high street)’. But the subtle business of predictions turns on identifying the themes that will fuel confidence and influence behaviour in the year ahead.”
Founder & CEO at Realyse (Housing Market Intelligence), Gavriel Merkado at Realyse
“Having reviewed my own forecast in 2018 for 2019 and been correct other than in the prediction that Italy would win the World Cup, for 2020 I would keep an eye on other markets to forecast the housing market.
The FTSE-100, 250 and 350 have all basically gone sideways for the past two years, waiting for something to change, and I’m pretty sure we can all guess what that might be!
Meanwhile, plenty of people pointed to yield-curve inversion as a leading recessionary indicator in the US, however, once an indicator like that becomes known to everyone, it can lose its predictive ability, as everyone preempts it, which can either exacerbate or diminish the predicted outcome!
We’ve seen a few real estate companies moving to what they think are ‘defensive’ investments, although ironically we’ve seen a few swap their positions (eg going from commercial to residential, and vice versa) so it’s not exactly clear which actually is a defensive investment.
Meanwhile, low rates and a less self-assured land market for build to sell developers is creating great opportunities for the long term patient capital backing build to rent, which we may well see more of next year!”
Director of Keller Williams Plus (Essex), Russell Quirk
“The UK housing market enters 2020 with a spring in its step that by all logic should be at best a sprain if not a full-blown fracture.
For five years or so the parliamentary establishment have thrown everything possible at it from: layer upon layer of stamp duty penalisation; to a campaign of crass antagonism toward buy to let investors; through to unprecedented political uncertainty and incompetence ranging from potential economic meltdown to teasing investors with rent-caps, the prospect of compulsory purchase at ridiculous discounts and the removal of any sane means of expelling non-paying tenants.
Yet, in a resilience that is up there with Donald Trump voters and stubborn stains the likes of which only Cillit Bang can remove, the property market has prevailed. House prices are some 8% higher nationally than prior to the EU referendum and, whilst London has dipped, it’s akin to a flesh wound rather than anything more serious and is now healing.
Whilst the numerous indexes will take time to reflect such in the early months of the new year, the lifting of uncertainty and much of the political shenaniganary will see confidence return and with it, buyers, sellers and, hopefully, investors too. Many that have sat on the sidelines waiting for the binary outcome of either a new-dawn Brexit resolution or total economic Armageddon, will now take solace from a Government majority that, even if you are not a Boris fan, does provide conviction and a reliability of legislative outcome.
The Budget in February will be a further catalyst and will see further moves to reignite the economy and, perhaps, will seek to also dilute the stifling effects of stamp duty at all levels of the housing market.
In recent years the government has overseen the building of more new homes, 241,000 at the last reckoning. But this is still some 20% off of where the annual total needs to be and so, with renewed political vigour, the cheapest money in the mortgage market ever, full employment, wages increasing apace and a continuing shortage of supply, would anyone bet on the baked-in aspirations of the UK home-owning culture not resulting in more demand and therefore a significant hike in prices in 2020? Not least from overseas buyers looking for a stable environment in which to park their cash?
Anyone predicting a drop in prices this year is either a buying agent trying to secure your business through false fear, or a misguided Mark Carney type that still longs for their sour predictions from 2016 to somehow come true.”
Director of East Eight, Nicole Bremner
“The property market has been especially hard-hit by Brexit-led procrastination over recent years. Transaction volumes are down dramatically since the 2016 referendum, so to are property prices and the number of properties listed for sale.
While the election result and Brexit is now agreed, many of us naïvely believe, or hope, the extended period of limbo will be over. However, much like an acrimonious divorce, we’re likely to have years of negotiations over the financial settlement. We entered the EU, or EC (European Communities) as it was known, in 1973, so leaving isn’t as simple as setting a date and agreeing terms with our friends across the Irish Sea and English Channel. What is the likely impact of these continued negotiations on property as we enter the next decade?
Rental growth in London since the Brexit referendum vote has stagnated. Across the whole of the UK, excluding London, rental growth is at its lowest since February 2013 according to data from the LandBay rental index. Year-on-year rents have increased in UK ex the capital by just over 1%, some seven times that of London.
While the capital’s stagnation has masked the relatively strong growth in the rest of the UK, the impact has now rippled out. It’s unlikely to change as we enter into this period of negotiation. We are still suffering the hangover of tax changes impacting landlords as the government try to push out the ‘Mum and Dad’ buy to let landlord in favour of built for purpose rental accommodation. And with fairly little regulation in the industry, there are arguments to support this view.
London has also dragged down national average property prices and the outlook remains mixed. In the lead up to a final decision on Brexit we had an insufficient supply of property with homeowners anxiously holding on to properties. There should be somewhat of a reprieve with homeowners feeling more confident about selling into a thawed market.
While renewed confidence may provide some support to housing prices nationwide we can’t escape the charts which show that we remain in an inflated property market. Thirty years of falling interest rates and people taking out larger mortgages has led some pundits to believe we’re more likely to see continued slow growth with further declines in prime central London.
Taking into consideration the potentially acrimonious negotiations on the finer details of Brexit and affordability of housing on one hand and renewed confidence in the thawing property market on the other, my view is that we’re not going to see much more than a slight increase in prices as we enter into the 2020s.
If you plot back long enough the last couple of years will be nothing but a blip. While I believe that the long term trend in property will be growth, I don’t expect that the next decade will reflect the rapid growth of the next. Divorce of any kind will always leave an irreparable dent.”
Senior Economist at the Construction Products Association, Rebecca Larkin
“Economic growth is set to slow further in 2020, with the average of independent forecasts at 1.0%. This is slower than the estimated 1.2% in 2019, in itself the lowest growth rate since the recession. Weaker economic growth impairs housing market fundamentals too, although it is developments in the labour market that will be the key determinants of how much.
Unemployment at a historically low rate and continued growth in real wages should help demand cautiously hold up; concerns over job security would reduce appetite for long-term borrowing commitments and, notably, big-ticket purchases such as housing.
Movements in house prices will also go some way to set the tone for buying, selling and building. There were clear regional dynamics in play throughout 2019, with falls in house prices that were initially confined to inner London spreading to outer London, the South East and parts of East Anglia contrasting with more buoyant house price growth in the North West, the Midlands and Yorkshire and the Humber.
Consequently, this has been reflected in housebuilder confidence on new building starts in Greater Manchester and the West Midlands and major house builders reducing operations in London or partnering with housing associations to partially insulate themselves against a slowdown in market sales in these areas.
Housebuilders are expected to take a more cautious approach to starting new developments as house price growth moderates and buyer confidence weakens and the CPA forecasts a 2.0% decline in starts overall for Great Britain in 2020.
New build demand has held up more strongly than other segments of the market as demand has been supported by the Help to Buy equity loan, which has helped raise the proportion of new build to nearly 16% of property transactions, from under 10% only five years ago.
However, the narrower eligibility criteria in place from April 2021 are now affecting the sites and plots in house builders’ near-term pipelines. The nationwide £600,000 price cap has led to the highest proportion of houses since 2000 and the highest proportion of three and four-bed houses on record and we are likely to see a shift back towards flats and smaller houses to match the lower regional price caps and solely first-time buyer purchases.
Of course, even with a majority government now in place, Brexit still presents an unknown and will remain high up on the risk registers for housebuilders, potential purchasers and the economic forecasters who have to take account of the various scenarios that could still unfold.”
PRS and Build to Rent Consultant, Richard Berridge
“2020: The Year of Authenticity.
No one can say 2019 hasn’t been an interesting year. Leaving aside the intensely polarising political shenanigans, the real estate industry has had its ups and downs and many of the things we took for granted, a blue-chip retail covenant, for instance, have turned out to be not so blue-chip after all. It has, perhaps, been one of the most turbulent decades I can remember. So, what of 2020 and the next decade? There’s a lot to pack in and let’s speak candidly…
Home Ownership is the byword of Conservative housing policy and as we approach the third decade of the 21st century, it’s fitting that the concept of homeownership as an ideology has its 100th birthday in 2020. As an aspiring homeowner, there’s no doubt that this government has your back. The trouble is, with HPI as it is, where is the stimulus going to come from? Help to Buy has already turbo-charged the market and with interest rates lower than a snake’s belly, LTV’s absurdly high and already insane borrowing multiples, there’s not much more financial elasticity left. Unless, of course, you fancy committing to a 35 year + mortgage to lower those millstone payments.
It is not as if there will be any substantial capital growth to ease the pain. Most commentators have predicted that 2%pa is about as much HPI as we will see. My view is that if financial markets remain steady (that’s a big if) future growth is unlikely to be any greater than the annual rate of wage inflation. Sorry Millennials, but us Boomers have sucked the value out of homeownership.
Unfortunately, the government seems to have rather less regard for other sectors of the housing market. Social housing got a promise of “hundreds of thousands” of new homes, but no plan to deliver them. The PRS had confirmation that section 21 would be repealed, but not how the matter of possession would actually be handled, and build to rent (BTR) got no acknowledgement whatsoever.
“like the gods of myth in the same physical environment as the ordinary, subject citizen, but in a different realm politically”. Jacob Rees Mogg.
Well, in my realm, we have a housing crisis, it’s multi-faceted, and needs a holistic approach.
So. BTR: what next? Well, it seems to be going from strength to strength with close to 150,000 homes delivered, under construction or in planning. (although I’m to be convinced that BTR criteria is strictly adhered to in counting these homes) But, in reality, I don’t think numbers are a problem going forward. BTR has momentum and is growing in volume. And it will have to if the projections by the RLA are anything to go by who claim that 30% of PRS landlords are looking to reduce their holdings.
I would suggest that we may have a slight fall in the increase of BTR numbers as investors get to grips with their existing commitments. So, by the end of 2020 I would hope to see the sector increase by 15,000 homes to 165,000. Nevertheless, this is still a drop in the PRS ocean of 4.5 million homes.
BTR’s biggest issue will be making good on its promises. The sector has promised big: a whole new landlord/tenant CX covenant, and it is this, every bit as much as an exceptional amenity, by which BTR will be judged. We are still learning, we have those in residential who ‘game the system’ but on the whole, I sense a determination to make BTR the game-changer we said it would be from the outset. As Ayn Rand said: “Integrity is the ability to stand by an idea.” BTR must maintain its integrity and it must be authentic. Any deviation from our principles will be exposed and our reputation damaged.
“The Diversification of Build to Rent” is this year’s theme for the Movers and Shakers BTR Forum at the end of February. It could just as easily be called the “diversification of subscription living” as identifiable strands emerge from BTR’s rapid evolution: later living, intergenerational living, co-living, premium living, sustainable living, co-op living. Each with its champions looking to carve out a viable niche. Of these, intergenerational living makes obvious sense and is more representative of true ‘community’, and sustainable living, which, in terms of ESG, is accelerating rapidly as being institutionally investible.
Despite the ‘charismatics’ evangelising co-living, it is beginning to lose its way. It’s very expensive, and so doesn’t do anything for one of modern society’s major issues: affordability. Without a planning class of its own it’s somewhat rootless. Falling between four use classes: C1, C3, C4 and Sui-Generis, it flip-flops between each depending on what deal can be reached on the provision of affordable housing. Often opting for C1 as the least worst path, it means that tenants have little security of tenure, often are on licenses and not AST’s, and in some cases will not be able to stay longer than 3 months. Little surprise then that some repositioning of large-scale co-living into a quasi-mixed-use-kinda-retail-but-not-really-and-a-few-cafés-with-a-bit-of-WeWork-style-thrown-in is going on. 2020 is going to be tough for co-living. Institutional investors are yet to be convinced and, in my view, rightly so.
One thing we need to see the back of in 2020 (and something Co-living benefitted from) is the conversion of commercial units, particularly office blocks, to residential under Permitted Development Rights. It’s been horribly exploited and is nothing more than an exercise in greed. To the man in the street, it confirms his suspicions that the residential sector cares a great deal more about profit at any cost rather than being society’s partner in solving our housing crisis.
Some extol the virtues of these micro-flats, marvelling in the brilliance of design and compact living. Well, many years ago, amazed by James Bond’s gadgets created by Q, I lusted after a miniature radio. It was so tiny, brilliant and fascinating. Mates were really jealous….. for five minutes. In reality it was pretty useless and no substitute for the real thing. Other than as a talking point.
