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PM Boris Johnson and the Future of the Property Market: Portico’s Forecast

Published On: July 25, 2019 at 8:28 am

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Boris Johnson has now replaced Theresa May as the new Prime Minister of Britain. With barely three months until Brexit, we’re interested to see his talk put into action. As well as our exit from the EU, Johnson is bound to have a big impact on the housing market, landlords, and the private rental sector (PRS) as a whole.

Estate agents from Portico have shared their forecast on how the new prime minister might affect the property market:

Boris Johnson plans to reduce “absurdly high” Stamp Duty, which could help first-time buyers get on the ladder and invigorate the prime London market

Boris Johnson has made a bold promise to abandon all levies on properties valued at under £500,000. The hopeful PM also intends to lower the top rate of Stamp Duty tax on the most expensive properties (valued over £1.5m) from 12% to 7%.

Home movers planning on buying property under the half a million-pound mark will also benefit from Boris’ Stamp Duty reforms. While George Osborne’s changes in 2014 lowered Stamp Duty for this group, this change would make them exempt from Stamp Duty altogether.  

The top end of the property market could get a boost – and prime London property prices may increase

When George Osborne hiked up Stamp Duty for homes valued at £925,000 or more in 2014, the top end of the market (particularly prime central London) came to a standstill.

Portico reported on this “standstill” back in 2016, stating that transaction volumes, or the number of homes being bought and sold in the capital, were “critically low”:

“Transaction volume levels … are down 60% in prime central London against last year. With price historically following volume decline, we have now seen the first monthly year on year price decrease of 1.1% in the City of Westminster (September 2015 to September 2016) since the 2008 recession.”

Portico stated that a large part of this drop was explained by a big bounce in sales in the run-up to April this year, when a change to property taxes introduced by ex-chancellor George Osborne came into effect.

The agent states that it’s well-known that Stamp Duty hampers household mobility, so it’s likely that Boris’ plans to cut the top rate of Stamp Duty from 12% to 7% could invigorate the top end of the property market again.

Robert Nichols, CEO of Portico estate agents, says: “It’s no secret that Stamp Duty hampers household mobility – and the higher the tax, the more difficult it is for people to move and keep the market moving.

“We saw the market go into standstill when George Osborne hiked up Stamp Duty for homes valued at £925,000 or more in 2014 (below graph). There was a huge spike in volume as investors and second-home buyers rushed to buy properties before the Stamp Duty changes came into effect in April. But as quickly as volumes went up, they came down again – dramatically – and in Westminster, prime central London, we saw volumes drop to below 100 transactions in a month to a record low of 84.

“If Boris Johnson does reduce Stamp Duty, it would certainly invigorate the top end of the property market and we should see transactions increase.”

PM Boris Johnson and the Future of the Property Market: Portico’s Forecast

Paul Tait, Head of Portico Finance, believes today’s decision will encourage homebuyers to act: “Uncertainty about our exit from the EU has resulted in a number of buyers delaying their property decisions. However, now that the prime minister has been announced, we expect more people to get into gear.

“It’s currently a buyers’ market, so you are likely to get a good deal if you’re prepared to act ahead of Brexit. Still, that doesn’t mean that you should rush to lock in a mortgage now without speaking to a broker first. A professional broker will be able to review your whole finances and advise on how to structure your mortgage finances to achieve the goals you want.”

New research from Vyomm states that prime London property prices will also get a boost as a result of Boris’ plans to reverse Stamp Duty land tax (SDLT) at the top end of the market.

The firm has stated that this reform could boost home values by around £700,000, as well as spurring on demand from London homebuyers.

Vyomm’s data analysis highlights that in London, this Stamp Duty reversal could see a 3.41% or £102,911 increase on the current average house price of £3m. For those with property valued in the £10m plus bracket, the current average sold price of £16.8m could rise to £17.6m.

What about landlords?

Boris Johnsons’ Stamp Duty reform could also include the 3% levy attached to the purchase of second properties, which could have a huge impact on the PRS – though this was not actually mentioned in the report.

However, if the ‘landlord second home tax’ was dropped, research suggests that just 10% of properties bought last year would have been liable for Stamp Duty – so the majority of landlords would be considerably better off.

