Last week we wrote an article on the value of the pound, and talked about what seems likely to many – that the Conservative Party will win a majority and deliver Brexit as promised. Such political and fiscal stability could cause the pound to rise, having overseas investors lose their advantage on weak sterling of late.
However, this is general election is not straight forward, and although polls continue to represent a Conservative lead, Labour has made gains. Besides that, we just cannot rule out the possibility of coalition governments. With that said, in the run up to this much anticipated and dreaded election, we have a look at the various policies and issues that could affect property investors.
Let’s break it down by party manifesto…
The Conservatives on landlords and renting
Withdrawal of legislation allowing landlords to evict tenants without giving a reason. Known as Section 21, the current framework allows landlords the opportunity to end a tenancy whenever they like, if they want to reclaim possession of the property. This may be a blow to landlords, but comes as a result of pressure from renters groups who argue the current rules cause renters to feel insecure in their own homes. The withdrawal of this legislation does not prevent landlords from evicting problem tenants.
Lifetime deposits for renters. Deposits set at a fixed rate with be able to be transferred between homes, such that borrowes can put 5% down and repay the same amount over the term of the deal, meaning buyers will not be hit by spikes in interest rates. Boris Johnson himself is quoted as saying
“A Conservative majority government will empower renters and give them greater peace of mind. We will end no fault evictions, so that landlords can’t remove tenants without good reason, and introduce Lifetime Rental Deposits so renters don’t have to save up for a new deposit while their money is tied up in an old one.”
The Labour party on landlords and renting
Indefinite Tenancies for Private Renters. Labour has pledged to protect private renters from eviction with new indefinite tenancies, mimicking the current German system. This means that tenants will only be able to face eviction on severe grounds. If this works anything like the way it does, the average tenancy could endup lasting, on average, 11 years as compared to the current 4 years in England. This is intended to increase security and stability among renters and curb the phenomenon of rogue landlords.
Capital Gains Tax on properties charged at income tax rates. The capital gains tax free allowance of £12,000 would be removed and Capital Gains Tax rates would be replaced by a tax in line with an investor’s personal income tax rate. The aim of this initiative is to make sure income from wealth is taxed “equitable and efficiently.” Currently Capital Gains Tax over the allowance of £12,000 is 10% or 20% depending on income, whereas Income Tax is 20% as a basic rate and 40%/45% for the higher tax bands. Depending on a person’s current income tax rate this change could see tax rates for owners of second properties move from 28% to 50%.
Rent controls. Labour have announced that they will cap rent at rates of inflation, although cities will have their own power to implement greater caps. This is another bid to ensure tenant security, as they will protect them from large surges. However, rent controls are not always encouraged, especially when they can reduce the incentives for developers to build more housing. There is a suggesting that a quid-pro-quo method of introducing tax relief as a reward to landlords voluntarily adopting such controls may be a useful way forward.
The Property MOT. Labour plan to introduce a national “property MOT” to tackle poor private housing conditions. A legal requirement for landlords to complete an independent annual inspection is design to ensure homes are up to minimum standards. If landlords let out substandard properties or flouted the rules, they would face fines of up to £100,000 and be forced to repay rent to tenants.
The Liberal Democrats on landlords and renting
CGT to be set at income tax rates. The same as above for Labour, ensuring that wealth is taxed fairly, matching the taxation of standard income.
Three year tenancies. The Lib Dems promise three-year tenancies to help renters gain more security.
The Liberal Democrats on landlords and renting
Echoing much of the above, Green Party Policies outline rent controls linked to local incomes, an end to no-fault evictions, and rules for all rented homes to have an energy rating of A (up from E) by 2030.
How do you choose? That’s up to you. Many of the policies above may suggest a crackdown on the financial limits for landlords in the UK. That may be so, but there is an imbalance between the rights and well-being of landlords compared to that of tenants, one which needs to be addressed. The bottom line is that there remains, and will remain, a housing shortage in the UK. Yes, a different political party coming to power could result in landlords taking home less, but the housing shortage – and demand from tenants – is not going to disappear any time soon.