So. PDR needs to go. And fast.
Prop-Tech has shown no sign of abating, and I’m sure that a new property management/engagement platform will continue to be unveiled every day until our sun turns supernova. Ultimately, most will either fail, founders kicked out by investors or be acquired by more mature businesses. That’s not to say there won’t be spectacular successes; particularly in AI which is the game-changer. As far at BTR is concerned, we also need to get to grips with industry data. Collaboration is at the core of this to give a real picture of overall performance. It happens in CRE, but so far, BTR is unable to shake off the suspicious, covert nature of its residential roots. I hear that the UKAA are trying to initiate something here. There are some good people there. Perhaps 2020 is where it happens. Never say never.
Moving on to the UKAA: it has to be more than a networking trade organisation. A self-imposed gagging order has left it without political influence and comment at a time when it’s crucial to have a say or promote one’s members. In this respect, it is time to move out of the shadow of the BPF. BTR doesn’t have a problem promoting itself to the industry. It is more than a little inward-looking and self-congratulatory in this respect. Where it does have a problem is reaching out to the public. Perhaps the UKAA could throw themselves behind new BTR portal, and UKAA members, lovetorent.co.uk. It’s something that we proposed a couple of years ago with Hoamzy.com. An identical idea. Whilst the sector was enthusiastic and our working parties well attended, we couldn’t, at the time, get the UKAA to support us. Hopefully, in 2020, lovetorent.co.uk will have better luck in that respect and the sector can start to reach out to the people who really matter. Renters.
Renters will not see an acceleration of rent increases in 2020. Despite the RLA and ARLA relentless predictions of runaway rents. Increases will mirror wage inflation for the foreseeable future. It’s true that we will see a BTR premium market, with rents well above upper deciles. This won’t be representative of the sector as a whole, but it will open up the PRS, diversifying the sector and offering greater choice.
But there’s one glaring omission from this commentary. Although I touched upon it a little earlier. It is the most important challenge facing our industry. Sustainability and climate change.
Environmental issues and a push towards carbon-neutral housing will be the hottest topic of 2020 and beyond. ESG will form the basis of all investment decisions and be a central element of valuation. Going green will be essential and inform every aspect of housing; from design and construction, to operational management and PropTech.
Sentiment is changing at a phenomenal rate and, as far as BTR is concerned, it will have a significant impact on rentability, rental income and capital values. It is difficult to overstate what an impact the drive towards sustainability will have on the housing sector and especially BTR. It is fundamental. We cannot look for excuses or for more time to adapt. Climate change is a now event and we have to meet this challenge head-on starting Jan 1st 2020. The clock is ticking….
A candid and straight-talking look at our industry for 2020 and beyond. It won’t please some, it may even raise a few hackles, but as Henry James remarked: ‘I don’t want everyone to like me; I should think less of myself if some people did’.”
Director at Just Do Property, Julie Hanson
“Who would have thought? Three and half years on from the 2016 Brexit referendum and the UK is only now starting to make any real progress. It is safe to say that 2018 was a volatile year for the UK political arena but 2019 took this to a different level. The “will they, won’t they” scenario regarding Brexit saw many investors retreat to the sidelines, sellers withdraw from the market and a lacklustre end to 2019. However, the December general election has set us up for a very exciting 2020!
The Conservative party has committed to 1 million new build properties over the next five years, the majority of which will be private sector homes. There will be some social housing but a loosening of planning regulations and investment by the UK government could potentially revolutionise the housing sector. However, there is already a lack of skilled labour in the construction industry and as a consequence, the UK government will need to invest heavily in this area. Expect more focus on new build properties, affordable homes and construction apprenticeship schemes.
London property prices
Just prior to the landslide victory for Boris Johnson there were tentative signs that the London property market was starting to recover. Historically, where London leads, the south-east of England follows and this is likely to be a strong trend in 2020. We could also see a significant increase in overseas investment in London in the short term, prior to any further recovery in the value of sterling, as the path towards Brexit becomes a little clearer.
Whatever your opinion on Brexit, it has impacted the London property market more than most because of its international appeal. The uncertainty was extremely damaging but a degree of certainty, and much more visibility than we have enjoyed of late, are likely to prompt a continued short-term bounce in property prices.
There were hopes that Boris Johnson would look to repeal an array of legislation introduced by Theresa May’s government which strengthened the position of tenants over landlords. This is unlikely in the short to medium term, as it would prompt a huge backlash from the voting public, but a reduced focus on social housing will help private landlords. Once the dust has settled on Boris Johnson’s monumental election win, no doubt lobbyists acting on behalf of private landlords will look to secure concessions going forward. Time will tell…..
On a more positive note, private landlords in the UK have managed to avoid the raft of extreme left wing policies that Jeremy Corbyn was looking to introduce. A strengthening of tenant protection, open-ended tenancy agreements, right to buy in the private sector and rent controls were just a selection of real threats to private landlords. While recent legislation has often been unhelpful, many landlords will just be happy to have dodged some of these extreme policies from the Labour Party.
Investors tasted regional markets and liked it!
In 2018/19 we saw an array of companies and public bodies switch head offices and business hubs from London to the Midlands/North of England. We saw Manchester, Liverpool, Birmingham and Leeds benefit hugely when the likes of Channel 4, HMRC and PwC began to focus their attention away from London. This tempted many investors outside of their traditional hunting ground of London and the south-east. Recent feedback and continued momentum would appear to suggest that investors now have a taste for the higher yields, and long-term potential for capital appreciation, outside of London.
There are many reasons to be optimistic about the UK economy in the long term having narrowly missed slipping into recession. There will no doubt be ups and downs in the Brexit negotiations, political infighting as well as the constitutional crisis involving Scotland. As a consequence, it is unlikely that the Bank of England will raise UK base rates in the short to medium term hence cheap finance will be available for the foreseeable future. Some have even suggested a potential reduction in UK base rates in the event of a no deal Brexit. However, Boris Johnson has promised to leave the EU on 31 January 2020 and agree a trade deal in principle by 31 December 2020.
As it stands, low UK base rates are just one part of the overall picture suggesting cheap finance will remain for some time to come. Changes to investment and traditional bank funding have left many UK banks awash with liquidity on their mortgage side. Unable to transfer this additional capital, as they did in years gone by, to their investment divisions they need to create a return hence further downward pressure on mortgage rates.
UK property prices
The ongoing recovery in regional property markets is set to continue, London and the south-east are already showing signs of recovery so the future does looks steadier. As we touched on above, cheap finance will play a significant role in the short to medium term with rental yields comparing favourably to minimal savings rates. Despite various red herrings regarding UK immigration, there is still likely to be significant net immigration for many years to come. This will lead to increased demand for both social housing and private rental accommodation, creating many opportunities for private landlords.
Experts believe that the EU had been banking on a hung parliament in the UK to place further pressure on the UK government and even cancel Brexit. The EU asked for strong leadership now they have it from the UK government, the EU is ready to open trade negotiations as is Boris Johnson. Can Boris Johnson afford to be more demanding in negotiations? Has the EU finally accepted Brexit is going to happen? Whether 2020 can beat 2019 for controversy and volatility remains to be seen but it looks as though the UK is now headed for uncharted waters. As they say, the world is your oyster…
The majority of investors are looking forward to 2020 with renewed hope and vigour after the Conservative party’s landslide election victory. In reality, there is still an awful lot of work to do regarding Brexit, improving the economy and tackling the UK’s long-term housing shortage. Boris Johnson certainly talks the talk but can he walk the walk and win over his many doubters?”
Co-Founder of Partners in Property & Partner at National Property Auctions, Adam Lawrence
“So… What will the new decade bring to the UK property market? There are a number of conflicting pros and cons that I think it would be wise to discuss upfront. Let us start with the pros:
- Majority government should offer some stability on key issues – note, this does not guarantee positive outcomes but it does offer a clearer environment for all business and investment decisions, and this has to be positive
- All major authorities/organisations are predicting a growth year in the market
- It makes sense that with a very large number of deferred “big ticket” purchases, that the election result should result in a “rubber band” effect when the new year gets underway
- The Conservative government, despite recent legislative changes, are still deemed to be the most property-investor/developer-friendly ruling party
And then the cons:
- Stability will lead to a faster increase in the interest rate than otherwise would have occurred
- We are a long way into an upward (although slow and lumbering) business cycle. This is unlikely to go ad infinitum
- Landlords and property developers remain a significant target/vote winner for any government
- Stricter immigration policies may well influence demand, depending on the incidence of them
- There are a whole number of possible outcomes from 2020’s trade negotiations, and soon the reality of uncertainty is again likely to influence investment decisions.
Considering the alternatives, there are many that are breathing a sigh of relief from the election result. On balance, it appears that the pros outweigh the cons. On this basis, I am going to predict a stronger market than last year, with continued and stronger growth in the midlands and the north of England. Wales has some anomalies to consider, such as the toll coming off the Severn bridge now having surely played out, and Bristol being a cooler market than it was from 2014-2018.
Scotland will suffer from “Scexit” fears, although these may settle down fairly quickly depending on how the SNP decide to react to Boris’ refusal to countenance another referendum on independence. There is an argument that the independence debate is not going to favour the SNP once Brexit is done, as the number of voters who wanted to leave the EU and also leave the UK is a potential issue – so once out of the EU, there may well be a similar referendum result (hence the swiftness with which the SNP want to act, in my opinion).
The big-ticket “rubber band” effect should have some impact on London and the South East, although there will be many waiting to see if there is an SDLT cut as this is known to be a policy favoured by Boris. The heat from the 2014-15 market may not yet have hit its bottom, however – so there is still scope for a flat year in London and the South East, in my view, once the initial rubber band has snapped.
In the Midlands and the North I would be expecting to see more like 3%-4% growth this year as professional investors continue to take advantage of the very low interest rates, and alongside lettings relief being withdrawn on April 1st, we also have the tax returns from 2018-19 being filed at the end of January, where many will realise that the tax take is creeping up and up from their rental profit, if, indeed, there are any left…”
Editor at Letting Agent Today and Estate Agent Today, Graham Norwood
“The housing market will undoubtedly start 2020 on an upward trajectory – more transactions and slightly higher prices, as buyers and sellers and particularly agents are buoyed by the election result and some apparent stability over Brexit.
There might be a further spring in the market’s step by a stamp duty change just before the Easter start of the traditional sales season.
Will this cheer last? I fear not – things won’t go bad but reality will kick in by the summer when the need for a Brexit EU trade deal by the end of the year becomes more pressing and the honeymoon period for the government comes to an end.
So an average 3% house price rise by the end of the year but most of that will be achieved by July. The rental sector will continue growing but – again by the second half of the year – new taxes will make landlords feel just as unloved as they were under previous governments. Have a great 2020! “
Founder at The Property Voice, Richard W J Brown
“This is the third year running, where I have contributed to this impressive list of property market predictions…and to some extent, it feels like Groundhog Day again!
Brexit dominated the past 3 years and it dominates again this year…not so much about will we leave but on what terms we will leave the EU. As a result, and speaking from a residential investor and developer perspective, I see another mixed year and possibly one of two halves as well.
I see the first half characterised by an upswing in transaction volumes, as those that sat on their hands waiting for the Brexit uncertainty to be resolved jump back into the market.
However, this will likely give us something of a false read in some respects, as many of these transactions would have been held up whilst we awaited the outcome on Brexit. With a Conservative Government carrying one of the largest majorities in modern political history, and whilst they are possibly the ‘least worst party’ towards landlords in terms of their pre-election manifesto, I still expect to see some rather unpalatable policies introduced.
This will probably shake the proverbial tree further still and as a result, some smaller or less professionally-minded landlords will still probably exit or rationalise at least.
Examples are changes to Section 21 notices and tenancy length, which without the necessary to protect landlords in evicting bad tenants would be a bitter pill for many to swallow. Development will continue to offer decent opportunities, as we still have a net shortage of houses, however, brownfield sites and land plots are hard to find at the right price. Build to rent operators might be able to absorb more of this initial price premium, so I expect to see more schemes come through in this sector.
