Landlords needed for rental supply to meet demand
Prospective tenants in the UK’s private rental sector are increasing the demand for rental properties but more landlords are leaving the market, creating an imbalance of supply and demand.
According to recent figures, the number of properties up for rent has fallen by 4% since last year. With the level of demand for rental properties higher than current availability, tenants risk facing more competition for accommodation and inflated rent prices. If new and current landlords decide to invest more, they can benefit from the high demand while offering a greater choice of properties for tenants. However, with the Government introducing new proposals to help first-time buyers and
supporting build to rent schemes managed by large single companies rather than individual landlords, are they creating a harsher business climate that puts investors off?
Stats Show Demand Going Up and Property Supply Down
The Private Rented Sector Report conducted by the Association of Residential Lettings Agents (ARLA) Propertymark was released in July. The report polled 191 ARLA members on information regarding rental supply, tenant demand and rent prices. It showed that in July 2018, demand from prospective tenants in the UK’s private rental sector increased to the highest level of the year so far. September 2017 was the last time it’s been that high. There were 79 new prospective tenants registered per branch of letting agent in July 2018, up from 71 tenants in June, and 70 in July 2017. Due to the increased demand, competition among tenants has also increased which can push rent prices up. In June 2018, 35% of tenants experienced rent hikes.
Rental supply isn’t keeping up with demand as the number of available properties for rent decreased from 191 per letting branch in June, to 184 in July. Supply is lower year-on-year and it’s gone down by 4% since July 2017 when there was 192. An average of four landlords per branch took their buy-to-let properties off the market, which is up from three in July 2017.
Landlords Stamped On and Offered No Relief
Former Chancellor George Osborne introduced a 3% stamp duty surcharge on second home purchases in April 2016 and cut the 10% wear and tear allowance (a tax-deductible cost based on the gross rent received, which has been replaced). He also slashed higher-rate tax relief on mortgage interest repayments. From April 2020, landlords will no longer be able to deduct their mortgage costs from their rental income. When making these changes the Government claimed it would level the playing field between buy-to-let investors and first-time buyers struggling to get onto the property ladder, while build to rent would empower Generation Rent.
The increased cost of buy-to-let mortgages combined with the loss of tax relief on mortgage interest payments has made owning additional properties less attractive and put buy-to-let landlords under more pressure. Latest 2018 figures from UK Finance show a 12% drop in landlord purchases in the last year and Paul Smith, Chief Executive of Haart Estate Agents, said tenants are suffering as a result of the knock-on effect. He added, “The Government must stop penalising those who are willing to
invest in the rental market and stop its needless crackdown on the sector.”
Investing in the Solution
The availability of properties might be declining but a recent study showed that almost a fifth of all landlords in the UK have declared their intentions to continue being active in the buy-to-let (BTL) sector. This counters the idea that residential landlords are planning on leaving the market in large numbers. In its current state, with the market seeing a level of demand for rental properties higher than current availability, now could be a good time to invest in properties and buy-to-let hotspots. Because rental demand has annually increased by 13%, while the number of properties up for rent has fallen by 4%, the market has opened up for buy-to-let investors.
In August 2018, Sainsbury’s Bank Mortgages backed this up with research indicating that 9% of UK adults showed an interest in taking out a BTL mortgage in 2018. Meaning an extra 4.8 million people could become landlords. Almost a third of participants said they were encouraged by current opportunities to enter the BTL market.
Letting the Youngsters Run with the Land
Estate agents yieldit analysed the demographics of their buyers for the last four years and found that the average age of buy-to-let investors had dropped by 10 years. The average age of buyers was 52 in 2014 and it’s 42 in 2018, challenging the view that a typical landlord is from an older generation. Ryan Hughes, Head of Sales at yieldit, said, “There is a wind of change blowing through the market.” He explained the majority of their buyers are property investors looking for tenanted buy-to-let.
Rising tenant demand and record house prices are attracting a wider number of people and first-time investors which he believes “can only strengthen and revitalise the market”.
Widening the Appeal
If more homes are available to rent then tenants could expect fewer fee increases and greater choice. The market needs to become more attractive to investors in order to increase the number of available properties, especially as the surge in demand shows no signs of slowing down. The Government’s policies and investments are totally reshaping the traditional Private Rented Sector. If the research into potential new landlords and younger investors proves to be accurate then it could help to offset the number of landlords recently leaving the market and give the entire industry a much-needed boost.
This article was contributed by Assist Inventories.