Boris has doubts surrounding HS2’s future

Boris Johnson’s Uxbridge and South Ruislip constituency will be affected by HS2, so it’s no real surprise that the hopeful PM is not an advocate of the high-speed rail line. 

Johnson stated that HS2, which will link London, the Midlands and the north of England, will cause “a great deal of difficulties” for the local people. He also spoke of his “anxieties” about the business case and he said he would have a review of the project if elected PM.

Contrary to Johnson’s beliefs, it’s widely thought that HS2 could be key to regional regeneration in the north and Midlands, and anticipation for the rail link is already increasing investment and property prices within the affected areas.

The high-speed rail link will cut journey times by 30 minutes between London and Birmingham, and is the first part of a scheme which will eventually see trains running at speeds of up to 225mph to Manchester and Leeds.

Robert Nichols, CEO of Portico estate agents, says: “We sympathise with Boris Johnsons’ anxieties around HS2. Though it’s likely some areas along the route will see prices rise, many locals will have to face extreme noise pollution.

“However, there is a great opportunity here for landlords to pick up a good investment property; areas like Barbury will be in close connection with London, as well as near a number of popular prep schools that renters and homebuyers move into the area for.”

Boris has “grave reservations” about Heathrow’s Expansion

Boris Johnson once vowed to lie down in front of bulldozers to stop Heathrow Airport’s expansion, and though not as passionate, his feelings towards the expansion remain grave. Johnson recently said he’d review the project if he were to be made prime minister.

A recent report suggested that cancelling plans for a third runway at Heathrow airport could cost the UK economy more than 300,000 jobs. On the other hand, expanding the Airport could also have a negative effect on local property prices.

In fact, since June last year when the proposed expansion was approved, local house prices in affected areas have fallen -2.6% on average.

£200 Fee Cap on Leasehold Packs will Leave Landlords out of Pocket

Published On: July 24, 2019 at 9:06 am

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The Government has proposed a £200 fee cap for landlords producing leasehold packs. 

However, private wealth law firm Boodle Hatfield believe that this is likely to leave landlords significantly out of pocket.

A consultation on leasehold reform was recently held, to which the Ministry of Housing, Communities and Local Government responded with a proposal to set a maximum amount for what a landlord can charge a leaseholder to produce a leasehold pack. They have said that it should be capped at £200 plus VAT.

Boodle Hatfield believes that the costs for producing this information are often significantly higher. In London especially, costs can easily reach more than £750 per pack.

A leasehold pack is required by landlords whenever a leasehold unit is sold. This pack contains information on the management of the freehold, ground rent and service charges, buildings insurance, and any disputes relating to the property. This is vital information that the purchaser needs to have.

Previously, landlords have been allowed to pass on the full cost of producing the pack to the leaseholder. 

Some landlords own blocks of flats with a large number of individual leaseholds, which can require the production of many of these packs each year. Each would incur a loss of more than £500 under this proposed reform.

In a block of 50 flats, Boodle and Hatfield have pointed out that it would not be unheard of for there to be ten sales in a single year. Under these reforms, this would equate to the landlord incurring a loss in costs of as much as £5,000 per year. 

The law firm says that the Government needs to take into account the property industry’s responses to the leasehold reform consultation, many of which argued that the proposed £200 fee cap is too low for the London market.

Simon Kerrigan, Partner in the Real Estate team at Boodle Hatfield, says: “A £200 cap on the fee for a leasehold pack will make producing them a significant money-loser, especially for landlords in London.”

“Producing the detailed information required for a leasehold pack takes two or three hours of work by a lawyer. The proposed fee cap is simply too low to pay for that.”

“Before these reforms are enacted, the Government should look again at the burden it is proposing to place on landlords. A cap closer to the realistic cost of £750 for London landlords would be much more appropriate.”

Plans to make Rogue Landlord Database Accessible by Tenants

Published On: July 24, 2019 at 8:39 am

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The rogue landlord database may be opened up to prospective tenants, according to new government plans.

It launched in 2018, but the names on the list have only been made available to local authorities. Now, the Government plans on making it available to renters in England, as part of a package of private rental sector (PRS) reforms.