As we draw closer to the end of the year, the UK’s trade deal discussions with the EU will probably lead to another period of market uncertainty and with the prospect of a no-deal outcome potentially stalling the market again.
Many experienced investors that I am speaking with are looking to stockpile cash and/or pay down debt, which is often a sign that the outlook might not be as rosy as some would believe.
Personally speaking, as long as we follow some general principles, such as buying at a genuine discount, adding value and investing for higher cashflow, then we should be ok over the longer-term. That all said, having just read The Black Swan, there is always the risk of an unforeseen event coming up to knock us all off our perch!”
Founder and Proprietor of The Property Chronicle, Stephen Yorke
“This is hardly original but I think 2020 will be a bumper year for UK real estate asset values, deal flow and share prices.
Listed companies to follow include Derwent London, Kier and Savills. I think at least one big UK REIT will be taken private and there will be at least one eye-catching merger.
Sterling could be heading for a major correction or overcorrection.
A combination of looser fiscal policy, expansionist infrastructure projects, secure centre-right / business-friendly government for five years plus capital flight from Hong Kong and the Middle East could see sterling versus the dollar well above $1.50 by 2020 year-end and, who knows, over the next few years the $2 pound could return.
After five years in the doldrums, Prime London residential is set for a +15% bounce in 2020. If stamp duty land tax is reformed/simplified in the February / March Budget and the net result is lower entry charges for buyers of properties in the £1m – £5m bracket (alongside much lower SDLT for sub £1m ) then that 15% could turn to 20% very quickly.”
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.”
Tax Technical Manager at Optimise Accountants, Simon Misiewicz
“I believe that 20202 will be another challenging year for both property investors and developers. There will be great uncertainty given Brexit is now 31st January. There will be nerves around the value of properties and affordability for people to buy and rent homes as the UK enters new political grounds.
Section 24 will come into full force from 6th April 2020. This means that mortgage interest costs will no longer be allowed to reduce property profits. There is, of course, the 20% tax reducer of mortgage interest costs. My fear is that many landlords have not filed their 2018-19 self-assessment tax return and will not really appreciate how these tax changes will affect them.
I expect to see a greater number of high rate taxpayers to sell off their property portfolios and invest money into less challenging investments. This will mean HMRC will generate greater revenues from Capital Gains Tax (CGT). We must not forget that CGT will be payable soon after the sale of the property investment. There will be many overpayments of CGT as solicitors will over calculate the CGT given their focus to minimise the risk of getting it wrong. This will force landlords to submit their tax returns to claim the overpayment back from HMRC.
We will see amateur and accidental landlords in 2020. More professional landlords and property developers will appear in the market. These landlords will inevitably use limited company structures to avoid the issues of Section 24 mortgage interest relief.
We must not forget that the UK population is growing and the number of landlords is decreasing. The supply will not meet demand and a growth curve will be seen in rents per month.”
Director at Coreco, Andrew Montlake
“With the General Election result finally delivering political clarity in relation to our exit from the EU, transaction levels look set to pick up in 2020.
Clearly a lot of the hard work around Brexit has yet to be done, but the political stability provided by a strong Conservative majority will give a lot of people the confidence to finally move home.
There’s a huge amount of pent-up demand for property and that will start to show through quite early in the New Year. In 2020, Spring for the property market is likely to start in mid-January.
With competition among lenders reaching feverish new heights, mortgage rates will remain highly attractive during 2020, giving people even more reason to buy and sell.
In recent years, the regions have outperformed the capital and while this trend may continue in 2020, there is a growing feeling that the London market has now bottomed out.
Affordability will remain a key issue for many borrowers, especially in London and the South East, and so the Bank of Mum and Dad, or Gran and Grandad, will play as critical a role as ever.
The first half of the year may see more activity than the second, as the feel-good factor caused by the General Election result slowly fades and the complexity of the trade negotiations ahead becomes clearer.
Overall, we expect average prices to rise by 2–3% during 2020, conservative growth in historical terms but significantly up on the sub 1% growth in recent years.”
Head of Policy at the National Housing Federation, James Prestwich
“The Conservatives party won a large majority at the election and a clear mandate to deliver their manifesto. A YouGov poll we commissioned before the election showed that housing was a top local issue for swing voters, particularly “Labour Leave” voters in the North of England, many of whom voted Conservative for the first time.
1 in 7 people were directly affected by the housing crisis last year. Whilst homeownership is always a priority for the Conservatives, investing in homes for social rent will be crucial to fixing the housing crisis for good. Recent comments from influential Tories such as Robert Halfon and David Davis suggest that they are aware of this, with both highlighting the importance of providing homes for social rent.
Our research shows we need to build 145,000 affordable homes each year including 90,000 for social rent to meet demand. This would require funding of £12.8bn a year for the next ten years. We also need 1bn a year for regeneration in areas where solving the housing crisis is not all about building homes.
It is positive to see building safety on the new government’s agenda. Housing associations have been working hard to remediate their buildings following the tragic Grenfell fire. However, this is a complex and extensive programme of work which could take up to a decade to complete. Strategic leadership and funding from the new government will help to make buildings safe more quickly and prioritise the most important work.”
Chief Executive at the National Association of Estate Agents (NAEA), Mark Hayward
“The changing political landscape throughout 2019 has undoubtedly caused uncertainty in the housing market, which in turn has affected sentiment and decision-making.
Once the current political impasse is resolved and it’s clear how and when we’ll be leaving the EU, we hope there will be a degree of certainty which may trigger a flurry of activity.
Regardless of the colour of the new Government, housing must be a priority. A clear strategy is needed to tackle key issues such as stamp duty costs.
Additionally, we’d like to see the Government commit to bringing regulation into the sector as soon as they can in the New Year and to consider the introduction of digital logbooks to allow for a more interactive, streamlined and transparent process for home buyers and sellers.
The housing market needs reassurance from the Government, which will, in turn, inject some confidence in the market for both buyers and sellers.
Despite the difficult year, the UK property market remains a strong sector overall and has demonstrated a huge amount of resilience in the face of political turmoil.
We hope for a more certain outlook and some stability in 2020, which is hopefully provided sooner rather than later.”
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.”
Chairman at the Residential Landlords Association (RLA), Alan Ward
“We look back at 2019 as time of great change – both for the RLA and the sector as a whole.
Once again, we have seen the more regulation and more red tape brought in during 2019, with the introduction of the Fitness for Human Habitation Act, the Tenant Fees Act, mandatory Client Money Protection for agents and announcements on electrical safety checks and Section 21 repossessions, with talk on everything from compulsory landlord redress to plans for a national register.
2019 saw the RLA successfully intervene in the JCWI (Joint Council for the Welfare of Immigrants) Right to Rent case, with the High Court branding the government scheme discriminatory. And RLA was at the centre of talks encouraging lenders to abandon restrictions on renting to benefits tenants.
There has been support across the board for its campaign to lift the freeze on Local Housing Allowance rates, with the RLA ‘deposit passporting’ plan not only welcomed but a version included in the Conservative’s proposals for the next Parliamentary term.
Closer to home, 2019 was also a huge year for the association itself.
Welcoming its 35,000th member in January and moving to new offices in March, the association had hit the 40,000-member mark by the summer, coinciding with the announcement of the merger with the National Landlords Association (NLA).
Members of both organisations voted overwhelmingly in favour of uniting the two to create NRLA – a stronger voice for landlords, at a time when the PRS is under greater pressure than ever. The merger is expected to be completed in the new year.
The PRS has been a challenging landscape for some time now, and the news the Conservatives will push ahead to abolish Section 21 repossessions will no doubt see a further shift in the way the sector operates.
The RLA has fought the government plans, forming the Fair Possessions Coalition – made up of 18 landlords and letting agents’ groups – to challenge the proposals and demand assurances that members’ rights will be protected.
While the government has not changed its mind on possession reform, we will continue to fight to ensure the necessary protections are in place to allow our members to confidently continue to offer the homes for rent that this country so desperately needs.
As we look ahead to 2020 there is, of course, some uncertainty.
With Brexit set to take place in just a few weeks, the loss of Section 21, the extension of Minimum Energy Efficiency Standards and the Tenant Fees Act and the full impact of mortgage interest relief changes kicking in, it is not surprising some landlords may be facing the year ahead with some trepidation.
However, we have overcome challenges before.
Us landlords are resilient, we are dynamic and with the new National Residential Landlords Association becoming home to 80,000 landlords and agents across England and Wales, we are stronger together.”
Chief Executive at the Association of Residential Lettings Agents (ARLA), David Cox
“For far too long, successive governments of all political persuasions have passed significant amounts of complex legislation for landlords.
As a result, much of this year has dampened landlords’ appetites to invest and expand their portfolios, with many consolidating their assets, or choosing to step away from the sector altogether.
This has impacted tenants most, who have restricted supply and have been faced with less choice and paying higher rents.
Looking ahead to 2020, we hope the Government recognises the importance of increasing supply for tenants and uses it as an opportunity to make the market more attractive for landlords.
This will encourage more landlords back into the market as well as ensure that tenants, including those who are most vulnerable, are not at a disadvantage in being able to find a suitable and affordable home to rent.
Change should make the PRS fairer for all involved, and not penalise those landlords who provide high quality, affordable housing for thousands of tenants.
Propertymark’s election manifesto outlines a number of urgent housing reforms we hope the new Government will take forward to improve the sector, particularly regulating property agents through the recommendations of RoPA– the Regulation of Property Agents working group.”
Chief Executive at Shelter, Polly Neate
“Homelessness blights lives and leaves a lasting imprint of trauma, and yet 280,000 people in England are without a home this Christmas. And many are only days away from joining them.
As well as those facing serious ill-health or even death sleeping rough on our streets this winter, there are thousands of families trapped in grotty emergency B&Bs, with no space for children to sit and eat, let alone play. This is the grim truth our new government must confront and do something radical to change.
Until the government acts to stem this crisis, the work of our frontline advisers remains critical. With the public’s support we will do everything we can to help people find a safe and stable place to live – no matter how long it takes.”
Our report ‘This is England: a picture of homelessness in 2019’, identifies the local areas across the country where homelessness is most acute. London – where private rents are notoriously expensive – comes out worst, with 1 in 52 people now homeless in the capital. Newham tops the list where it is 1 in 24, followed closely by Haringey and Kensington and Chelsea (both 1 in 29).
Outside the capital, rates of homelessness are stark in areas such as Luton (1 in 46), Birmingham (1 in 66) and Brighton and Hove (1 in 75). Manchester continues to feel the full force of the housing emergency in the north of England, with 1 in 102 people homeless.”
Heading of Housing at Crisis, Chris Hancock
“We enter 2020 with the highest levels of all forms of homelessness in England for at least the last 10 years and also without a clear sense that the structural reasons for this are being recognised and addressed.
The lack of truly affordable housing, the lack of funding for homelessness services and a welfare system which doesn’t cover the cost of renting are all causing and sustaining people’s homelessness.
However, there is a hope to be found, ambitious plans in Scotland, and plans emerging in Wales, plus commitments made in some of the devolved City Regions in England show that with the right political will homelessness can be ended.
The adoption of Housing First principles, where the common sense approach to providing someone with their housing before expecting them to address other challenges in their life, is welcome and is shifting the destructive deserving / undeserving narrative on who gets to be housed.
Housing Associations through the Homes for Cathy initiative are stating their commitment to ending homelessness and constructively challenging their peers to up their game. Even in the PRS, we are seeing some opportunities emerging with the development of Social Lettings Agencies and the increasing understanding amongst landlords that a long term tenant with the right support is better long term than the often short term high turnover offered by commercial letting agents.
I am hopeful that 2020 will see the continuation of these developments, however if we are to realistically end homelessness we will need new supply of social rented homes in the places where they are most needed and crucially we need people moving out of homelessness to be able to access those homes.
10 years ago we were seeing the start of a move away from the idea of homes being provided at a social rent, but thankfully that idea wasn’t killed completely and appears to be, at least referenced, on everyone’s agenda. Although it means we have lost nearly a decade (and likely more) of adequate supply so as encouraging as it is that the concept of social rented housing is back the scale of ambition is key here and we need to see cash and land committed to make it a reality as well as just the warm words.”
