On 23rd June the UK is set to go to the polls to decide on whether we want to remain part of the growing European Union. From a housing perspective, we believe a vote to leave can only have a negative impact on the private rental sector and the wider residential property market.
There are two key points that those involved need to focus on between now and then.
Informing and educating the UK so people understand the benefits, impact and drawbacks of voting for staying in or coming out of the EU.
Convincing those eligible to vote to actually cast their vote at the polling stations!
It is going to be a close call if a recent FT ‘poll of polls’ is a good indicator, showing 44% in favour of staying versus 42% preferring to leave. The recent visit by Barack Obama, the President of the USA, may well have influenced a number of voters and it certainly annoyed and frustrated the anti EU lobbyists.
What is clear is that there are many people with strong views and opinions on both sides of the debate as well as a significant number still to make up their minds.
There is a great deal of uncertainty about the impact and likely outcome if the UK choose to leave the EU. We would predict that there will be little immediate, noticeable change economically, and importantly, no change to the border controls initially. However, the speculation following a number of influential people backing the UK to leave campaign, such as Boris Johnson, led the UK £ versus the US $ to fall dramatically so a decision either way is likely to at least lead to a strengthening of the pound.
As property professionals we can try and predict how the private residential property rental sector could be affected:
Foreign buyers and landlords could potentially reduce investment in the Capital.
London has, for many years, been considered to be a safe and secure city for foreign investors. It is estimated that almost half of investors in central London property are foreign. We are currently in a period of uncertainty and this has led to a noticeable slowing of foreign investment in London during the last year.
The foreign investors who already own property are unlikely to sell and cash in their assets in the short term due to the recent down turn of foreign exchange rates. However, in the longer term in this scenario, London and the UK will become less attractive thereby negatively effecting future foreign investment potential.
We at Premier Property Search believe that the effect on foreign investment could be even greater once the result of the 23rd June vote is known. It could take more than two years to fully disentangle ourselves from the EU, during which the period of uncertainty will continue.
‘Right to Rent’ checks increased
From the 1st February 2016 there were new right to rent checks for private landlords and tenants. All private landlords in England now have to make ‘right to rent’ checks. This means checking that tenants have the right to be in the UK.
What this means for Landlords
You need to make ‘right to rent’ checks if you:
are a private landlord
have a lodger
are sub-letting a property
are an agent appointed by a landlord to make right to rent checks
Current EU rules mean that EU nationals have universal rights to rent in the UK with the production of their passport or national identity card.
If, however, it becomes necessary for people from all countries within the EU plus Switzerland to hold a visa in order to remain in the UK, the document checking process will become more burdensome and will need to be carried out again periodically where only a time-limited right to remain has been granted. This will mean that demand for rental properties, and therefore prices, will decrease.
Overall, potentially less demand for rental properties
Major UK-based employers may reconsider their location – other European countries may appear more appealing with access to the single market. If trade deals cannot be set up quickly there is the threat of job losses and a general rise in living costs that could have a significant effect on the ability of tenants to pay their rent. There would be less demand for both serviced accommodation and properties to rent.
Lower rent prices
Immigration specialists believe that there are about 3million EU nationals currently residing in the UK with the vast majority in private residential rental properties. These currently legal residents may become required to hold a visa in order to remain living and working in the UK and some of these may not have their requests granted, leading to an exodus. As a result, the demand for rental properties in the UK will likely reduce within a matter of months. The direct consequence will be a continued demand for rental properties from UK citizens, however, with a reduced demand from EU nationals means that rental prices will be affected and are likely to plateau or decrease.
It is difficult to predict the likely outcome of the forthcoming elections on 23rd June. It is widely anticipated that it will be too close to accurately predict the outcome of the referendum. The true impact should the UK electorate chose to ‘opt out’ will take several years to really take effect.
The private rental market has already been dealt a blow by the Government recently, with the introduction of increased SDLT of 3% on second or investment properties and a reduction in mortgage relief.
From a property perspective we expect it can only have a negative impact on the private rental sector and the wider residential housing market should the country decide to leave the EU.