Richard Rowntree is managing director of mortgages, Paragon
Before Brexit was ousted by COVID-19 as the main news item, it dominated our headlines for a number of years. Finally, we now have a clearer picture of our future relationship with our continental neighbours.
Despite an air of uncertainty still surrounding the impact of on the wider economy, I feel the influence of Brexit on the private rented sector (PRS) has largely been felt.
There are a number of factors to consider with regards to Brexit and the PRS, immigration being a key topic.
Immigration was a divisive subject in the Brexit debate. The PRS has long been a home to immigrants from all over the world, either on a short-term basis for seasonal work or for longer as people make a permanent home here.
Net migration from EU nationals more than doubled between 2010 and 2016, and many of those moving from Europe to the UK lived in the PRS. Clearly since the result of the June 2016 referendum was announced, there have been questions about how it would affect the number of foreign nationals who migrate here.
Many would have predicted a reduction in overall net migration as a result of the vote, but quite the opposite has happened. In the year ending March 2020, 313,000 more people moved to the UK than left. This is nearly double the 166,000 recorded for the year ending June 2016.
What we have seen is a shift in the composition of that number, with a steep decline in long-term EU migration. Since the Brexit vote, EU net migration has fallen from 189,000 in the year to the end of Q2 2016, to just 58,000 according to the most recent figures.
Non-EU nationals have more than filled the gap, with students coming from all over the world to study at our world class universities driving this growth. Landlords have been responding accordingly, switching focus to these new markets.
I would expect to see a further decline in the number of EU nationals coming to the UK to live, but a softening of the rate of decline.
A new points-based system, with salary and language requirements, will change the way UK firms hire from the EU, possibly acting as a further brake.
As numbers have declined over the past four years, pockets of the PRS have already felt the impact of the decline in EU nationals – areas that rely on seasonal work, for example.
Nevertheless, landlords in these sectors have largely adapted to the changes over the period, and pivoted their properties to other markets.
Alternatively, they may have already sold their properties, as tenant demand has dried up.
On a practical level, landlords will be looking for more certainty about their obligations around right to rent checks and letting property to EU nationals.
Until 30 June, right to rent checks will continue in the same way as they do now for EU citizens, but the longer-term picture is less clear.
Landlords will be seeking clarification from the government on this issue.
With regards to tenant demand more broadly, I see other macro issues having a greater impact than Brexit. Coronavirus still dominates, and is creating record levels of tenant demand as people continue to reassess how and where they want to live.
Where the PRS could still see the effect of Brexit is in specific industries being negatively impacted. The automotive industry, for example, relies heavily on exporting to the EU. Even in a tariff-free environment, automakers may look to relocate manufacturing bases to the continent.
The loss of major employers will clearly have an impact on local rental markets, but the impact overall on the UK PRS has largely been absorbed.
House prices are also an area of interest for landlords. Again, I feel the impact caused by Brexit will be negated by broader macro trends and the government’s fiscal policy.
Brexit is just another element to consider in an already extremely complex market.
A further extension of stamp duty, for example, will continue to light a fire under the housing market and sustain price growth.
Conversely, the removal of the holiday, plus the unwinding of the various other government support schemes that have been in place, will invariably lead to a softening of prices.
The impact of Brexit could be found in very specific local markets – again, where a major employer relocates –
but there are broader issues at play that might influence house prices and tenant demand.