Growth in the private rental sector is flagging according to the Buy to Let Britain report by Kent Reliance, despite the value of buy to let reaching an all time high.
The UK private rental sector is currently valued at nearly £1.4trn, up 6.4 per cent or £82.6bn in the last year. This has been driven by strong house price growth, with the average property up 4.2 per cent in the last year.
In contrast, the number of houses in rental accommodation is growing comparatively slowly. There are currently 5.6 million houses in the private rental sector, up a mere 2.2 per cent year on year. This is less than a third of the rate of increase seen in 2014.
The slowdown in new investment suggests a lack of confidence in the sector. A mere 41 per cent of landlords are optimistic about the prospects of their portfolios according to Kent Reliance. This marks a slight upturn from record lows recorded during the second quarter of 2017, yet remains far lower than recent years. Tax reform reducing the amount of mortgage interest that can be offset against tax was a significant blow to the sector, as was the rising costs and new mortgage rules tightening lending criteria.
In turn, rent inflation is beginning to ease. Average rents per property now stand at £895 per month across Great Britain, marking a new high, but a slowdown in growth, up just 1.5 per cent annually. Stunted growth in the capital is continuing the lower the national average.
Landlords who are still buying properties are generally doing so as limited companies as opposed to doing so as an individual. This enables them to offset mortgage interest costs against tax. During the first three quarters of 2017 over seven in ten buy to let applications for house purchases were via limited companies, a rise from 45 per cent recorded in 2016.
Chief Executive of OneSavings Bank, which trades under the Kent Reliance and InterBay brands in buy to let, Andy Golding, commented: ‘Landlords are swallowing another unwelcome cocktail of higher taxation and tighter regulation, and this is undermining the expansion of the private rented sector. A fundamental shift in the landlord population is now underway, as buy to let moves from being a popular past-time for hundreds of thousands of British amateur landlords, to the preserve of committed long-term investors with experience and expertise. The pace of professionalisation will only increase following the PRA’s latest moves, and incorporation continues apace. Creating a more professional sector is no bad thing, but there is a limit to the amount of interference the sector can absorb before we see a severe reduction in supply – an outcome that would see rents shoot up for tenants and reduce their ability to save for a deposit for house purchase. Landlords’ confidence is clearly fragile, and as the new tax reforms gradually come into force, any further financial burdens may prove to be a tipping point.’
He concluded: ’The need for a strong and stable PRS has not changed, notwithstanding the government’s housing announcements in the budget. The removal of stamp duty for 95% of first-time buyers should provide some help for those with savings, but it will also bolster house prices – the same side-effect Help To Buy is having. The housing market is significantly more complex than can be solved with some demand side stimulus. The PRS fulfils a vital role in our society and our economy, a role that needs to be reflected in an evolved Housing policy. ’