Brexit Uncertainty - Good for Private Landlords?
HomeLet chief executive Martin Totty sets out his views following the outcome of Tuesday’s vote and what it might mean for the private rental sector.
In times of uncertainty people tend to defer major purchases waiting for the uncertain times to pass, and there is nothing more ‘major’ than buying a property. In the case of Brexit – deal or no-deal – the period of uncertainty is not likely to pass for a considerable length of time, which could spell good news for private landlords as more people choose to rent than risk entering the property market.
Even with Brexit uncertainty, most commentators are predicting modest, single-digit house price growth in 2019. I expect that the upwards trend in rental values isn’t likely to change anytime soon, nor will the demand for private rental properties. A rise in interest rates from the current near all-time lows, coupled with high deposit levels, would make home ownership affordability even more of a challenge – especially for first-time buyers.
Our latest data shows the average rental cost as £921 (£763 when London is excluded from the UK model) in December 2018, a rise of £76 (1.5%) over the year. But this rate of growth still remains below the UK inflation rate, last reported by the Office for National Statistics (ONS) at 2.3%.
Without a large deposit, those entering the property ownership market could face longer-life mortgages, with many providers now extending their maximum term on mortgages to 40 years. Our data shows the average age of a tenant today is 32 years old – making it a real possibility that those same people may be dealing with a mortgage that matures post-retirement.
So, as people are aware that making what’s likely to be the biggest purchase of your life at just the wrong time in the cycle can be a huge risk, and they are unsure how mortgage rates, the UK economy and their own jobs will be affected by Brexit, many are choosing to wait until the dust settles.
This means that private landlords still have something to be optimistic about, despite being buffeted by a perfect storm of increased taxation, more regulation and a more interventionist government, whose near-miss at the last general election demonstrated that younger people will vote if they believe a party will improve their lot.
Portfolio Growth in 2019, despite uncertainty
Our most recent survey of 2,900 private landlords showed that nine out of ten landlords intend to either keep or expand their portfolio in the next year, despite one third also expressing their concerns of the potential implications of Brexit.
The immediate risk for landlords however, is the potential rise in unemployment levels, which could lead to tenants struggling to keep up with their rental payments. This risk and increased legislation in the market has increased demand for rental protection insurance products and services from letting agents that safeguard rental payments.
Periods of uncertainty have in the past benefited the rental sector and it seems that the current uncertainty is likely to persist for some time yet. People will be more risk sensitive and renting helps to reduce those risks. Provided private landlords are also sensitive to tenant affordability concerns, growth in real wages is likely to continue to underpin the steady rate of rental price inflation of recent years.
So, whilst Brexit uncertainty may be proving detrimental for some sectors, and whilst they may reasonably point out there are plenty of other challenges in the sector, it may be private landlords are not amongst that group. Tenants who really do want to rent rather than buy will hope private landlords are successful as we move into the next few months of economic uncertainty.