Communities Secretary James Brokenshire said: “This database has the potential to ensure that poor quality homes across the country are improved and the worst landlords are banned, and it is right that we unlock this crucial information for new and prospective tenants.

“Landlords should be in no doubt that they must provide decent homes or face the consequences.”

Dan Wilson Craw, Director of Generation Rent, has responded to the proposal: “Renters have to provide references from employers and previous landlords before a landlord hands over the keys to a new flat. So it is only fair that renters get the opportunity to check that a prospective landlord doesn’t have a criminal record. 

“This plan is another victory for renters, though we need much more effective enforcement to identify all landlords who have been breaking the law.”

David Cox, Chief Executive of ARLA Propertymark, has also commented: “We have long argued for the database to be publicly available, and we’re pleased the Government is listening. It’s important that everyone has access to the database, particularly so agencies can vet potential employees, and landlords and tenants can be made aware if they’re using a banned agent. 

“We do however still believe legislation should be combined with the 1979 Estate Agents Act, as without combining the lists, there is a real danger that a banned sales agent could set up as a letting agent or vice versa which will do little to improve the standards or perception of the industry. 

“Particularly in light of RoPA, there needs to be a coordinated approach to regulation and enforcement moving forward. We also believe that access should be granted to professional bodies, such as ARLA Propertymark, so the industry can work together to eliminate rogue operators once and for all.”

Boris Johnson New Prime Minister – will he ‘Boost Supply of Homes to Rent’?

Published On: July 23, 2019 at 11:33 am

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Boris Johnson has now been announced as the new UK Prime Minister, replacing Theresa May.

Responding to this news, John Stewart, Policy Manager for the Residential Landlords Association (RLA) says: “As Mayor of London, Boris Johnson spoke of not over-regulating the rental market, and for the need to boost the supply of homes to rent.

“As Prime Minister, it is vital that his Government makes good on this sentiment, ensuring policy boosts the supply of homes to rent and supports the vast majority of landlords doing a good job whilst focussing resources on finding and rooting out the crooks.”

Private Finance has also commented on the news, with Director Shaun Church saying: “Brexit will be top of Boris Johnson’s to-do list, but other crucial issues facing the domestic agenda must not be overlooked – one of which is the UK property market. Activity in the housing market is falling and in desperate need of a stimulus. Rumours of a stamp duty overhaul have been circulating for some time now and we urge Johnson to make these rumours a reality and re-galvanise the property market, which is after all a crucial asset of the UK economy.

“For too long stamp duty has stagnated the UK housing market. Last-time buyers, in particular, remain stuck in homes too large for their needs that are too costly to give up. We’re calling for a last-time buyer exemption to be included as part of Johnson’s stamp duty overhaul, encouraging empty nesters to downsize to homes more suited for their future needs, freeing up crucial housing stock for the wider property ladder.

“With Stamp Duty receipts down 20% annually, the government is fast becoming a victim of its own policy. Minimising tax liabilities would encourage more people to move, sparking a chain reaction of property transactions, which in turn would lead to a surge in receipts for the government. With both the Treasury and UK homeowners likely to benefit from this policy, it could be a quick political win for Johnson.”

Neil Cobbold, Chief Operating Officer of PayProp, comments: “The buy-to-let market has stalled due to tax changes like the stamp duty surcharge and cuts to mortgage tax relief under Section 24. If Boris Johnson is able to remove all stamp duty and land tax surcharges for buy-to-let landlords, he could reinvigorate the sector – especially in areas with high-value homes where we’re not seeing a lot of movement at the moment.

“Although this could help the market, a pledge to cut stamp duty alone won’t be enough to counteract losses from Section 24 and bring the leveraged buyer back into the market. However, the emotional impact of some good news from a new government would have a positive impact on the sector.

“By now, the cost of Brexit has been priced into the market. We’ve already gone through enough periods of thinking we were going to leave, so the industry will be indifferent to the October deadline, adopting the attitude that either something will happen or it won’t – it’s out of their control. The only parts of the country that could be affected are London and other immigration hotspots, especially if the government wins its Right to Rent appeal in the High Court.

“Boris can be a divisive figure, so I don’t think he will have an overwhelming influence, one way or the other. More important will be any positive changes in the economy, who he appoints as the Secretary of State for Housing, Communities and Local Government, and how actively the person engages with the industry.