Director of Property Investments UK, Robert Jones
“2020… one word… Confidence. The last few years have been interesting for buy to let investors with many changes, legislation and taxation which is often looked at negatively. Now, these are somewhat settled (although we fully expect a few changes to continue with the potential removal of section 21 and others), confidence is absolutely back in the market.
Buyers are making decisions and buying properties they we’re previously holding back on earlier this year, now the election outcome is known, with additional new buyers confident to make fresh enquiries.
We’re not expecting massive price rises but more so increased transaction volume. Hopefully with potential planning and stamp duty reform rumblings (improvements) also on the way then the bottlenecks that have squeezed a number of locations and sales this year will be released.
All in all, the increase in buyer, seller, developer, agent confidence looks set to make 2020 a good year.
As a final note, data and technology has made massive leaps forward this year in the property space, so we’re expecting tech across all property xyz spectrums to continue to develop and support, helping the market especially in the investor buy to let space.”
Founder and Director at Landlord Action, Paul Shamplina
“Looking back on the last decade, it’s safe to say that the landscape of landlording has changed significantly. Although no one can predict what will happen in the coming year in this fast-moving industry, one thing we know for sure is that legal changes affecting landlords will continue.
This is the year that landlords must realise the industry has changed, they must act and think professionally. Those who keep abreast of changes and take the time to treat their buy-to-let property, or portfolio of properties, as a business, can still prosper. Look at your investment, is it paying? Yes, there’s no doubt it is more challenging, but demand for rental properties remains strong, people need somewhere to live. The focus should be on finding great tenants who take care of your property, pay rent on time and wish to stay.
More importantly, now that the political stalemate has ended, the government will be keen to push forward with previously raised policies. If you are struggling to keep up to speed with legislation, make sure you put a price on your time and pass your property onto a reputable letting agent to fully manage it for you.
Three changes we already know about include phased mortgage relief coming into full effect, meaning landlords will no longer be able to offset their mortgage payments against their rental income. In April, landlord’s Minimum Energy Efficiency Standards will broaden to existing tenancies. This means, that if a landlord’s property is currently rated at ‘F’ or ‘G’, it will no longer be rentable from the 1st of April 2020. We may also see the introduction of mandatory five-year electrical installation checks on private rented housing in England.
However, I think the biggest and most concerning change for landlords this year will be the abolition of Section 21. We are yet to learn the full details of what changes the government plans to make to Section 8 in order to protect landlords, but we do know that without a court system equipped to cope with the vast increase in hearings, problem tenants will be able to remain in situ for longer, leaving those affected suffering even longer.
This January, there are also two very important Court of Appeal cases for Right to Rent and Gas Safety. The results will likely decide whether legislation is changed. I was not a fan of Right to Rent when it was brought in. I believe it caused landlords unnecessary checks and caused discrimination to tenants. If you look at the results of the enforcement of Right to Rent, it is very poor. In addition, the impact of landlords not serving a Gas Safety certificate prior to a tenant moving in meaning they CAN NOT serve a Section 21 notice, is having a massive affect, and the court of appeal case deals with this issue. We wait with bated breath.
As Brand Ambassador for Hamilton Fraser, as well as my day-to-day work with Landlord Action, I am busier than ever. However, my focus this year will be to keep abreast of all these possible changes, use our data to advise the government on workable solutions and, through my campaigns, seminars and workshops, educate landlords and agents on how best to protect themselves.
I will also be filming a 6th Series of Channel 5’s ‘Nightmare Tenants, Slum Landlords’ which will air later in the year.”
Managing Director at Essential Information Group (Property Auctions), David Sandeman
“What a year 2019 was! looking back on what I wrote at the end of 2018 I noted that the events of 2018 were fairly stagnant but all would improve once we had a firm decision on Brexit in early 2019, as was the political outlook then. However, the whole year never had a news broadcast without Brexit being the headline and the Auction market declined even more in terms of the number of sales and lots offered as well as the amount raised.
Towards the end of last year, with the prospect of a Labour government coming to power, this threw further chaos into the mix. It was only after the election in December 2019 with the Tories getting a significant majority and being able to virtually guarantee that Brexit would happen on January 31st, 2020, that we could have any confidence as to the direction going forward.
My predictions for 2020, were very similar to those made in 2019; that once Brexit was behind us, albeit not negotiated, we would be able to move forward with an underlying value to every property and with the prospect of sensible transactions taking place in increasing numbers.
Looking at the figures overall for 2018 and 2019, we saw a drop of 8% in lots offered and in the amount raised of 13%. The biggest falls were seen in the commercial market which had the double whammy of uncertainty on the high street where many of the commercial auction lots are to be found.
Looking forward to auction activity in 2020, I would expect it to level out and hopefully increase, albeit in single-digit percentages, given that we have a higher level of geo-political stability than we’ve seen for a few years and base rate looking to remain at sub 1%. This is however set against a backdrop of ever-increasing regulation and cost of acquisition for the private rented sector.
From our subscriber point of view, we are already seeing old clients coming back to the auction room with a view to acquiring properties to either rent out or sell on for a capital gain and there is increased activity from new potential buyers looking at the auction market as a place to acquire future assets. Both of these factors are encouraging and hopefully, the worst of the market conditions are well behind us and we can look forward to steadier conditions going forward.”
Head of BM Solutions, Phil Rickards
“For those of us working in the buy-to-let market, 2019 was just as challenging as previous years. Despite this, it was still refreshing to see over 50 lenders active in the market, according to UK Finance figures.
Although more complexity and market segmentation has entered the sector this year, this has led to positives and negatives. There are now hundreds of products available on the market, and whilst this might create lots of choice, it also means that lenders are active in the buy-to-let market.
With intermediaries currently introducing more than 80% of buy-to-let mortgages to lenders, it’s a good time to speak to a broker and get some help navigating this complexity.
Buy-to-let mortgage rates are also at an all-time low and we have seen an increasing number of landlords take advantage of some very low five-year fixed-rate deals. It’s clear that landlords are being tempted by longer-term security and the fact that five-year lending can be done on more favourable lending terms.
Another area of the mortgage market that’s seen positive transformation in 2019 is portfolio lending, which is defined by the regulator as those landlords with four or more mortgaged properties. Although this type of lending has meant more bureaucracy and paperwork for both parties involved, lenders have worked hard to simplify their proposition, meaning that the process is now a lot closer to that of taking out a traditional buy-to-let mortgage than it used to be.
As we move into 2020, there is still plenty of talk around more landlords wanting to exit the property market, with Stamp Duty and income tax changes named as the primary drivers for this. However, I’m sure I was hearing similar speculation this time last year. The mood amongst lenders is cautiously optimistic for 2020 as the various tax changes will have fully bedded in – but we’ll just have to wait and see what the year holds.“
Mortgage Technical Manager at John Charcol, Nick Morrey
“From the moment Boris announced a general election I told anyone who would listen he would get a significant majority and he now has the mandate Teresa May craved but failed to achieve. That was, for me, an easy prediction.
The property market for 2020 is a much harder one to predict due to all the factors that are at play. Let’s start with a general prediction – unless the UK swings into full-on recession property prices and transaction numbers will be noticeably higher than last year. There is a lot of pent-up frustration in the UK property market having had many people wait and see if prices will fall, which they didn’t.
Some wanted them to fall (e.g. first time buyers not using the government’s Help To Buy scheme – HTB). Whilst others wanted to see year on year increases that would never stop and when reality came home as to what their properties were genuinely worth (the same price that someone out there is prepared to pay for that same property) they decided not to sell. And they decided not to sell in their droves.
The shortage of sale stock and a fear of buying just as prices fall created an almost perfect situation of prices staying relatively stable but based on far fewer transactions. Other factors included the 3% additional property stamp duty tax and income tax changes for landlords who own properties in their personal names. Lump some of the most amazing political ineptitude into the mix and we had the perfect maelstrom for a dithering housing market.
Now we have Prime Minister Johnson and his majority, all of whom have signed a letter to back him in certain Brexit votes to ‘get things done’. Like him or loathe him, he is correct in that normal governance of the UK has come to an almost standstill and that there was a referendum on should we stay or go and the nation voted to go.
The failure to make a decision will shortly become a thing of the past and many of those who have been waiting for things to change to put their property on the market to sell will start to do so in 2020. They will be looking to get a deal before prices rise – and here we are talking about the majority of house buyers – those who are trading up.
Affordability is always an issue but the truth of the matter is that people always want what they cannot afford so they end up buying what they can afford, but will still buy nonetheless. So unless we see double-digit growth in 2020 I don’t predict this as a problem – anywhere in the UK except maybe places like St Ives in Cornwall, where prices have been driven by Londoners looking for holiday homes.
I expect there to be a standard slow start in Q1 but things to pick up in Q2 and Q3With this prediction, the rate of increase will grow steadily throughout the year – finishing quite strong.
However much of the dithering in the South East (both buyers and sellers) is also to do with a trade deal with the EU. My belief is that Europe wants to trade with the UK pretty much just as much as the UK wants to trade with Europe. So a deal is pretty much inevitable and when that is announced, which might not be until late next year or even beyond, then we will see property growth march forwards into 2021 and 2022.
Another factor is looming which oddly enough doesn’t affect the vast majority of the market but it will have an effect. The scaling down and cessation of Help to Buy. This is not due until 2021 with closure in 2023… but I predict this will trigger a surge of first-time buyers as they realise that if they are going to buy they must do it in the next three years, one and a half preferably.
This will bring many first time buyers into the market but the scheme is only open to new build properties. This does not help the market overall in many ways but some of those people will be looking to move on to something else in a few years’ time and in London where most Help to Buy properties are one or two-bedroom flats this is especially true… but are those Help to Buy flats actually worth what they were sold for? We will find out.
My prediction is that the Buy-to-Let market will continue on its steady path now that it has found its new equilibrium after the tax changes landlords faced. As more lenders have embraced limited company buy-to-let mortgages the options for landlords will continue to grow.
Interest rates will stay low for the foreseeable future as the Bank of England with its new captain freshly installed will continue its waiting game to see if key economic indicators show actual recession, which is not expected in 2020 – but if recession were to raise its ugly head they will drop rates to 0.5% swiftly and maybe down to 0.25%.
The fall won’t do much for consumers as the markets seem to have priced in one rate drop already but lenders themselves cannot easily pass on a second drop to that level. So I would expect not much to change with rates – which is great news for consumers as the cost of borrowing has pretty much never been so low – especially for fixed rates.
So we have very cheap borrowing and a lot more political certainty with an economy that is doing OK (not brilliantly, but OK) – so prices will rise. Throw in a decent and fair trade deal and I predict in 2020, you will see London start to soar followed by much of the UK. If I were to exactly predict numbers:
London/South East: up 3%
Rest of UK up 2% (some regional differences of course)
Base Rate: to remain the same – 0.75%”
Associate Director of L&C Mortgages, David Hollingworth
“It’s still hard to get away from uncertainty when talking about the prospects of the property markets in general and for Buy to let investors. This time last year we wondered what kind of Brexit we might be heading toward and what that might bring. We now know that we will be leaving the EU but whether there is a trade deal in place by the end of 2020 is likely to be a big topic of discussion that could still weigh on confidence.
One area of certainty though is the fact that there won’t be more calls for another general election. Given the extent of change in the buy to let market in recent years it would be a surprise if the prospect of some stability would not be welcomed by landlords, especially as the full impact of tax relief changes has still not been felt in full.
Mortgage rates have been a good news story for landlords, as the competition in the market has helped to drive rates down. The rates on offer in the mainstream Buy to Let market are only marginally higher than owner-occupier deals, although fees may be larger. That has presented the opportunity for landlords to control their finance costs tightly and as a result, the remortgage market has been a key focus for lenders.
Lenders have continued to tweak criteria to make sure it offers a better fit for more borrowers depending on their individual situation. Increasingly the option to top slice disposable earned income or use affordability has helped those landlords that may otherwise have fallen a little short on rental requirements alone. I’d expect to see lenders continue to jostle for position on criteria as well as price.
