The value of the Private Rented Sector (PRS) in England, Wales and Scotland grew by 5.8% to £1.4trn in the last year according to a new report, The Changing Face of Buy-to-Let from Shawbrook Bank.
Since the first national lockdown, house prices have rebounded at pace. March 2021 saw house price growth of 9.9% year on year, as the Stamp Duty holiday boosted confidence and demand. Buy-to-let properties have also seen marked price increases, with the value of the average buy-to let property across the UK rising by 5.6% to December 2020 to approximately £258,900.
The past eighteen months have been a period of substantial consequence for the PRS, which had already been impacted in recent years by taxation and regulatory changes. Some landlords chose to leave the market and the PRS actually contracted in size over the last year.
Separately, many tenants made a change, opting to return to their family homes during the pandemic, to leave cities in search of more space, or to make the most of the Stamp Duty holiday and become homeowners themselves. This reduction in the size of the PRS therefore isn’t surprising after the last year. The outlook however points to growth.
Demand from tenants has been growing. In total, 42% of landlords report that they have seen demand increase for their properties in the past 12 months.
In addition, two thirds (67%) of landlords said that they were confident about the future of the property market over the next twelve months, with a third (34%) of all landlords planning to buy a property in the coming year.
As house prices continue to grow, an increasing number of people are renting for longer. Half (49%) of renters say they expect to be renting for the rest of their life. Affordability is one reason behind these figures.
However, a growing number are also choosing to stay renting. More flexible lifestyles have led to some looking for the same from their property. In total, 10% said they prefer the reduced responsibility of renting, while a further 7% said that renting allowed them to live in a better location than if they bought.
When asked why they were confident about the future of the property market, landlords pointed to house price growth (41%), an increase in demand from tenants (41%), the general strength of the economy (33%), and the increased rental yields currently available (26%).
For landlords looking to buy over the next year, to capitalise on the increase in tenant demand, and current low mortgage rates, Shawbrook’s research reveals the regions where high rental yields can be achieved. The highest rental yields can be found in the North West (5.5%), Yorkshire and the Humber (5.4%) and Scotland (5.8%). In comparison, while London may generate the highest rents, yields for London buy-to-let properties are currently amongst the lowest at 3.9%, below the UK average of 4.3%.
John Eastgate, MD, Property Finance at Shawbrook Bank, comments: “Against the backdrop of the pandemic, the PRS has once again shown its strength and the important role it plays. Landlords are looking to expand their portfolios due to a combination of rising house prices, attractive yields and growing demand from tenants. Borrowing to help fund this expansion is an attractive option, with landlords presented with great choice and historically low mortgage costs.
“While more first-time buyers have stepped onto the property ladder in the last year, the reality is that rising house prices mean more will continue to be locked out of home-ownership. This, coupled with disruption to employment and lagging wage inflation, will make it difficult for some to buy their own home. In addition, with more choosing to rent for the flexibility and freedom it offers, there is a clear need for professional landlords who can offer high quality accommodation.”
A good article from Shawbrook and it makes a change from the usual negative story around the rental sector.
The PRS has a good future and I do not buy into the doomsayers who for the last 10 years have said that landlords are being pushed out of the sector. None of the statistics support this. There will be a resurgence of landlords buying homes as rental yields increase.
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There have been concerted efforts to remove private landlords from the sector, to scare them out, to tax them out.
Private rented sector provides income yield and capital growth something institutional and professional investors like. Since 2005 property as a pension has been a thing, property is an HPI linked investment theat will naturally ebb and flow with a relatively stable growth pattern.
Build to rent can satisfy most demand of institutional investors; nice clean new build, in the right areas with optimum low maintenance construction, tip top spec on insulation and energy efficiency, easy to rent but as the sector is identified as a secure and stable investment having sop many amateur nand accidental landlords invested in the sector is a nuisance.
Property that goes to the Private rented sector through institutional investment or professional landlords won’t be release to the sales market any time soon
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BTR is a tiny proportion of the PRS and on one hand I hope it attracts more institutional investment as it may help to raise the standard of rental homes.
Remember the dire warnings when Section 24 was announced as well as lots of other measures? Similar to Brexit. Landlords have not exited en masse and more will join as yields increase.
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So …… impacted in recent years by taxation and regulatory changes. Some landlords chose to leave the market and the PRS actually contracted in size over the last year.
As house prices continue to grow ….. = poor yields and even non-viable!
Wait till England catches up with the rest of the UK with licensing and required EPC Band C. The fall out will be horrendous. Negative, no. Reality, yes that a school economic project can work out.
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Nearly all sectors expand and contract over time. Estate agency is the same with completions rising and falling.
I do accept that EPC standards will have an impact but I doubt whether this “catastrophe” will be any different to the series of other “catastrophes” that have been exaggerated in the last five years.
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The PRS is much more nuanced than this article says e.g. no mention of the future effects on the many thousands of landlords who own flats affected by the cladding scandal and will face bankruptcy, as well as first time buyers in the same position and who will have their credit ratings trashed, making it impossible to pass landlord credit checks when faced with having to rent.
What I see is lenders will take back worthless properties and some landlords with access to cash will become much, much bigger as these properties become available at knock-down prices but unmortgageable.
S.24 is a major issue, whatever this article says. If it isn’t, the landlord isn’t earning enough and isn’t carrying significant leverage. Also, rent controls are on the agenda, and while the evidence says they don’t work, they are a good political move and landlords will have to take the pain for some years to come.
Thousands of landlords will be forced out of the PRS along with those, like myself, who’ve simply had enough and want a hassle-free retirement. The numbers just haven’t filtered through yet because of the problems of the past 18 months.
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The cladding issue is a big problem with no easy solutions.
There is no evidence to show that rent controls will come into place although I am sure if Labour get in that will happen.
If a landlord is not leveraged that is his benefit.
As in all things if a business does not work for you are free to get away from it.
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With the SNP now joined at the hip with the Greens, we will see rent controls in Scotland. Khan would love to introduce rent controls in London, but doesn’t have the authority.
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