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 landlord 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.