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More than one in ten homes now let by company landlords

The proportion of homes let by a company landlord in the UK has been rising steadily since 2016 to reach the highest level in eight years, according to new figures.

In H1 2019, 12% of homes were let by a company landlord, reaching the highest level since 2011 and up from 9% in 2015 (before the tax changes).

Residential estate agent and property services company Hamptons International estimates that company landlords own 641,480 homes in Great Britain this year. This is 42% more than in 2015 when 452,600 homes were let by company landlords. The increase is partly due to the rise in the proportion of homes let by company landlords, but also due to the increase in the overall size of the rental sector.

% of homes let by company landlords1Y changeChange since 2015
London13%1%1%
Scotland12%3%6%
South (exc. London)12%1%3%
Midlands12%1%1%
North11%3%5%
Wales8%2%-1%

Percentage of homes let by company landlords by region (H1 2019)

Source: Hamptons International

London landlords are most likely to own a buy-to-let property in a company structure. In H1 2019, 13% of new lets were owned by a company landlord, up from 12% in 2015 and 2018.  Meanwhile, landlords in Wales are least likely to own a buy-to-let in a company name. Scotland has seen the biggest increase in the proportion of homes let by a company landlord since 2015 (+6%), followed by the North (5%) and South of England (3%).

Rental growth continues to accelerate, reaching the highest level since April 2016. The average cost of a new let in Great Britain increased to £986 pcm in June, up 3.1% year-on-year. The South West recorded the strongest rental growth, with rents rising 4.5% annually.  Rents in London increased by 4.3% year-on-year. However, June 2019’s figures are compared with a period of weak rents in June 2018 when rents in the capital started falling for three consecutive months. Meanwhile, average rents on newly let properties rose in six out of eight regions, with Wales (-0.4%) and the East (-0.2%) recording small year-on-year falls.

RegionJun-19Jun-18YoY
Greater London£1,737£1,6664.3%
South West£821£7864.5%
South East£1,078£1,0413.6%
Scotland£655£6392.6%
Midlands£685£6790.9%
North£631£6280.5%
East£950£952-0.2%
Wales£668£671-0.4%
Great Britain£986£9563.1%
Great Britain (Excluding London)£787£7741.7%

New lets (pcm) Source: Hamptons International 

Aneisha Beveridge, head of research at Hamptons International, said: “More than one in ten rental properties are now owned by private companies, an indication that the sector continues to professionalise. Increasing taxation for private landlords combined with the growth of the build to rent sector has meant that more companies are letting homes than at any time since our records began.

“London, where landlords tend to have higher levels of debt and often the most to gain from corporate ownership, has the largest proportion of homes let by a company. However, it’s not always more profitable to put a buy-to-let into a company as other associated costs come into play.

“Strong rents in the South drove rental growth in Great Britain in June.  Low stock levels, particularly in the South, continue to put pressure on rents.  Rents rose in six out of eight regions in Great Britain, with the East and Wales recording small falls.”

Source: Scottish Housing News

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Small landlords will dwindle away

The private rental sector of the future will be dominated by larger institutional landlords as the number of hobbyist landlords decreases.

This prediction is from Roma Finance, the specialist bridging finance and development lender, who reports that more and more landlords are using limited companies to maximise tax efficiencies on their investments – and this is set to continue.

Those landlords with fewer than five properties will disappear as the cost of managing their properties and keeping up with ever-changing legislation will prove to be prohibitive.

However, with the number of landlords reducing this won’t affect the number of buy-to-let properties available for rent, but extra administration costs could ultimately increase the rents charged to tenants.

Roma says that landlords are evolving in many different ways, from the legal structure of their holdings, the make-up of their portfolios, the quality requirements they will have to adhere to and the way they will finance properties going forward.

New HMO rules

An area of concern is the impact of the new Houses in Multiple Occupation (HMO) regulations coming into force on 1 October. The number of storeys will be removed from the definition of HMO and minimum room sizes will be set.

Those landlords with one or two storey HMOs will be subject to mandatory licencing requirements by their local council. The Residential Landlords Association estimates that in the UK this will affect an extra 177,000 properties.

EPC ratings

The new EPC ratings which came into force on 1 April mean that rental properties need to be rated as E or above, those rated F and G can’t be let to new tenants or have tenancies extended.

Roma says this provides bridging lenders with a new opportunity to back professional landlords to acquire ‘un-rentable’ properties with a view to improving their EPC rating, which in turn will make them eligible for longer term buy-to-let mortgages.

Opportunities for lenders

From a lending perspective, Roma predicts that more lenders will opt for unique or tailored rates and criteria for each transaction. There are big opportunities for innovative lenders willing to look at how they can provide funding for more complex cases and update their underwriting requirements to take the new legislation requirements into account.

Scott Marshall, managing director of Roma Finance, commented: “Clearly a barrage of regulation and legislation is moulding a new breed of landlords. The days of the hobbyist landlord are numbered as the upkeep and management of rental properties becomes more onerous.

“The private rental sector is due for another shake up in 2018, and beyond, and only the larger players will be able to cope, as they can benefit from their scale of operation.  With the HMO rules coming into force in October, maybe more affordable housing is needed more than ever as an alternative.

“However, as a lender we’re still experiencing a high level of finance demand for rental property, and in the wider market there are many product updates being introduced as lenders seek to adjust criteria to keep pace with a changing market. But it seems clear that the future will be driven by professional landlords rather than the armchair investors of the past.”