The Buy to Let market isn’t all about the mainstream of course and specialist lenders play a big part, especially for the more professional investor looking to grow their portfolio. Limited company lending continues to see growth but little interest evident from the majority of the big, mainstream lenders. More competition here should help to improve rates further though and develop more options for sophisticated investors.
The Bank of England continues to hold the line that they are ready to move Base Rate in either direction as necessary. However, the fierce competition in all areas of the Buy to Let mortgage market should see low rates remain on offer into next year, giving landlords some attractive financing options.”
David Hollingworth @LandC – Associate Director, L&C Mortgages
Director of Visionary Finance, Hiten Ganatra
“What a turbulent year 2019 was. Three Brexit deadlines came and went and then to overcome the Brexit impasse within parliament a general election was called – a first December election since 1923.
A manifesto pledge by the Conservative Party to “Get Brexit Done” and with it obtaining a thumping majority of 80 seats Brexit can now get done and we will be leaving the EU on 31st January 2020.
Will this provide a stimulus to the mortgage and housing market?
You would certainly hope so as the uncertainty in the economy will begin to recede and the government having the bandwidth to focus more on domestic issues like stimulating the housing market.
How much the market confidence increases will be dependent on what type of trade deal the UK government will be able to negotiate with the EU as there will be a level of cautiousness in the market surrounding this.
Mortgages rates will remain competitive for both buy-to-let (BTL) and residential mortgages as lenders continue to push for a greater market share. In the past 18 months more of our clients have opted for 5 year fixed rates as they have been at their lowest levels as well as allowing clients to borrow more as lower stress-test calculations are applied.
When it comes to BTL mortgages many lenders are offering higher levels of lending due to lower rental stress test multipliers being applied on 5 year fixed products. For example, Foundation Homes Loans have pay rate based stress testing for some of the 5-year deals meaning that for every £1 rental income achieved you can borrow up to £239.88p. So in effect, if you are achieving a rental of £1,000pcm you would be able to borrow up to £239,880. Compare this to a 2-year product and the max borrowing you would get is £150,470. We expect that rates will continue to remain keen throughout 2020 as well as lenders looking to compete more on policy quirks rather than just on rates.
For residential mortgage lending, the 5-year offering amongst many lenders has become really competitive because the 5-year swap rates are almost in line with 2-year rates. For example, Santander are currently offering a 5 year fixed rate at 75% LTV at 1.49%* whereas a 2 year fixed rate deal is on offer at 1.39%*. Again, there is no sign of competitive rates wavering in 2020 however it is unlikely that they will fall any further.
I believe that 2020 will be a cautiously optimistic year for both the housing and mortgage market because there will slight apprehension amongst buyers and sellers surrounding the Brexit trade deal which is not due to be finalised until the end of the year. The first hurdle should be navigated successfully in a couple of weeks however what remains to be seen is how tricky the road ahead is likely to be.
*rates correct at the time of publishing (January 2020)”
Real Estate Valuation Theurgist, Nick French
“Are we still uncertain?
‘…In this world nothing can be said to be certain, except death and taxes.’ – Benjamin Franklin (1789)
As I write, the UK finally entered a period of some certainty in business and finance. The UK electorate has decided that a pro-Brexit party should be in power for the next five years with a majority of 80 seats. Business will be done. And after three years of faltering uncertainty, the markets reacted strongly.
It wasn’t the decision itself that was important, it was the fact that a decision had been made at last. I am pretty sure that had the populace voted for cancelling Brexit, then the market reaction would have, initially, been the same. Businesses and Finance Markets do not like uncertainty.
This is odd, because as Benjamin Franklin’s quote above reminds us, nothing is actually certain. All that happened last week was that the new government was given the green light to complete the withdrawal from the European Union.
The uncertainty of the form that a trade agreement will take is still uncertain; the logistics of imposing a “virtual” border between Northern Ireland and Eire is still uncertain; the future of the union, with the strong showing of the Scottish Nationalist Party (SNP), is definitely uncertain; the outcome of the US election is, with Trump’s impeachment looming, unknown. And, underlying this all, the weight of global borrowing at historically high levels brings the uncertainty of recession to all developed markets.
So many things can change and so many things will change. Small decisions will ripple through the markets and a new future will form only to be replaced by another reality.
So how will the property markets in the UK and abroad react? Initially, in the UK, there is so much pent up investment and occupational demand in the system, that I can see the UK economy and particularly the property markets bouncing on the back of the election result.
Prices will rise in both commercial and residential markets, as yield fall and rents increase. Obviously, the degree of that impact will depend upon the location. London and the south will benefit most but, if the government keeps its pledges to invest more in the midlands and the north, then Keynesian magic will bring a positive boost to those markets too. It may be just a catching up period after three years of the Brexit uncertainty stagnation but it will be an upturn nonetheless. We will see 1 – 2 years of strong growth and confidence in the markets.
But there are demons lurking. As mentioned, the fundamentals in the UK and world markets are beginning to look very familiar with the prime indicators showing the same levels as before the Financial Economic Crisis of the late noughties. There is a financial cliff looming again.
And for the property market, there is another urgency that will definitely have a negative impact on property prices in the UK and that is the carbon reduction targets that will mean that 95% of the existing let stock will need to be retrofitted, before it can be legally, let within the next 10 years as part of the UK stated target of carbon neutrality by 2050.
That is a massive undertaking and cost and markets will adjust by re-indexing the price of all property affected.
The legislation (Minimum Energy Efficiency Standards – MEES) is already in place and the target date of 2030 for the majority of properties to comply is already being mooted. This is a massive intervention in the property market unseen in my lifetime.
My career in property has taught me that markets shift and change constantly so the blip of certainty in the sea of uncertainty is nothing unexpected but something tells me that the impact of climate change (or more correctly the interventions needed to try to slow its progress) on world markets isn’t yet being priced into current yields and rents. Move over Brexit, a new bigger uncertainty is on its way.”
Nick French – Real Estate Valuation Theurgist and Property Educator
Property Investor and Podcaster, Tej Singh
“2020 will be an interesting year for Property, and all businesses. I won’t dwell on Brexit, or whatever that even means now, or when it’s happening. As an investor, I monitor the markets/trends/cycles, but to be honest I really don’t get caught up in it. I’m not a pundit or someone who likes to speak about the what-ifs and how news affects prices etc. I prefer to focus on the tangibles that are happening right now. What’s going on in my micro-economy that will have an impact on my business. I invest for the long term, so whatever short-term wobbles or news or hysteria that hits, I don’t particularly care!
I balance my portfolio between long-term single lets and flips. In fact, the reason I do ‘boring/vanilla’ BTLs is because they are lower-risk, easy to manage and a solid ‘always needed’ investment. Yes, the government is against landlords and wants to tax us until the cows come home, but single-lets are likely to face less scrutiny and increased changes/charges (compared to say HMOs). It takes me longer to build up cash flow and asset wealth, so this strategy is not for everyone.
Appetite for ‘BMV’ properties in need of refurbishment will increase in my areas, and I think it will everywhere. For every Investor who’s waiting for Brexit or for pigs to fly before they invest, there will always be another one like me who is buying irrespective of ‘world issues’. Don’t be worried, but be wary. Incorporate enough margin into your deals, be very careful with your DD and always protect your Investors. Prepare for the worst-case, so you aren’t surprised if it happens, but hey, you’re happy when it goes great!”
Co-Founder of Crowdlords, Richard Bush
“Re-reading my predictions for 2019 has highlighted just how difficult making predictions can be! This time last year I forecast that the Property Crowdfunding sector would experience Consolidation, Collaboration Convergence and Corporatisation.
Whilst there have been rumours about each of these, the reality was that the year was dominated by the impact of Brexit and the failure of a couple of high profile P2P platforms. Failures which have led to new Guidelines from the FCA.
Looking ahead to 2020, these two factors are going to continue to dominate this year.
Over the last two years, the uncertainty over Brexit has led to a lack of confidence in the UK Property Market amongst both UK based and overseas investors. Following the approval of Boris’ deal, we have already experienced a return of confidence but with a degree of caution. I expect this to remain all year as the details of the Brexit trade agreements are negotiated. This will keep growth in our sector down at the double-digit level.
The new FCA guidelines which come into effect on the 1st of January are likely to have a much greater impact. The new rules restrict the investment in debt-based or preferential Property Crowdfunding investments into Development projects to High Net Worth and Sophisticated Investors. Some of the platforms, who, like CrowdLords, have focused on this group of investors will only require a small adjustment in their Business Models whilst, for others, this change could be terminal.
Last year saw the demise of a number of smaller platforms whilst for others, the investment volumes have reduced to a dangerously low level. But this is a market made up of innovators and I am sure we will see the development of some new propositions as a result. These innovations could be based on the adoption of Blockchain technology to increase the liquidity or new ways to package investments to bring more variety to the Risk / Return profiles available.
The main positive of last year was the uptake in IFISA’s. Based on the volumes that we are experiencing, I expect the tax-free benefits of the IFISA to attract many new investors, particularly to the P2P property platforms which are not impacted by the new FCA Guidelines.
The end result from an investor’s perspective will be a polarising of the market. Those that are HNW / Sophisticated are likely to have a broader range of investments to choose from, whilst the rest of the market will have a more limited choice of lower risk, lower return options with the benefit of tax-free returns.”
Managing Director & Co-Founder of Simple Crowdfunding, Atuksha Poonwassie
“A time for stabilisation, consolidation and calculated growth in the marketplace…
In the past year, the property market has been significantly impacted by the uncertainty of the political environment and Brexit which has delivered some undesirable consequences in the market. Whilst there is much to be understood, we now have some clarity on the political and regulatory fronts, which helps us better understand the direction of travel.
Regulation: There were two key regulatory developments last year. The first is the New Rules introduced by the Financial Conduct Authority in June last year that focussed heavily on peer to peer lending. The new rules were not a surprise. They reflect progression and the evolution of this industry.
The second is the FCA’s ban on the promotion of speculative mini-bonds to retail consumers that includes property bonds.
Both equity crowdfunding and peer to peer lending has seen a major overhaul in recent years. In 2020, I expect the new rules relating to the use of mini-bonds to be finalised and I hope, further reviews started on other non-regulated investment products. I wouldn’t be surprised if pension investing also has a spotlight shone on it this year.
Industry Growth: Over the next 12 months, I expect to see an upward trend in alternative property financing. Property-focussed crowdfunding platforms will continue to consolidate and collaborate.
Property peer-to-peer lending will continue to grow with simple enhancements; an increase in auto-selection and more institutional funds backing projects on platforms. The uptake of the Innovative Finance ISA (IF ISA) continues to pick up pace (expected to have become a £1B product in 2019). This has helped ‘prove the concept’ of the tax wrapper and highlights the confidence in this product. I expect this growth to continue throughout 2020.
In both cases, I think there will be fewer new platforms coming to market in light of the demanding application and subsequent management process.
Raising Finance: For those raising property finance, the outlook remains good. Last year, the property industry embraced change and we have seen alternative finance options being increasingly utilised. This will increase in 2020 with alternative finance ramping up support to SME developers (in particular), allowing them to bring much-needed homes to market.
Investing: Property crowdfunding and peer to peer lending also presents a great opportunity for investors. Ultimately, UK property still represents a resilient, income-producing investment class, and platforms such as Simple Crowdfunding provide accessibility to everyone, democratising the property market.
Property Education: Finally, I expect a shift in property education in the UK. The Simple Crowdfunding ‘Learn Whilst Investing’ program where you invest and then learn from property developers throughout the project lifetime is gaining strength. Having spoken to many community investors, they favour this approach. It allows them to invest in areas that interest them such as commercial to residential or new builds, learning along the way. It also allows them to invest smaller amounts into multiple equity and peer to peer loan projects, to better spread their risk.
I believe that 2020 will be a year of stabilisation, consolidation, collaboration and growth and embrace the opportunities that it brings.”
Founder of New Era Property Solutions & Go Tenant Property Software, Rick Gannon
“What a strange year we have seen within the private rental sector during 2019. There has been much uncertainty with issues surrounding Brexit and, of course, the general election.
