2019 PRS Predictions

 

With Brexit looming and Section 24 continuing to reduce margins, what does the market have in store for private landlords in 2019?

Will 2019 be a good year for landlords? Or will it be yet another difficult year of ever-changing legislation, market uncertainty and housing minister churn? The answer will heavily depend on what you hope to get out of your property business in the next 12 months, but one thing we can say with a fair degree of certainty is that the market will continue to be somewhat volatile.

2019 is the year that Section 24 will really begin to bite. Landlords will notice considerable differences come the tax return deadline on 31 January, and things will only get worse when mortgage tax relief stops entirely in April 2020.

1. Sales and Financing

Those looking to exit the market seem to have the poorest prospects. Uncertainty about Brexit and who may reside in Number 10 in the near future has resulted in a decline in both private landlords and other investors until there is better clarity about future prospects. Likewise, the Prudential Regulation Authority (a part of the Bank of England that ensures financial firms act safely and reduce the chance of getting into financial difficulty) has made it more difficult for many to access the kind of free-flowing finance that property businesses often require for reactive expansion. Of course, if there is a significant correction, finding a buyer is unlikely to be a problem – but the price may no longer be right.

All in all, 2019 may not be the best year to sell in order to fund your annuity.

2. Tenant Fees Bill

The government have announced the Tenant Fees Bill provisions will come in to effect in June which could have a knock on effect to the way landlords operate. See more here.

3. Technology

Like every year for the past decade or so, technology firms are threatening to take over the private rented sector (PRS) but are yet to really break through.

2019 is a make-or-break year for tech firms in the PRS. Either they break through to the mainstream and start to take a genuine share of the mass market, or they are doomed to play a peripheral role for the next five to 10 years.

The key to success will undoubtedly be making good use of the data that landlords and tenants hand over by the bucketload, while taking full advantage of the opportunities presented by the regulation of traditional letting agents, and landlords’ fear of getting things wrong.

4. Consumer Protection

Whilst ever-changing regulations are at the forefont of a landlords' mind, it’s more often than not thanks to an Act of Parliament intended to re-regulate, empower a champion, or provide redress rather than introduction of new legislation. There hasn’t really been any primary housing standards legislation since 2004.

This trend of ‘consumer protection’ looks to continue, correctly identifying tenants as consumers in a professional marketplace.

As well as legislation, the shift in attitude has also influenced litigation targeting landlords letting to tenants on housing benefits, and even government policy such as Universal Credit and Right to Rent, where it is argued that consumers have been poorly served. 

The challenge for NLA is to ensure that landlords are professional businesses and deserve to be treated and taxed fairly.

5. Financial Innovation

For more than 20 years the financial model of the PRS has been largely fixed with the exception of dramatic changes to typical interest rates. However, a combination of taxation changes and the wider reach of Brexit looks likely to change this in some fairly major ways.

The first is already becoming evident. Until 2015 only the largest or relatively specialist private landlords bought the majority of their properties via limited companies. The Finance (2) Act 2015 changed that as it suddenly became more attractive to use a commercial vehicle to acquire property. This has led, arguably far too slowly, to the evolution of financial products and services to help ambitious landlords. Enveloped portfolios and fractional investments look set to take off in the UK as innovation is demanded by the PRS.

The second is exactly who, or what, is likely to buy up property. Institutional investment has been the holy grail of government policy for decades but has never really taken hold. This is unlikely to change overnight, but as investors look to hedge against possible market shock, or sterling devaluation, bricks and mortar is likely to start looking relatively secure. Watch out for REITs and similar investment vehicles becoming much larger players in rented accommodation.

Of course there is no telling what the next 12 months will hold, but we can be certain that while private landlords will continue to be the target of a great deal of derision and potential regulation, determined investors will continue to demonstrate resilience and find ways to make their businesses work.

Want to know more? Listen to NLA Director of Policy and Practice Chris Norris as he looks back at what happened in 2018 and talks through his predictions for 2019 holds for landlords in our latest podcast here.

Need advice? Members can contact our experts on the NLA Telephone Advice Line for free on 020 7840 8939.

 

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