With the EU referendum just around the corner, we take a look at what this could mean for UK landlords.
On the face of it, the UK’s potential exit from the European Union may not have a huge amount to do with landlords. However, a bit of further investigation shows that the outcome of the referendum could have a significant impact on the private rented sector.
So how would a Brexit impact landlords?
Remain campaigners, along with economists including Bank of England governor Mark Carney, have warned that Brexit could cause significant uncertainty around interest rates. Clearly, a major shift in interest rates would have a major impact on the housing market.
Remain campaigners fear that rates could soar in the event of a British exit from the EU. This would be bad news for landlords looking to expand their portfolios – but, if it meant a mortgage was further out of reach for first time buyers, it could increase demand in the private rented sector.
It is generally accepted that sterling would take a battering if Leave wins. In fact, Goldman Sachs has warned that the value of the pound could drop by a fifth. This would have a major impact on the situation at the very top of the property market.
Sterling is generally seen as a ‘safe haven’ currency, and this partly explains the huge amount of foreign capital that is currently invested in London property. Were sterling to collapse, much of that money would likely dry up.
However, there are differing opinions on whether this would be a good or bad thing for the market at large. Many observers believe that a price correction is coming anyway, and this may be what precipitates it. However, it is not yet clear what ‘trickle-down’ impact a hit at the top would have on more affordable properties.
A recent KPMG poll of 25 global property investors, collectively managing assets with a total value of over \$400 billion, found a consensus that the uncertainty following Brexit would be extremely damaging to the UK property market. Indeed, inward investment in property has taken a hit since the announcement that the referendum was taking place.
This could, of course, be a mixed blessing for landlords. When stock is in short supply, prices rise, and this is as true for rental properties as it is for owner occupation. However, landlords looking to expand their portfolio could find it harder to do so.
One of the major arguments being used by the Remain camp is based on the presumed impact on household income in the event of a vote for Leave. The Treasury have estimated that this could be over £4,000 per year.
This could have major implications for tenants’ ability to pay the rent, resulting in either higher rates of arrears, or a forcing down of rental prices. But the argument really isn’t as clear-cut as this – how household income would actually look post Brexit is still impossible to nail down.
Finally, immigration is clearly one of the major issues surrounding the referendum. The Leave camp argue that ‘uncontrolled’ immigration has driven down wages and made it more difficult for Brits to get jobs.
However, many suggest that this ignores the contribution that migrant workers have made to the economy – particularly in the construction sector. Many housebuilders have warned that the drying up of European workers would have an impact on the availability of new stock, with renewed difficulties of finding trained, skilled workers in the UK.
How do you think leaving the EU would impact your portfolio? Let us know in the comments section.
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