We started the year with UK property increasing in value at the beginning of 2019 largely due to a lack of stock. The average UK property price at the beginning of the year reaching £236,800 (according to Halifax House Pricing Index), 2019 saw an increase of 2.1% compared to the previous period.
However, it appears this may be reduced in the coming year with predictions in 2020 for limited increase with prices edging up by just 2% according to the Royal Institution of Charted Surveyors (RICS)
RICS are predicting that rents will rise faster than house prices by up to 2.5% nationally and 3% in London owing to the falling supply of new rental properties entering the market.
The Queen’s recent speech also saw an emphasis on housing, with confirmation on the removal of the Section 21 no-fault eviction, lifetime deposits and below market value for new homes for local people.
Now is a very interesting time for investors… We have seen many changes in the Private Rental Sector over the last couple of years, such as the new Mandatory HMO license regulations in England, the Right to Rent Act, the introduction of national minimum room sizes for HMOs, the Clause 24 Tax changes on mortgage interest relief, Client Money Protection, Tenant fee ban, and the looming suggested repeal of the no-fault eviction section 21.
I’m sure you agree, it seems that the Government do indeed have an agenda, or at least that’s how it can feel from time to time.
Most of the legislation changes are welcomed and can only do good for the industry, forcing the rogue landlords out and introducing new and compliant investors. Some of the changes, however, may be a little too much to swallow and have forced some investors to place their properties on the market as they may no longer be financially viable.
I believe that in the first quarter of 2020 we will see a lot of opportunities enter the market as armchair investors start to sell their properties for the above reasons, this can, of course, be looked as a positive for others, who may be able to obtain a great property at a great price and repurpose it to meet the current standards.
We know that property only ever goes up in value, history dictates this and we have the statistics to prove it, yes it may fluctuate, but it has always corrected and has continued to grow, this means that Property remains a great place to park your money for the long term, and if you can obtain a great cashflow in the meantime then even better!”
Private Rented Sector Consultant at Letting Focus and Tenants Renting Guide, David Lawrenson
“Private landlords have had to face a significant ramping up of taxes in the last few years, especially starting from the time George Osborne was Chancellor of the Exchequer. Taxes on rental income, capital gains and stamp duty land tax have all risen significantly for private landlords.
This has led to some private landlords leaving the sector – and there are some signs that the private rented sector may now be shrinking slowly from its high point of around 20%.
Of course, the government claims that increasing taxes on landlords was all about helping first-time buyers. But I think part of the government’s real thinking behind the increasing of taxes on private landlords was to try to make the sector less attractive to them and more attractive to institutional investors in private renting such as UK and foreign pension firms, (some of whom will, of course, make large donations to political parties).
I think there is a strong case for incentivising new build property for letting – so-called “build to let” – just as long as the playing field is not skewed too far away from individual or small groups of private landlords towards anonymous UK and overseas pension funds or other big players.
But the fact remains that the government cannot really “make do” without the smaller private landlord. The government and the housing associations do not have the cash to build large numbers of social (council) housing any more. And the much-vaunted, (by government, at least), institutional investors seem unable to build as much new housing as the government would like. (My own view of this is that this is because they struggle to make sufficient returns because they are far less efficient than the far more nimble small scale private landlords).
Also, institutional investors can only make their investments work in certain areas and where there is sufficient scale – think “me-too-identikit” flats on huge new-build estates. This still leaves the greater part of the housing market open to the smaller scale private landlord. So, still huge opportunities!
The fact is that across the UK there remains a shortage of the kind of homes that people want to live in. Many people either do not want to buy or are unable to buy their own home. And so they rent instead.
The ongoing shortage of housing stock in the private rented sector, the continuing failure of the institutional investors to deliver on build to rent and strong ongoing demand from tenants has led to rents starting to increase above the general rate of inflation in the last few years. So the picture remains very rosy indeed, especially for people who follow my guidance and buy the right type of properties in the right areas.
Of course, there will always be threats to the private rented sector.
But I believe most of these are not real threats. A good example is rent controls.
Many people on the far left rather like the idea of rent controls. What’s not to like in paying low prices for something? It’s like getting more income or winning the lottery – everyone says “Yes”.
But everywhere in the world and at every time in history where rent controls have been tried, they have led to a severe shortage of supply of rented accommodation and a reduction in the quality of that accommodation. Rent controls also lead to a proliferation of rogue landlords like Mr. Peter Rachman, who was famous in the 1960s in London.
Rent controls tend to have a knock-on effect, distorting supply on the rest of the housing market. A famous Swedish socialist economist, Assar Lindbeck, famously said, “In many cases, rent controls appear to be the most efficient technique presently known to destroy a city – except for bombing”.
His fellow Swedes clearly did not listen and rent controls in Stockholm introduced in the last few years have been the usual disaster – leading to an almost halting of new build and to 20-year waiting lists for rented accommodation.
But the UK government does not have to look to Scandinavia, New York or anywhere else to see the negative impact of rent controls, they only need to see the impact of lower housing benefit rates in the UK, which is like doing rent controls on a smaller scale.
The government decoupled housing benefit rates from local market private rent levels some years ago. As rent arrears soared for housing benefit tenants, landlords increasingly refused to let to people dependent on housing benefit.
Faced with rising homelessness, the government then set up separate pots of money where landlords are now given upfront cash incentives for housing people who are homeless. My own London borough, Bexley, is right now offering up to £8,000 to landlords to house a family on a long lease. Very nice!
This story proves that even when rent controls are introduced, landlords can still prosper. Indeed they will prosper as long as there is demand for the type of accommodation they can offer.
It will be interesting how Brexit plays out in the coming years. The risk here is that any restriction on migration from the European Union would dampen demand from that source for private rented accommodation. But the fact is that for the last three years, over half of migration is now from non-EU countries – and the numbers are increasing from this source. The UK will always need foreign labour and this will not change – Brexit or no Brexit.
To succeed in this more regulated climate for landlords, landlords will need to be more professional and better informed than their competitors. The new edition of my book “Successful Property Letting” shows you how to you can be fully informed and professional – showing you how you can still make money in the private rented sector, ethically and to have great fun as you do it too.”
Director at Network Auctions, Toby Limbrick
“The market in 2019 was dominated by two words – “Brexit Uncertainty” which resulted in a lack of owner-occupiers bidding in the auction room.
Despite this, Investors recognised a buying opportunity, particularly at our 5th December auction held a week before the general election where bidding was fierce resulting in our best end of year auction in 14 years. Those investors gambled on a Boris Johnson victory and a price bounce following a resolution to Brexit, I believe they bought well.
I predict significant growth in residential transactions in 2020 compared to the previous 3 years as sellers and buyers who deferred moving pending a Brexit outcome return to the market. This combined with a low-interest rate environment bodes well for prices in 2020 with improving prospects for the residential and commercial sectors going forward.”
Director of the Buy-to-Let Broker, Matthew Rowne
“Positioned as specialists within an ever more complex market, The Buy to Let Broker was fortunate to enjoy huge growth through 2019. Indeed this ascendancy shows no signs of abating, with us having achieved successive record quarters, dating all the way back to the beginning of 2018.
Whereas 2019, (from the perspective of committed landlord at least), was very much set against a backdrop of uncertainty, and the acknowledgement that every lender, landlord, and indeed broker within the Buy to Let sector would need to adapt to thrive, as we embark upon the birth of 2020 and indeed a new decade, the landlord now finds himself sitting upon a foundation of relative economic certainty, (potentially for the first time in over 18 months), with a vista of opportunity, and the promise of plenteousness and prosperity for the robust.
This certainty exists in both respect of landlord regulation (hopefully no more significant changes for the foreseeable), and indeed with political focus now on just getting Brexit through, this economic stability (or at least stability of direction) should be the platform for landlords and specialist brokers to rise to the challenge that the Private Rented Sector currently offers.
With specialist lending moving away from its nascent beginnings, the sector embracing more and more established lenders alongside the backdrop of multitudinous existing and new specialist lenders into the specialist sector, (The Buy to Let Broker has utilised over 28 different limited company lenders in 2019 alone), the myriad of commercial options and privileges open to the specialist broker, and as such accessible to the professional landlord, has never been greater.
It would be prudent to note that we have seen some mortgage lenders tighten on requirements and underwriting criteria, (an understandable response given the recent uncertainty, especially in respect of the early impact of Section 24). However, this is where our relationships have proved to be invaluable to our clients, allowing us to navigate ‘out of policy’ agreements where appropriate, leveraging the power and efficiency afforded by dedicated underwriting, and just generally in navigating the sometimes choppy waters of Buy to Let underwriting, and its inherent complexities, on behalf of our clients.
We also expect to see continued lender/product innovation within the short term lettings market, and entry to the opportunity offered by this particular specialist area of the market, by many new landlords. With the reduction in tax relief available on mortgage interest not currently applying to those renting properties as short-term lets, landlords and brokers have more options at their disposal than ever before.
Looking forward, we continue to work in tandem with a number of lenders in respect of the moulding and shaping of products and policies across the spectrum of the specialist lending movement. We confidently predict innovative lenders within the specialist field will continue the trend of creation and release of exciting new products and criteria, (potentially offsetting in many respects, some of the tightening of underwriting). This, in turn, enables lenders, specialist brokers, and subsequently, landlords, to not only stay ahead of the curve but to some degree, actually shape the curve. Indeed we continue to be buoyed and encouraged by the relentless innovation in the sector.
Following on from, and inherently related to lender innovation, a major challenge for all of us through 2020 is the full unlimited implementation of Section 24 in April. In preparation for this, we have been proactively working with our landlords over the last few years to ready them for the impact and ensure that they are utilising the benefits of incorporation, and ultimately the most cost-effective routes to investment with this in mind.
From this alacritous backdrop, we expect to see landlords continue to innovate and adapt through 2020, continuing the positive trends we saw in 2019, with many landlords leaning towards multi-lets and HMO’s. With rental coverage requirements ever more difficult to meet in areas with high property prices, some of the more savvy investors continue to invest in new areas, balancing the location of their investments within (in respect of property investment and growing commuter links at least) emerging towns and cities. Many areas of the North continue to be a viable alternative for many investors, with the significantly higher yields both increasing leverage opportunities, and enabling landlords to dissipate much of the impact of the diminishing returns caused by the recent changes.
Our major hope for the year ahead, is that 2020 is finally the year where the landlord is recognised and acknowledged by the wider population, and indeed within the major political parties, as the antidote to many of societies blemishes, specifically the massive deficiency in affordable/adequate housing. The stigma of the landlord, to the wider public and outside of the bubble of our industry, has been a negative one for far too long and has continually failed to recognise (partly through its portrayal through certain media and politicians), the incredible social contribution of the entrepreneur landlord.
Although clearly the landlord is not to be held high as the panacea, indeed the growth of the Buy to Let market, (as would the proliferation, stagnation, or diminution, of any market sector), will carry with it significant impacts both positive and negative in nature. Indeed as with most things in life, the reality remains hidden within the context, with any capitalist/free market, the ‘gain’ and opportunity provided to some in society, will potentially be, when considered in isolation, at the relative expense of others. However, regardless of your political/social leanings, it is high time that there was some acceptance that the Buy to Let sector does not need to be a zero-sum game.
With the socioeconomic pressures surrounding the PRS continuing to a crescendo, if the private landlord was more in demand in 2019 than ever before, then in 2020 (and beyond, for the foreseeable future), the professional landlord will become, if not the saviour, then certainly the preserver of the social housing status quo. We are passionate disciples of the notion that professional, committed, landlords not only serve the exhausting housing needs of the growing population, but also provide a protective umbrella for government, (regardless of the combination of political parties, and political activists, that our country may be led/influenced by, over the next decade).
It is no secret, that overall homeownership has been declining, in favour of private renting, for decades. Whether the wider population perceive this as a positive or negative trend, (without meaning to be flippant), is largely irrelevant. Private renting has more than doubled since 2002, and with the average age of first-time buyers increasing throughout the UK, in tandem with embracement of technology, and the expectancy of the younger generation of contributors to our economy towards increased flexibility in living and working environments, and perhaps more critically than both the aforementioned, whilst population growth continues to far outstrip the creation of new housing stock, this trend will continue through 2020 (and well beyond).