Source: Mortgage Finance Gazette

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70% of UK tenants have no plans to buy a property

Attitudes towards renting and homeownership in the UK are evolving, with many Britons preferring the freedom and flexibility that renting provides.

Summary:

  • Changing generational attitudes mean that 12 million people in the UK are renting their homes and have no intention of buying them in the future
  • Wanting less financial commitment, the freedom to travel and not wanting to deal with repairs cited as just some of the reasons behind the burgeoning preference to rent
  • As more people look to move into the private rented sector, it places a greater emphasis on investment into providing enough supply to facilitate this demand

The UK is moving towards a ‘German-style housing model’, with future generations forecast to most likely live in rented accommodation.

Research from a new study by insurer Direct Line for Business has found that, out of the 17 million people currently renting in the UK, around 70% (12 million) have no plans to purchase a property in the future.

With the average property price for a first-time buyer in the UK now 50% higher than it was five years ago, naturally affordability is a concern for many renters. However, 22% of those people not looking to buy claim that they simply do not want to be burdened with the financial commitment that comes with owning a home.

Flexibility is a key factor for tenants today, and renting provides tenants with a greater sense of freedom as opposed to owning a property. 9% of the survey said they want to be free to travel, and 8% said they rent so that they’re not tied down to the local area in which they currently reside.

Furthermore, 22% of those not looking to buy added that they believe the cost of maintaining their home would be too expensive, and instead prefer to have a landlord or management team on hand to resolve any maintenance issues on their behalf.

“The UK housing market continues to change and we are seeing a major attitudinal shift when it comes to renting,” said Christina Dimitrov, Business Manager at Direct Line for Business.

“While price is a factor, many people are increasingly comfortable with the flexibility afforded by renting a property, rather than jumping into homeownership.”

These findings follow a report published in April which highlighted that over 40% of millennials in the UK will now rent their entire lives.

As the demand for rental accommodation rises, it will continue to increase the pressure on rental markets in key UK towns and cities. In Manchester, for example, a city with one of the country’s fastest growing rental markets, it’s anticipated that residential housing delivery will meet just 25% of annual demand by 2022.

Source: Select Property

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Buy-to-let tax clampdown may push potential first-time buyers into another ‘lost decade’

Growth in the rental sector has slowed but it is unlikely to mean it has become any more affordable for first-time buyers to get on the property ladder, Kent Reliance claims.

The lender warns in its latest Buy-to-Let Britain report that first-time buyers are more likely to be suffering rather than benefiting from Government clampdowns on the private rental sector (PRS,) warning of another lost decade for those looking to get on the property ladder.

The report claims that while there were 27,200 fewer mortgage approvals for landlords last year, this hasn’t helped first-time buyers as lending figures to this cohort are down compared with a decade ago.

There were just 23,500 more home loans for first-time buyers last year at 363,100, Kent Reliance said, which is 94,000 fewer than the average seen per year prior to the 2008 credit crunch.

The report warns that there is already a backlog from 2008 and says higher rents caused by extra Stamp Duty and the end of mortgage interest relief on buy-to-let properties will just mean it takes longer for people to save enough to get on the property ladder.

Kent Reliance said buy-to-let was wrongly seen as binary, with landlords frequently seen as taking the properties that first-time buyers would otherwise purchase.

It said: “If this were the case, we would expect the number of first-time buyers last year to have risen by far more than the amount that house purchases fell among landlords.

“This argument does not account for the difficulties first-time buyers have in entering the market.

“Criteria have become far more restrictive, and tighter regulation since the Mortgage Market Review has made it more difficult to secure a mortgage.

“Meanwhile, a lack of building has inflated house prices, accentuating first-time buyers’ affordability issues. In reality, landlords provide a safety net for those unable to buy. Deterring supply in the private rental sector will simply increase competition, make renting more expensive and reduce tenants’ ability to save for their deposits.”

The lender estimated that the number of PRS households had grown by 3% annually in the first quarter, slower than the average rate of 5% over the past decade.

Kent Reliance said this slowdown – attributed to landlords acclimatising to buy-to-let tax changes – meant the value of the private rental sector was flat on the last quarter at £1.4trn, but still up 5.5% annually.

There were also signs of rental growth slowing. Average rents were up just 1% annually to £898 per month in the first quarter of 2018 compared with a 3% return two years ago.

A survey of landlords in the report also revealed a fine margin between those adding and disposing of properties. The poll found that while 9% increased their portfolios in the first quarter of 2018, another 8% sold properties. The report warns supply may fall further, with 4% more landlords expecting to reduce their portfolios rather than expand.

Landlords are still trying to get around the scaling back of mortgage interest relief, though, with the proportion of mortgage applications through limited companies in the first quarter of 2018 reaching 72%, double the rate seen two years ago.

Andy Golding, chief executive of OneSavings Bank, which trades under the Kent Reliance brand, said: “Landlords were left reeling after the introduction of tighter regulation and higher taxes, while the spectre of Brexit is already weighing on the housing market. This has naturally deterred investment into the private rented sector, especially from amateur speculators.

“Political opinion may be set against the PRS, but without it, the housing crisis would be deeper still. First-time buyer numbers, despite recent fanfare, are a long way from pre-recession levels, and with household numbers growing, and new housing starts inadequate, it is the PRS that will continue to pick up the slack. Policy should recognise that, and support growth in supply across all tenures.

“A housing market with dwindling supply of rental accommodation yet growing demand would, without a significant rise in affordable housing, provide the worst of all worlds for tenants: higher rents, with less choice and security, hampering their ability to save to buy a home.”

Source: Property Industry Eye