Implications of Brexit in the Housing market
As the election draws to a close with uncertainty as to what is to come via a minority Government, Brexit negotiations which were to begin on the 19th June may be delayed and become more complicated; the Housing sector is gearing up to face up to more challenges post Brexit.
Brexit appears to have accelerated the challenges already faced by the sector which have included; investment in construction, welfare reform, increase in demands for homes with fewer resources, social care, as well as a cut in social rents. The EU has invested large sums in social housing in the UK, targeting those areas where it is has been deemed to be difficult to attract national funding.
The European Investment Bank (EIB) has previously offered a good deal for Housing Associations and building companies for funding infrastructure including building new homes. So what are the implications in the advent of Brexit?
Once the UK has left the EU, Housing Associations and building companies are likely to face less favourable rates from lenders. The vote to leave the EU was an unexpected outcome for the markets, as the markets expected the Remain campaign to prevail. Following the referendum credit rating agencies responded with differing rating actions that directly and indirectly impact Housing Associations with resulting higher credit risks.
There is also the question of eligibility for housing in respect of EU nationals in the UK. Their eligibility for assistance depends on their immigration status and why they are in the UK eg working, studying, looking for work. It is unclear what the rights of those nationals in the UK or those looking to come to the UK will be. This will depend on the outcome of the Government’s negotiations. The rhetoric that ‘immigration’ received during the Brexit campaign may mean that eligibility rights of EU nationals will diminish.
Until Britain has formally withdrawn from the EU, it will be difficult for the government to repeal the European Communities Act 1972. So EU law will remain until exit.
If there is an end to free movement, migrants may decide to leave the UK and there may be a shortage of skills in the building field such as plumbing, roofing to ensure we continue to build homes and meet the growing demand.
Any potential mass departure of EU citizens would have a much greater effect on the private rental market than it would on social housing. It’s therefore an assumption that in those geographical areas with a large population of EU migrants will feel the most impact. Falling demand for rental properties by migrants could lead to lower rents for tenants and therefore lower yields for landlords. If a landlord is relying on rents to cover their Buy to Let mortgage, then they may decide to perhaps sell their property. If this happens there could be shortfall of rental properties and so making it more likely that remaining landlords could charge higher rents.
There has also been a delay to the extension of ‘right to buy’ to 2018 which was to be introduced by the Housing and Planning Act 2016 with the financial stress of Brexit blamed for the decision not to push the change through.. The ‘Pay to Stay’ was also scrapped which would have hit thousands of social housing renters.
Perhaps post-Brexit is an opportunity for the Government to work with the housing sector to meet the agenda of building more homes provided funding is still available. We will need to wait and see what form Brexit negotiations are likely to take place so that the full risks to the sector can be identified and planned for and whether there will be another election in 2017.
To obtain further information please contact Aisha Akhtar Associate Solicitor in the Housing Management & Leasehold Services Team on 020 8799 1884