Build-to-rent set to have much bigger impact on UK housing than landlord costs
There is a wide expectation that rents in the UK will increase in 2017 as ‘bruised’ buy-to-let landlords face rising costs and tax change, but it isn’t necessarily the case as Build-to-Rent gets official backing.
The reasons for increased stress on landlords are well documented: the extra 3% stamp duty imposed this year on additional homes, the decision to ban letting agent fees in England sometime in 2017, the removal of mortgage interest relief in stages from 2017 and tougher buy to let lending criteria from next month.
By all accounts it has been a tough 12 months for landlords and 2017 is not set to get any easier. Rental growth is slowing according to various indices, especially in London. The latest HomeLet report out a few days ago showed that annual rent growth in London slowed to just 1.6%, compared to 3.1% in the rest of the UK.
The list of those predicting higher rents in 2017 is impressive. The very latest monthly survey from the Association of Residential Letting Agents (ARLA) says that 80% of its member agents expect rents to rise in 2017 due to the changes affecting landlord costs.
Nationwide lettings franchise Belvoir’s latest report predicts rents will rise by 15% over the next three years. The Belvoir report pointed out that rent rises are also likely to be affected by a lack of homes in the private rented sector. The Association of Residential Lettings Agents and the Residential Landlords Association have also been predicting rent rises due to added costs for landlords.
But my eye has been drawn to a wider analysis commissioned by the Council of Mortgage Lenders (CML) from the London School of Economics which suggests that landlords are actually adopting an even keel mentality in the face of considerable change.
It is the largest survey to date of UK landlords, so is based on a wider range of respondents than other much smaller pieces of research. It reveals that while most landlords expect their income to stay the same or increase slightly over the next five years, some 16% of buy-to-let landlords expect their income to fall.
But here is by far the most interesting point - very few say they would resort to increasing rents to cope with the change and falling income. It is also interesting that around half of all landlords have no mortgage debt at all so are unlikely to be affected by tougher lending conditions and mortgage relief tax change.
The survey results also suggest that targeted policy measures aimed at buy-to-let landlords may impose significant burdens on them without necessarily resulting in commensurate influence on the behaviour of the private rented sector as a whole.
It is also interesting that buy-to-let landlords typically hold larger and more valuable portfolios than other landlords and among buy to let landlords, over half had loan to value ratios on their total portfolio of below 60%, with only 1% reporting loan to value ratios of over 90%.
But the UK rental sector is not populated with mega landlords. The survey found that some 62% of landlords own only a single rented property, with buy-to-let landlords more likely to have a multi-property portfolio than other landlords. Just over half of buy-to-let landlords own more than one property, with the mean size of a portfolio being 2.7 properties.
However, there has been a marked shift towards smaller portfolios among buy-to-let landlords since the last time the CML undertook similar survey research in 2004 which could suggest cost expanding.
However, I suspect the CML research is probably spot on with regard to landlords not putting up rents. And while increased demand and fewer properties for rent could push up rents in 2017, this is likely to be a short term rise as supply will rise in the rental sector and the buying sector. Indeed, the backing by the government for large scale buildto-rent in the UK could change the rental landscape forever and could affect small buy-to-let landlords even more than the current round of change.
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