There is little doubt that Brexit will have a huge impact on the property market; the question is to what extent and whether it will have any particular legal significance. Plainly the impact on the market will depend upon whether there is a deal with the EU which will reassure markets, business, investors and individuals such that there is sufficient confidence in UK property as an investment going forward. And if the UK crashes out without a deal? If that is what happens, there is every prospect of the market returning to post-2008 market crash intransigence with little investment and those holding assets also just holding their breath as long as possible in the hope that the market picks up. A return to large scale land banking is possible. Unless there is sufficient political will to use a potential property crisis as an opportunity to do more in terms of genuinely affordable housing than has been done in decades, it seems there is a bumpy ride ahead.
According to government statistics, mortgage possession claims fell consistently from a peak of 26,419 in April to June 2009 before stabilising in January to March 2015 when only 5,643 claims were issued. In Q1 2019 there was a 37% increase against the same quarter in 2018. This would seem to be a painful symptom of Brexit uncertainty and the associated slowdown in the housing market more generally working its way through to consumers and homeowners.
We have been experiencing claims relating to different products. We have seen an increase in repossession proceedings by mortgage lenders related to capital and interest repayment products. There has also been an escalation in claims against borrowers whose interest-only mortgages have ended. According to UK Finance, there are approximately 1.66 million interest-only mortgages in the UK as of December 2018. FCA research suggests that 10% of interest-only mortgages have absolutely no related capital repayment plan/vehicle at all and 50% are likely to have a shortfall.
Of the 1.6 million mortgages currently in place, approximately a third are held by borrowers over the age of 55. Many of these borrowers will have insufficient capital or savings to repay their mortgages in full and insufficient sources of income to service a mortgage into retirement. They will be faced with stark choices such as downsizing, equity release loans or working for longer. Sadly, for many, these options may not be viable due to insufficient equity and this in part has accounted for the increase in possession proceedings against this group of borrowers. With the popularity of interest-only mortgages in recent decades, it seems unlikely that this trend will be curbed in the near future. Indeed the possibility of a post-Brexit market crash wiping out equity on homes could mean the trend escalates dramatically.
Private rented sector
On the 1st June 2019 the Tenant Fees Act 2019 came into force. It bans fees charged to tenants by landlords and letting agents save for prescribed exceptions. The reform was intended to bring an end to the common practice of charging tenants referencing and administration fees at the start of the tenancy. The Association of Residential Lettings Agents (ARLA) has reported a record number of rent increases as a result of the ban. According to the ARLA June snapshot, 55% of agents saw landlord clients increasing rents. Whether this will result in an increase in possession proceedings due to rent arrears remains to be seen and this is one factor, along with the proposed legislative amendments discussed in more detail below, which may cause upheaval in the residential lettings market.
Electronic Communications Code
The new Electronic Communications Code (‘the Code’) came into force on the 28th December 2017 replacing the original telecommunications code. The Code sets out various rights of communications operators to deploy and maintain apparatus on, over and under land. The first substantial case on the mechanics of the Code Rights came before the Upper Tribunal at the end of 2018 (Cornerstone Telecommunications Infrastructure Ltd v University of London  UKUT 356 (LC)) and, while it goes some way to clarifying the extent of the rights available to operators, there are many more teething problems which are likely to require the Upper Tribunal’s consideration in the coming years. The Upper Tribunal is reported to have around 50 cases working their way through so expect to see lots more decisions.
Onerous ground rents
Ground rents, particularly ground rents which increase in an exponential manner over the lifetime of a lease, have been getting increasing attention following the recent media coverage and proposed reforms. The proposed reforms involve banning levying ground rents other than a peppercorn in all new leases. On one view this may be a sledge hammer to crack a nut. Some commentators have expressed concern it will drive investment away from UK property. Many are hoping a more measured reform, which seeks to limit the amounts by which ground rents can increase, will ultimately be the answer. However, and whichever way the reforms go, we are likely to see a fall in the market for ground rent investments.
In the meantime, for the foreseeable future those unlucky enough to be tied into onerous ground rent provisions are creating an upswing in professional negligence. There have been many successful claims against conveyancers for failing to advise purchasers of the impact of the provisions prior to the purchase and it seems there are more in the pipeline.
Stamp duty reform
With a new government in situ and some bold promises made during the leadership hustings, the stamp duty rule seems a likely target for a further round of reform. In 2014, stamp duty was reduced for first time buyers and properties below a certain value (depending on location in the country) but, at the same time, it was increased for homes valued at £925,000 or more resulting in a substantial reduction in the number of transactions at the top end of the market. We do not yet know how the suggested amendments will manifest. The suggestion of reducing the top rate of stamp duty from 12% to 7% would certainly give a boost at the top of the market.
Grenfell service charge claims
In the wake of the Grenfell disaster we can expect a wealth of service charge disputes in coming years. Freehold owners of buildings with the defective ACM Cladding, widely believed to have been instrumental in the Grenfell blaze, are following advice from the London Fire Brigade and the Department of Communities and Local Government. They are having the cladding removed and replaced. We have already seen the First-tier Tribunal (Property Chamber) have to grapple with the question of who is responsible for the cost of these works which are for the ‘benefit’ of the leasehold owners. The right to recover service charges is always governed by the terms of the particular lease. Freeholders are arguing they are acting on governmental advice and the costs come within the relatively standard leasehold provision allowing the freeholder to ‘recover the costs of complying with statutory requirements or requirements of a competent authority’. It is unlikely to be long before the Upper Tribunal are asked to consider this issue and in the meantime there is mounting pressure on central government to provide funding to assist private leaseholders and freeholders in meeting the costs of the works.