Although that was ten months ago, all we’ve done so far is send a letter to the EU confirming our decision. But lots has happened to the economy already and there are all sorts of predictions being made for the future. That means it’s time for landlords to look at how Brexit could affect both the Private Rented Sector in the UK and property ownership abroad.
What the fall in sterling has meant
Probably the biggest result of the Brexit decision so far has been the drop in the value of the pound. The day after the vote, it dropped to $1.33 against the dollar, which was the lowest it had been since 1985, according to the Independent (http://www.independent.co.uk/news/business/news/pound-sterling-slump-drop-key-moments-four-charts-graphics-how-low-could-it-go-a7529136.html). In October, it hit a record low of $1.1841, then rose to $1.24 shortly after. Seven months later, it’s still at a similar level.
You might think this doesn't affect you if you’ve only got rental property in the UK, but it does. That’s because it impacts on the economy, which ripples out into lots of areas.
How the economy performs has an influence on people’s jobs and wages, and those are things that drive tenant demand and how much rent they can afford to pay. Some of you will already be seeing good news stories if you’re in an area where there are a lot of companies that export goods and services, because they’re now cheaper. And when companies’ costs go down, they tend to expand, meaning more jobs, higher wages - and that makes for a great local economy. The only areas that might be seeing a bit of an economic ‘flatline’ are areas where lots of businesses buy or use a lot of products and services from overseas, because their profits will have been squeezed. The bonus here for landlords, though, is that when things are uncertain, more people tend to rent than buy.
Look at the effect a fall in the value of the pound has on inflation, because if you’re aware of it happening, you can probably take some steps to protect yourself. The Consumer Price Index produced by the government shows that “including owner occupiers’ housing costs (CPIH, not a National Statistic), the 12-month inflation rate was 2.3% in February 2017”. This time last year it was just 0.5% in the year to March 2016.
The reason high inflation affects you as a landlord is because your general cost of living has risen by 2.3% over the last year. But you can take action to make sure this doesn’t have too much of an effect on you. The first thing to do is check your tenant’s tenancy agreement to see how soon you could increase the rent. Then come and speak to us in your local Your Move branch and we’ll be happy to talk through the options you might have.
Landlords don’t always realise how important it is to review rents on a regular basis and we find they quite often prefer to leave rents where they are, so they don’t risk losing a good tenant. But you’ve got to understand that you need to try to raise rents in line with inflation. For example, if you charged £750 a month rent in 2012, you’d need to be charging just over £800 now, just to cover your own increased costs.
Tenant demand: rise or fall?
On the one hand, tenant demand might fall in the future if fewer foreign workers come to the UK. That’s because many of them rent rather than buy. On the other hand, Brexit brings a lot of uncertainty and when there is an uncertain economy, more people tend to rent so that if things don’t go according to plan, they’re not tied to a mortgage and can change their living situation more quickly and easily.
Currently, it’s expected that tenant demand will continue to steadily rise in the UK. The English Housing Survey for 2015/6 showed rental levels were stable, with 4.5 million or an average of 20% of households renting privately, as opposed to buying or living in the social rented sector.
But there’s one big thing that we don’t know yet, which could have a big impact on tenant demand. Until a Brexit deal is made, we don’t know how many of the 2.9 million European migrants currently in the UK will stay and how many might go back to their own countries (source: http://www.bbc.co.uk/news/uk-politics-uk-leaves-the-eu-36745584). While the rental market in major cities and towns probably wouldn’t be affected very much, the very few rural areas where there have been particularly high levels of immigration might suffer if a lot of migrants decided to leave.
So, if there are high levels of migrant workers in your area and you want to make sure you’re not affected if they decide to leave, come and speak to us. We can help you find a strategy that means you’ll keep securing tenants into the future.
Impact on finance
With a lot of doom and gloom following the vote to leave, lots of people predicted that mortgage rates would rise, believing Brexit would drive up the cost of borrowing. Not only has this not happened, but we’ve seen some record-breaking, low-rate mortgage deals. And that’s great news for landlords because it means the cost of borrowing is likely to be reduced.
Paul Nurding, National Financial Services Director for Your Move explains: “At times of uncertainty, landlords can either hope that rates stay the same or even fall further - although this would be difficult when we are seeing rates as low as 1.64% for a two year fixed deal* - or consider fixing to secure costs during a potentially turbulent time.”
If you haven’t already, it’s worth checking that you’ve got the right mortgage and are on the best rate for you and your particular circumstances. Visit the Your Move website for more information and to book your free initial consultation.
*Last updated 8th May 2017. Subject to change
What should landlords do about Brexit?
The reality is that although the property market is obviously affected by national and international factors such as Brexit, as well as general confidence and the availability of finance, it’s much more to do with the economics of each local area. The success of your local economy is what will have the biggest effect on rental supply and demand.
So come and speak to us in your local Your Move branch and we’ll help you understand the rental market in your area, find your local branch details.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
Our initial mortgage consultation is free. We will charge a fee between £399 and £999 that is payable on application. The amount we will charge is dependent on the amount of research and administration required. We reserve the right to charge a subsequent fee of £99 for each further application that may be required.