How a Labour Government could affect the property market

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On Friday 5th July 2024, it was announced that the Labour party were victorious in the UK’s general election. Once the dust has settled, everyone in the property sector will be wondering what the ramifications will be. As most experienced agents will attest, general elections tend to have a dampening effect on the property market in the weeks and months leading up to it. As with any financial market, in the property market, uncertainty breeds indecision and apathy, with would-be buyers often tending to delay a big move until they know who is in charge of housing policies. This is particularly the case at the top end of the market, which is why most agents dislike general elections.

This article delves into Labour’s housebuilding targets, their support for renters and first-time buyers, and the anticipated reforms in the housing sector, providing insights into what these changes mean for homeowners, investors, and renters alike.

Please note, this article contains no opinion on the winning government. This article is purely informative. As such, links to our research are detailed throughout.

So what changes in policy, if any, can influence the way the market is heading?

The key issues for the sales market can include the following:

  • Stamp duty levels
  • Incentives to builders increase the level of houses built in the UK
  • Potential changes in planning restrictions to free up land more quickly
  • Help for first time buyers

There are offers to first-time buyers, with Labour proposing a permanent mortgage guarantee scheme.The Labour Party emphasises making grey belt and brownfield land available for development, accompanied by £20 million funding to employ 300 more planning
officers. They’d also update the National Planning Policy Framework ‘immediately’ and introduce ‘Golden Rules’ to ensure that both communities and nature benefit from new developments. It remains to be seen if these promises will come to fruition, as changing cumbersome planning systems has proved to be problematic over the past 14 years.

The Tories’ pledge to build “over three hundred thousand new homes every year” since 2010 has not been met in a single year since, with the most houses constructed being in 2022 when just over 200,000 homes were built. This comparative lack of new homes has contributed to the supply and demand imbalance, which in turn distorts house price inflation in the long term. Driving around most areas in the south east, you could be forgiven for wondering if there really is a shortage of new houses being built, but of course there are massive regional variations.

One interesting factor with all the main parties is the proposed changes on leasehold properties. The Leasehold and Freehold Act, rushed through Parliament just before the Parliamentary session ended, aims to improve the lot of leaseholders in England and Wales. It will be easier and cheaper for leaseholders to extend their leases, with the so-called “marriage value” between short leases and the cost of such an extension being abolished, so it should no longer cost a lot more to extend a lease just because there is less time left on it. There will be the option to extend leases to 999 years rather than 50 or 90 years and there is now a ban on new leasehold houses. Propertymark, the well respected property trade body, has campaigned long and hard for a cap on ground rents, but the Act failed to enshrine this in law.

However, we anticipate that Labour would bring this in, in due course. Not long ago, Labour had promised “to end leaseholds altogether within 100 days of coming into office”. They have since backtracked on this, but we anticipate that they will go further than the provisions of the recent Act, thereby making leasehold properties more attractive. Much of the Act will not come into force immediately, with the actual dates being at the discretion of our new government, but it nevertheless sets the tone for the direction of travel in respect of leasehold legislation.

So what does all this mean for leasehold property prices?

According to David Vawdrey, Senior Branch Manager for Sims Williams in Bognor Regis, leasehold prices have lagged well behind freehold prices for many years. He says,

“A survey carried out by a prominent London agency in early 2024 showed that the average freehold property commanded a price tag of £300,000 in 2023. Not only was this 42% more than the average leasehold home, but this freehold price premium has climbed by 6.5% when compared to 2022. This is due to a number of factors, with the lack of control over service charges being a significant reason. With the right to self – manage leasehold properties now being available to leaseholders, along with the recent legislation, we believe that the comparatively low cost of leasehold properties will make them more appealing to both owner occupiers and investors over the coming years”.

What of the Private Rented Sector?

The Renter’s Reform Bill failed to come into law before the election was announced, despite numerous promises by the Levelling Up minister, Michael Gove, that it would be passed beforehand. The Bill promised numerous changes to the way rented property is handled in England and Wales. Examples include the abolition of so called “no fault evictions (Section 21 Notices) and the abolition of landlords’ ability to reject a tenants’ request to be allowed pets. It also allowed for landlords to be able to gain possession of their properties quicker, in the event of antic social behaviour from tenants.

Labour, via Angela Rayner, have promised “to end no fault evictions from day one of coming into office”. Whether they mean that they will start the process of ending them from day one, or will actually end them from day one remains to be seen, but suffice it to say, they will be committed to end in Section 21 Notices, at least as soon as the courts are able to cope with the potential applications for possession via other grounds.

Should landlords be worried about this?

According to Richard Moores, Partner at Sims Williams, there has been a lot of hype anyway over the Bill, some of which is exaggerated. He says,

“Whilst some of the proposed reforms may seem unwelcome, from a landlords’ perspective, we feel that there is too much negativity. Take the possible abolition of the Section 21 Notice, for example. Landlords will still be able to gain possession of their asset if they wish to sell the property or move in themselves, or if a close relative moves in. It is estimated that over 90% of tenancies are ended by tenants anyway, either because they are buying somewhere or they are moving out of choice to another rented property”.

“When a Landlord wants to regain possession of their property, it is nearly always because they are selling or moving back in. We anticipate that Labour will wish to drive through the main points of the Bill if they get into office, and possibly go further, but this should not mean that Landlords can’t let their properties with confidence. Every political party acknowledges that the Private Rented Sector plays a big part of the UK economy and with a dearth of social housing to replace it, landlords are actually needed now more than ever”.

Ultimately, the main driver of the direction the property market will take is how well the economy is doing. “It’s the economy, stupid”. So said James Carville in 1992. Carville was one of Bill Clinton’s strategists leading up to the US presidential election and he was implying that most people care most about how much money they have, over all else. If interest rates, as expected, start to fall this year and inflation stays at around 2%, then the housing market should improve, with the volume of sales improving. For savers, seeing a lower rate of interest on their money may see them looking for alternative investments, such as buy-to-lets. It also means that buy-to-let mortgages will be more competitive. Whatever measures are introduced in respect of the housing market, if the economy strengthens, we expect the sales and lettings market to follow.

Sims Williams are estate and letting agents with offices in Arundel, Bognor Regis, Chichester and The Six Villages. For support and guidance you can trust, contact Sims Williams and move with confidence.

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Mr & Mrs Wong Vendors - Oct 21st, 2022

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