Lenders and landlords need to adapt and embrace change as our perception of the way that people live and work is consistently challenged. Indeed as we saw first-hand, the emerging trend through the back end of 2018, and then throughout 2019, with certain tenants migrating away from (the cost of) city living, and the subsequent evolution and external investment within localities and environments that have not been the traditional domain of the PRS, would be tendencies that we expect to gain prominence and continue to have an impact through 2020. The converse side to this musing is that this melting pot of factors will no doubt result in a continued bias amongst tenants who remain within cities, to seek (indeed perhaps rely on) multiple occupancy living.
One thing is for sure, the PRS will continue to grow in 2020, the specialist Buy to Let lending sector will continue to adapt and evolve, and specialist brokers, packagers, and mortgage clubs, especially those that embrace change and specialism, whilst adopting the shift from ‘transactional sales’ to consultative advice, will not only remain robust, but should indeed guide the committed landlord forward into the new decade, a decade where the landlords services have never been in more demand.
At The Buy to Let Broker, we see 2020, and indeed the foreseeable future of Buy to Let, as exhilarating, and plentiful, as much as it is challenging. A potent concoction, but one that should invigorate us all towards great prosperity, acceptance of our social responsibility and, above all, a determination to contribute real value to both our clients and our lender partners.”
Matthew Rowne @BuytoLetBroker – Director at The Buy to Let Broker
CEO and Co-Founder of FJP Investment, Jamie Johnson
“It would be fair to say that the UK housing market has been suffocating over the past three years thanks to the fog of Brexit uncertainty. However, following the recent General Election results, we are one step further towards finalising a Brexit agreement come the end of January 2020 – in whatever shape or form that might ultimately take.
Many are undeniably relieved with this result – after all, a Conservative majority will likely herald a clearer path forward, particularly for the property market. It will naturally take time to adjust to the news, but already the housing outlook is looking up; shares in the UK’s leading estate agents and house building companies surged almost immediately after the election result was announced, with Savills and Purplebricks, for instance, benefitting from a 13.5% and 9.5% rise respectively. This signals optimism for the future of the wider property market.
As the road to Brexit becomes clearer and we gain political clarity, we can expect a revitalisation of activity within the property market. We will likely see homebuyers and investors who have been sitting on their hands for the past few months (or years) begin to follow through on their property ambitions with renewed confidence.
According to Rightmove, we should also see the average price of a home rise by 2% over the next year, with northern regions leading the way. The property website puts this down to the recent election result, which could pave the way for increased housing market activity this coming spring.
While we should not get ahead of ourselves, the sector can afford to enter into 2020 with cautious optimism. If the government can achieve a period of stability, it is likely that we will see a rebound in both confidence and house prices.
More generally, in 2020 I hope to see the property market – and the housing crisis especially – being placed higher up the political agenda. The Conservative Party made many pledges to prove that they are capable of expanding their vision beyond Brexit. I, and I imagine the rest of the property sector, will certainly be monitoring their activities with great interest.“
Editor at Property Road and Property Investor, Paul James
“We heard a lot about ‘Get Brexit Done’ during the election campaign and now that the UK public has given Boris Johnson a substantial majority, we can finally start to consider exactly how such a policy is going to play out for the UK property market.
Spoiler alert though, the truth is that the impact of Brexit is still very much an unknown. In the short term, we’re likely to see a fairly sharp recovery in the market. Both buyers and sellers have been put off making the move, both by Brexit and the wider political landscape.
Now that things at least appear to be moving in the same direction, you’d expect to see both sellers and buyers flood back during Q1 of 2020, giving the industry a much-needed boost.
However, longer-term there is still much that will be revealed. Are we leaving the EU with the deal Boris agreed earlier this year or will no deal re-enter the frame? When we do leave, what will our trade deals look like and how much time will negotiating them take away from new policies being discussed and implemented? How will the UK economy fair and what impact will that have on the recovery of the property market?
If I had to make a call I’d say things are likely to be better than an avid remainer will forecast but worse than a Brexiteer will tell you! Beyond that, I really wouldn’t want to call it.
One thing I do think we’ll see is more movement in what we consider an online estate agent to be. I think on both sides agents have realised their mistakes. Online agents thought that they had all the answers to the problems with traditional agents and traditional agents thought that online agents were a flash in the plan. Given some of the online agents that were lost in 2019, the high street agents are perhaps the ones looking more smug at this stage.
However, what I think we have seen is that online agents have realised they need to move more towards a traditional offering. That’s why we have seen more and more offer a ’no sale, no fee’ pricing option alongside, or in some cases, instead of an upfront fee. But I also think many traditional agents have realised there’s a need for them to respond to the threat of online and begin embracing the elements that make onliners attractive to some customers.
Expect to see more online agents switching to no sale, no fee pricing and a reduction in the volume of expensive and aggressive ad campaigns. Expect to see more high street agents begin to offer ‘fixed’ rather than commission-based pricing and a better overall online experience. The coming year will see the line between online agents and high street ones begin to blur as both sides find that the perfect offering is actually a mix of what makes both models appealing to vendors.”
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.
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.
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.
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.
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.
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.”
Founder and CEO at Bamboo Auctions, Robin Rathore
“2020 is going to be an interesting and dare I say, an exciting time for the UK. The political discontentedness of the last 3 years appears to have been lifted with the surety of direction. This certainty has already affected the property market; some of our partner agents had their phones ringing off the hook the day after the election result. Deals that had been stuck in limbo for weeks and months suddenly emerged from their hiatus with renewed dynamism.
The “Boris Bounce” as it has been termed looks like it will benefit the property market over the Q1 and Q2 of next year. However, the real test of market confidence will emerge during Q3 and Q4, which is when trade talks are due to complete with the EU. If we don’t get a satisfactory arrangement in place with the EU before the deadline, then that uncertainty could again creep in, which could affect deal flow and transaction volumes.
Domestically, the abolition of section 21 notices, potential discounts for local first-time buyers and very cheap borrowing rates will help to increase the number of both sellers and buyers, although I’m not convinced that house price growth will be significant over the course of the next year. House price growth over 5 years looks more promising.
The online auction market has seen significant growth over the last 12 months – our transaction numbers are up 100% year on year since we started in 2015. We are working with many more estate agents across the UK, and we’re looking forward to hitting the ground running in 2020!”
Spokesperson for Just Landlords, Samantha Miles
“With a Conservative government now elected, we hope to see the dust settle and attention brought back to making improvements to UK housing.
It’s great that Homes England has reported an increase in new starts for homes being built in the country. With a further push to iron out regulation issues, we hope to see more positive steps taken to tackle the housing crisis.
With major changes brought about in 2019, including the introduction of the Tenant Fees Bill and the Homes (Fitness for Human Habitation) Act, we hope that 2020 follows in these footsteps, taking the sector forward to an even more positive state of improvement.
We know that 10th January will see the introduction of new rules for letting agents in regards to anti-money laundering. Landlords need to also be aware that as of 1st April all new and existing PRS tenancies will need a minimum Energy Performance Certificate (EPC) rating of E.
The unknown result of Brexit is still a concern for us all, but we will no doubt make the most of whatever situation we find ourselves in!”
CEO of Landlord Vision and MD of Tax Insider, Amer Siddiq
“The Future of Property Management
As the laws governing property aren’t getting any laxer, it stands to reason that more landlords will begin to outsource the day to day management of their properties. For serious investors, this may be undesirable as it eats into rental yield. The more serious investors will want to strike a balance between self-management and professional outsourcing. Due to this, Making Tax Digital and the vague inflexibilities of spreadsheets as a management system, property management software has and will continue to increase in popularity.
In 2019 we saw steady growth in the industry, particularly in Northern America. This growth trend was also evident in the UK as a number of new solutions were bought to the market in an attempt to capture the interests of property managers wanting to self-manage.
We can expect more solutions like this to come to market in the next year, but from my experience in building comprehensive property management software, I can attest it will take a long time to achieve the standards that property investors are looking for. As for the trends in the industry I expect Making Tax Digital compliance to become particularly important as we head towards 2021 with a spike in interest in this functionality towards the end of 2020. Proptech is heavily embraced for its time saving and increasingly automated functions as these remove the repetitive tedium around admin, so we can expect automation in property management products to become increasingly more desirable and capable of more complex workflows.
As economic conditions in other countries become more favourable we will see a proportion of investors shifting their investments abroad. For those struggling in the traditional buy to let market we’ll see portfolios diversify into short term or holiday lets and commercial lets. We’ve already seen a large drop in the number of ‘accidental landlords’ in the sector. This trend will continue leaving more opportunities for serious investors to expand and diversify portfolios. As a result, property management software will be expected to handle a more diverse range of property and investment types, different currencies and foreign regulations.”
Finance General Manager at CIA Insurance, Richard Wayman
“What does 2020 hold for landlords? On the admin side of things, we are expecting yet more challenges with ever-increasing legislation. With recent research from the RLA revealing that landlords’ legislation has increased by a staggering 32% since 2010, it’s a surprise that many landlords manage to keep inside the law.
The increase in legislation will no doubt be fuelled by the Election this month – where each political party has its own PRS element to their manifestos.
And landlords shouldn’t forget the forthcoming changes to CGT payment deadlines, which come into effect in April 2020, impacting most sales of additional properties in the UK.
Demand and supply: On the rental market side of things, 2020 could offer opportunities for landlords as a lack of available housing means that good quality, affordable rental property will still be in huge demand.
Chronic housing and lets shortage: Despite the Government’s best efforts to meet the target of building 300,000 new homes a year, these targets are not being met.
And, following the number of landlords exiting the market this year (attributed in part to the proposed scrapping of the Section 21 notice and the introduction of the Tenant Fees Act), not only is there an overall chronic housing shortage – but a lack of lets too.
Asking rents are increasing: Recent stats reveal that this is driving up asking rents. Nationally asking rents were up by 3.2% year on year and by 1.3% quarter on quarter. In London, they were up by 5.6% year on year and by 2.2% quarter on quarter.
Property prices: Concerns over Brexit, where worried buyers and sellers are waiting to see what will happen to the property market have also seen house prices drop – meaning investors may be able to snap up a bargain where there is a motivated seller.
Overall, we can see a huge, unprecedented impact on the PRS market from external political pressures – how these play out will take some time to come to fruition.
However, one thing is still certain; there is a distinct lack of housing in the UK that needs to be addressed one way or another. And therein lies a vast opportunity for landlords and property developers.”
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.”
CEO and Editor-in-Chief of Property Forum, Nicholas Wallwork
“While many thought 2018 was unique in terms of politics this has been surpassed by the volatility and uncertainty of 2019. We have seen the rise and fall of socialism, the breakaway of Scotland in terms of political direction and Boris Johnson winning a very healthy majority in the House of Commons.
One thing we know for sure, 2020 is going to be yet another year to remember and one which has so many potential connotations. So, where do we start?
New build property numbers: The public, more than the House of Commons, will hold Boris Johnson to account regarding his manifesto pledge to build 1 million new homes over the next five years. This will be done by changes to the planning permission system and investment in the construction industry.
While the majority of properties will be in the private sector there are plans to increase the amount of social housing in the UK. This is an area where many governments have promised but have failed to deliver – will Boris break the mould?
Finance costs: In light of the many Brexit challenges ahead, UK base rates are unlikely to increase from the current level of 0.75% for the foreseeable future. Recent regulatory changes have also forced banks to separate investment banking and traditional banking capital.
As a consequence, many traditional UK banks are now awash with excess capital which has introduced a strong element of competition into the mortgage sector. This is likely to continue for some time to come.
UK house prices: As slowly but surely the mist begins to clear over Brexit, there are already tentative signs of a relief rally in the UK property sector. The spectre of rent controls, greater tenant protection and a huge increase in social housing numbers have now diminished with the capitulation of the Labour Party.
While there are still challenges ahead, we should see a hardening of UK property prices in the short term as more details emerge of the U.K.’s future relationship with the EU.
Overseas investors: It was no surprise to see the value of sterling jump on currency markets as a consequence of Boris Johnson’s healthy majority in the House of Commons.