“Something that would help the industry would be if he overturned Section 24, but it’s doubtful that will happen. As we now have such a large private rented sector, it’s too much money for the Treasury to give up.  

“If there was one the new Prime Minister could do to change the industry for the better it would be to regulate it properly. The current patchwork of piecemeal legislation burdens professional agents without any real enforcement to deter the small rogue element.

“A new government could, in consultation with the industry, replace it with well thought-out rules and regulations together with a central enforcement body. It would at a stroke help improve the consumer’s view of the industry, weed out the few lettings businesses that give the sector a bad reputation, help cut fraud, and bring about a higher level of professionalism. The changes we’d expect to see would be similar to what happened with financial services years ago.”

Joe Pepper, Chief Executive Officer at tmgroup, parent company of sales progression and communication tool mio, comments: “There are several major challenges facing the UK housing market. Brexit is the one that gets the most attention, but it is also the one that is furthest from the reaches of the housing industry to influence. 

“The nation is split in its opinion on the way forward, although there’s a large majority that want the issue dealt with quickly. The challenge is that the easiest answer to that question and the one Boris Johnson has championed, is to leave with no deal on October 31, but it sadly does not necessarily achieve the wished-for outcome.

“A no deal Brexit would undoubtedly cause short-term challenges to the economy and it does not deal with the issue that we will then seek to negotiate ‘a deal’ from outside the European Union, and this may prolong the agony for years to come.

“Away from Brexit, the new Prime Minister must address the planning laws, which were implemented in the 1980s at a time when we expected the population to reduce rather than grow, if we want to deal with the supply and demand dynamic which has had such a massive impact on affordability.

“Looking forward, all that’s certain about delivering on either Brexit or the changes required to the UK housing market is that it will require exceptionally strong personal leadership. Let’s hope Mr Johnson is up to the challenge.”

Guy Gittins, Managing Director of Chestertons, commented:  “The wait may be over in terms of who is picking up the keys to Number 10, but the implications for the housing market remain to be seen.  

“Boris Johnson was more vocal on housing issues during the campaign trail than his opponent, and all eyes will now be on what policy initiatives are taken forward and who Johnson assembles in his cabinet. 

“During his Tory leadership campaign, Johnson hinted that one of his priorities as Prime Minister will be supporting homeownership and that his housing policy is likely to be shaped around shake ups to Stamp Duty.  His proposed Stamp Duty exemption for all property sales under £500,000 is intended to boost market activity and would certainly be a significant win for buyers of properties under this threshold. 

“However, the degree to which this would stimulate the market is debatable as affordability is the greatest obstacle, especially for first-time buyers, who are already exempt from Stamp Duty on purchases below £300,000. Any significant increase in activity might fuel house price inflation, especially if – as is likely – supply of properties on the market remains low. 

“Johnson’s proposals to reduce Stamp Duty on homes worth more than £925,000 would be particularly significant for London, and would be very likely to encourage downsizing, freeing up more family-sized homes, which are currently in high demand.  

“His other idea of switching Stamp Duty so that it is paid by the seller rather than the buyer is likely to be counter-productive and would encourage sellers to factor this into their asking price, potentially escalating house price inflation. It could also trap some downsizers, which would add to the issue many people already have.”

“Johnson also threw his weight behind the recommendations of the Policy Exchange around increasing the number of purpose-built homes for older people. Encouraging downsizing among retirees in this way would certainly free up some under-utilised large properties for families and help prevent ‘house-blocking’. 

“Given the crippling housing shortage we face, encouraging housebuilders to cater to the retirement market and increase the provision of purpose-built later living accommodation is the right approach.

“Johnson has previously endorsed the prioritisation of brownfield redevelopment, which will likely be welcomed in urban areas where pressure for homes is strongest.  But the associated costs of remediation and the time this takes can make this prohibitive so it would be a more attractive proposition alongside financial or planning incentives. 

“It is also slightly counter to his plans to create 15 new ‘millennial towns’ along major transport routes out of London, which would inevitably need to be built on greenfield land.”