Those overseas investors who took advantage of the previous weakness in sterling will have recently seen an increase in the relative value of their sterling-denominated assets.
As the threat of political paralysis has been lifted we should see renewed interest from overseas investors with London prime property likely to be a significant beneficiary.
London and regional property: The recent softening in London property prices is likely to be reversed in the short to medium term with greater visibility on the political and economic front. However, the recent trend towards investment in regional markets is likely to remain for the foreseeable future.
We have seen some significant public and private bodies moving head offices from London to the likes of Leeds, Manchester and Birmingham, crystallising significant cost savings.
This has prompted the huge redevelopment of numerous city centres and surrounding areas with combined multi-billion pound investment from the public and private sector sources.
Bumps on the road ahead: There was a great sigh of relief now that the threat of political paralysis has been removed – although the issue of Brexit is far from finished. There are also constitutional issues at home with the SNP government campaigning to remove Scotland from the Union of the United Kingdom.
On a positive note, we are unlikely to see rent controls and any additional regulations in the private rental market.
Indeed, many investors are hopeful that Boris Johnson will repeal some of the recent additions to the statute book – even if that may be a step too far in the short term. Cautiously optimistic, there are reasons to be positive about the UK property market going forward.”
Editor of Propertista, Kate Adams
“2020: A Year of Transition and Cautious Recovery Ahead
The Conservative Party won a very convincing majority in the UK’s recent general election. While pre-election opinion polls had predicted a Conservative majority was likely, few (including the Conservatives themselves) expected the sheer scale of their win. We believe the vote reflected the wide opinion around the country that no matter how people initially voted, whether leave or remain, Brits now wanted to just ‘get Brexit done’ to release the UK from its three-year limbo, and the Tories were the only route to this outcome.
The Conservative’s new 80-seat majority finally made it possible for MPs to vote to break the deadlock in Parliament and back the prime minister’s withdrawal plan, meaning the UK is now highly likely to formally leave the European Union on 31 January 2020. From there, we move on to the next stage of Brexit where the UK enters into the transition period in which our future relationship with the EU is determined.
Markets reacted strongly to the decisive election result. The pound surged to its highest level since May 2018 and UK stocks soared with housebuilders and estate agents among the leading risers.
But, what does the UK election result mean for the property investment market in 2020? Here are our thoughts and observations.
The Return of Consumer Confidence
The wait for Brexit to finally happen seemed never-ending as the goalposts moved time and time again. The uncertainty as to whether we would leave with or without a deal or, indeed, whether Brexit would be cancelled altogether has meant the majority of Brits, and foreign investors alike, have delayed making anything but essential property transactions for three long years!
However, now that Brexit is firmly on the cards, our belief is that, like our financial markets, consumer confidence will return to the UK property market. UK residents who have been waiting to list their property for sale or to buy a property will now feel the time is right. The property market will see growth in both demand and supply.
The property market may also experience a second, short-term boost as foreign investors snap-up UK homes before the PM introduces promised increases in stamp duty for non-UK residents, possibly in his first budget scheduled for February 2020.
The government has also announced a raft of new measures designed to help more people own their own homes with discounts for first-time buyers, local residents and key workers on the cards. It has also announced plans to abolish leaseholds on new properties and to make buying a freehold or extending a lease easier, quicker and more cost-effective.
We look forward to seeing if these measures help more people realise their dreams of owning their own home.
Increased Demand Will Continue to Drive Up Rents
In comparison to the near-stalled residential sales market, the private rental market has been going from strength to strength in recent years. We recently reported that rental yields in London had risen to their highest point since 2015 while nationally, rents had risen at their fastest rate since 2017 hitting a two-year high. However, despite the positive headlines all has not been rosy in the British property investor’s back garden.
There is no escaping that growth has been subdued in the private rented sector following years of government intervention. Tighter lending rules and continued regulatory changes have affected landlords’ confidence meaning they haven’t been investing in new stock as much. Rental property supply has declined as demand for rental properties has increased as the tax and regulatory changes announced in 2016 increasingly impacted on profits driving many landlords to sell up and leave the buy-to-let sector. It is this lack of supply of new stock that has driven rental growth.
Much of the Conservative’s newly announced plans for the rental market are designed with tenants in mind, such as the introduction of a new lifetime deposit scheme, a system meaning that tenants don’t need to save for a new deposit every time they move house and the abolishment of ‘no-fault’ evictions by removing section 21 of the Housing Act 1988.
However, there is a token sweetener for the landlords too. The government has pledged to reform current legislation to give landlords more rights to gain possession of their property through the courts and make it quicker and easier for them to get their property back sooner. This reform is long overdue!
We don’t believe these incentives will be enough to encourage landlords back into the industry, however. We predict, if landlord confidence remains low, this trend for landlords to sell up their buy-to-let properties will continue and this further lack of supply will push rents higher yet.
We feel the government needs to take note of this emerging property rental shortage and act now to encourage more investment in the sector before rental property supply reaches critically low levels.
Despite our words of caution, we can’t deny there is an air of excitement surrounding the property market at the moment. We really hope this new period of political certainty creates a window of opportunity for the property market to recover from its three-year low and that the predicted new year boom continues well into the future.”
Director at Searchlight Finance, Simon Allen
There are no outside issues to distract lenders this year so they can focus 100% on improving their service levels and products. A growing minority of lenders who tend to do the quirkier deals have appalling service levels both at underwriting and during the legal process. I can see more lenders entering this space which hopefully will improve the processes of some lenders. I’m not going to name and shame, as all good brokers know the lenders to avoid. I wish more people would ask about this when applying for a mortgage. It’s not all about price.
Most of what a lender asks for is a document or information that is downloadable from another source. If we can get all the systems to talk to each other it would reduce the time taken in getting all this information together. We’ve seen Open Banking, electronic signatures on applications and Direct Debit mandates but some lenders still think a fax is modern. Let’s see more technology as I can use it, so why can’t lenders?
Portfolio landlords have been battered and bruised with all the recent tax changes and the 2020/21 tax year is the first year since the mortgage interest cost allowance has been withdrawn. If you don’t have a good property accountant then get one quick.
I can see a greater need for taxation advice as landlords who have been waiting to see the results of our political comedy show start buying again. A limited company mortgage isn’t for everyone and with the vast number of different products in the market, professional advice is needed.
2020 will see new lenders enter the market and consolidation as well. There have been several cracks showing in the bridging sector and I can see more activity here. Make sure you use a bridging broker who is used to dealing with these lenders as some of the practices we have identified from a minority of lenders could be very expensive for you.
It will be a year to grow your portfolio and get low cost readily available finance. Take advantage of it.”
Founding Director of Less Tax 4 Landlords, Tony Gimple
“In May 1961 John F Kennedy gave a speech that changed humanity’s outlook forever, moving us from an inward-looking and belligerent earthbound irrelevance to an outward-facing selfless species whose ability to collaborate for the common good far outweighed the differences that so often hold us back.
If only the same thinking was applied to solving the problems caused by poor government planning which failed to foresee (or conveniently ignored) the fact that people living longer coupled with falling birth rates – both a direct result of the introduction of the Welfare State in 1906 – would mean fewer and fewer people of working age having to support a larger population in the form of increasing amounts of health care and pensions.
That is not to belittle the introduction of the Welfare State of course – the aim of which was to improve health, education and employment; which, in my view, after the abolition of slavery was the greatest of all British social reforms…bar cricket! However, add to the shrinking working population, the chronic underinvestment in both infrastructure and the public sector as a whole, plus the seemingly inevitable political pendulum swinging too far in the opposite direction for nothing better than outdated dogma each time the Left or Right finds itself in No 10, then it’s no wonder that governments of all persuasions find it easy to blame the Private Rental Sector (PRS) when it comes to their own short-sightedness and failed housing policies.
A taxing time for landlords
In his Summer 2015 Budget, the then Chancellor, George Osborne announced proposals to restrict the amount of tax relief that buy-to-let (BTL) landlords could claim on their mortgage interest payments, using the thinly veiled excuse that he wanted to ‘professionalise’ the sector as ‘accidental’ landlords were inflating house prices and thus preventing first-time buyers getting on the property ladder.
And when he commended his Autumn 2015 Budget to the House, a 3% additional rate of Stamp Duty Land Tax (SDLT) on purchases such as buy to lets and second homes had been added to landlords’ cash flow woes.
It gets even worse!
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 (Figure 1) 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!
A force for good
Private Rental Sector landlords are rapidly taking over from public sector ones as the biggest supplier of social housing, and helping the former to build, run, and grow professional property businesses that sustain and nurture the communities they serve, which include halfway houses with pastoral care, student accommodation, regularly decorated and maintained family housing for life in the same way that local authorities used to do, through to those who can afford to buy but prefer to rent, is very much the way forward.
Putting that into context, the number of households in the rental sector rose by 25% to 4.5m, making it the second largest tenure in England, and is home to a fifth of all households. It’s also one of the most diverse, serving a wide range of different types of households across all incomes, including an increasing number of families, with some 35% having dependent children.
Divided we stand united we fall
So rather than demonising an entire sector and using the blunt instrument of taxation for the sake of vote winning political expediency, far better that we widen the discussion and start to work together in order to address the big issues in UK society e.g. the NHS, education, racism, homelessness, etc., and how the PRS and Government could jointly use property to address them by working with local authorities and the like to stop them wasting their budgets on short term accommodation and use the savings to fund social care in a way that the founders of the Welfare State would most assuredly applaud as the progress and social good they had in mind in the first place.
Thus to paraphrase John F Kennedy’s words but not his sentiment and commitment to doing the right thing for right reasons: “We choose to work with landlords as professional property businesses in this and the coming decade and do the other things, not because they are easy, but because they are hard; because that goal will serve to organise and measure the best of our energies and skills, because that challenge is one that we and the PRS are willing to accept, are unwilling to postpone, and one we and the wider landlord community intend to win too”.”
Chairman and Auctioneer at Acuitus, Richard Auterac
“Our first auction of 2019 was held amidst huge uncertainty ahead of the expected March Brexit deadline, and our final sale was the day before the General Election which pretty much says it all about how the normal free-flow of commercial property investment has been disrupted this year.
Having said that, in 2019 – by value – we sold 90% of the assets that we offered for sale. This is testament to the quality of assets we brought into the room, but also the depth of investor demand.
During 2019, Acuitus sold 220 commercial properties and raised a total of £177m. In line with real estate capital markets as a whole, this volume was down year-on-year, but it’s hard to believe that this positive trend will do anything other than strengthening now that political uncertainty has been removed for the foreseeable future.
There is investor demand right across the spectrum of property sectors and across all geographic locations and that means there are tremendous opportunities for sellers as well as buyers going into 2020.”
Partner at Dwell Estate & Letting Agents, Oli Watson
“2019: 2019 was marked by uncertainty over Brexit and the impending General Election at the end of the year. This uncertainty meant that would be vendors held off coming the market, and sales figures were therefore a lot lower than in the preceding 5 years. The Conservatives winning a major majority in December should start to instill vendors with the confidence to start selling again.
Founding Member at the National Association of Property Buyers (NAPB), Jonathan Rolande
“The property market has held up remarkably well in 2019 despite a number of things combining to deter would-be buyers. Some of these are of course uncertainty about the political and economic climate and the effect of landlord tax changes which has deterred many an investor this year.
However, the old adage of ‘people will always need to live somewhere’ has propped the market up, with many buyers realising that purchasing can be more affordable than renting with the added benefit of potential capital growth, tax-free.
Interest rates at their current ultra-low rate (roughly a quarter of their level of 10 years ago) have taken much of the sting out of ever-increasing prices, after all it is the cost of a monthly payment that is felt more keenly than the price actually paid.
The Bank of Mum and Dad – now officially the UK’s 10th largest lender has added more momentum to the upward spiral as parents are keen not only to help their offspring but also to find a home – literally – for their savings that is more favourable than the paltry rates offered by banks.
Members of The NAPB have reported brisk business this year, with an increase in seller enquiries but still a ready market for the resale of properties they have bought.
Perhaps it will turn out that fears of Brexit destroying the UK property market were unfounded – prices will continue to rise as long as there is cheap borrowing available.”