Rent Controls Called for by Mayor of London Sadiq Khan

Published On: July 23, 2019 at 9:01 am

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Sadiq Khan, Mayor of London, has announced a proposal for reforming the private rental sector (PRS) in London. This will include a call for powers to implement rent controls.

David Smith, Policy Director of the Residential Landlords Association, commented: “Rent controls are meaningless if Londoners can’t find a home to live in. Rent controls will lead to a drop in investment and increasing supply should be the Mayor’s priority.

“Localised rent controls would also have a huge impact in the surrounding areas. With demand continuing to outstrip supply, residents would have to move out of the city and rents would be pushed up further as demand increases in the commuter belt.

“Research from the Centre for Cities has found that rent controls divide renters into the privileged and outsides, with those already renting when the controls are introduced doing well but those hoping to move into the city or for more space losing out, damaging social mobility.

“London rent rises are already well below inflation increasing at just 0.9% in the year to June compared to CPI at 2%.

“We do welcome a number of the Mayor’s proposals for improving London’s rental sector including establishing a dedicated housing court and reforming the Section 8 process for landlords to regain possession of their property in legitimate circumstances.”

David Cox, Chief Executive of ARLA Propertymark, has also responded to Mayor Sadiq Khan’s call for rent controls to be introduced in London: “Rent controls do not work; it hits hardest those it’s designed to help the most, and the Mayor of London has failed to learn the lessons of history.

“The last time rent controls existed in this country, the private rented sector (PRS) shrunk to the lowest levels ever recorded. At a time of demand for PRS homes massively outstripping supply, rent controls will cause the sector to shrink. In turn, this means professional landlords will only take the very best tenants, and the vulnerable and low-income people that rent controls are designed to help, will be forced into the hands of rogue and criminal operators, who may exploit them.” 

Scrapping Section 21: Government Consultation has begun

Published On: July 23, 2019 at 8:32 am

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The Government has published a consultation on the abolishment of Section 21, so-called ‘no-fault’ evictions. This consultation will run for twelve weeks, closing on 12th October 2019.

It invites respondents to share their views on “how section 21 of the Housing Act 1988 has been used in the past, and the circumstances in which landlords should be able to regain possession once it has been abolished, including what changes may be necessary to the existing grounds for possession in Schedule 2 of the Housing Act 1988.”

The Government also hopes to receive views on the following:

  • The implications of removing the option for landlords to grant assured shorthold tenancies (ASTs) in the future;
  • How improvements can be made to the processing of repossession orders through the courts;
  • Whether the reforms should be extended to other types of landlords, such as housing associations.

David Smith, Policy Director for the Residential Landlords Association, comments: “Landlords’ concerns over scrapping Section 21 remain unchanged unless and until a new system is in place that provides the confidence and certainty needed that they can regain possession of their property in legitimate circumstances. 

“We have engaged extensively with the Government over these proposals and we are pleased to see that many of our points have been taken on board. This includes on improving the court system and alternative process for regaining possession of a property, known as section 8, to account for how landlords can be certain they can regain their property when faced with rent arrears or anti-social behaviour.

“Section 21 notices are not used for no reason; our research found that of those who had used the process, 84 per cent had used it because of tenant rent arrears, 56 per cent because of damage to a property and 51 per cent because of anti-social behaviour. This is backed up by this week’s English Housing Survey which found that only 12 per cent of private tenancies were ended by the landlord. It is mostly used as the Section 8 process and court system are not fit for purpose.”

“We will continue to make the case for a system that works for both tenants and landlords and will be responding to the consultation once we have reviewed the full details. It is welcome that the Government has listened to our calls for the consultation to run for a proper length of time to give the millions affected time to respond, at 12 weeks.”

Dan Wilson Craw, Director of Generation Rent, says: “Abolishing Section 21 is a central task for any government that wants to make renting work for the millions of people who have no other option for the foreseeable future.

“Any changes must be carefully designed so that unscrupulous landlords cannot continue to force out tenants to avoid making repairs or to churn their properties. It is essential that renters speak out during this consultation process.”

The consultation can be viewed here: https://www.gov.uk/government/consultations/a-new-deal-for-renting-resetting-the-balance-of-rights-and-responsibilities-between-landlords-and-tenants