The government, concerned landlords were pushing up prices and outbidding first time buyers, introduced a series of measures to curb demand. These included a 3% stamp duty surcharge on landlords and a reduction on tax relief on BTL mortgages. Since then, landlords have also seen an increase in their legislative burden, such as the introduction of Right To Rent - forcing landlords to ascertain a tenant’s right to reside in the UK - and a tightening of lending criteria. Commentators and industry bodies warned at the time that the changes would have a negative effect on the entire sector. Only now, though, with the phased reduction in tax relief on mortgages beginning to bite, are we seeing the true impact of those measures.
A recent survey from RICS (Royal institution of Chartered Surveyors) reveals landlords across the country, especially the smaller/accidental ones, are leaving the sector in significant numbers. Their members’ latest report showed falling levels of rental property for eight months in a row. At the same time, although it has slowed, the report also showed demand remains very much in positive territory. It means rents are projected to rise by 15% over the next four to five years.
RICS’ Geoff White warns,
“The situation in the Private Rented Sector gives great cause for concern as supply continues to drop.”
Industry body, ARLA Propertymark, has also found a significant number of landlords are exiting the market, with members reporting losing 5 landlords a month per branch and 59% of those remaining landlords are expecting to raise rents over the next 12 months.
In another sign of a changing market, BTL lending figures have fallen by 20% over the last 12 months (source: UK Finance).
In the longer term, the signs are that Generation Rent is a phenomenon that is here to stay. Despite the Tory obsession with home ownership, it is not necessarily a bad thing, as it results in a more flexible work force which is able to move quickly and easily to where work is available.
A dysfunctional rental market is, on the other hand, not good for the wider economy. Real wages have been under pressure for some time and constantly rising rents will exacerbate the problem and make it even harder for renters to save for a deposit, further increasing rental demand and prices. There are now demands for legislators to encourage the growth of Build to Rent and for the government to begin a programme of social house building.
Unfortunately, Brexit means the government’s attention is elsewhere and currently there appears to be no coherent plan to solve a problem that could get considerably worse if large numbers of landlords are driven out of the market with nothing to replace them.
Ironically, the resulting rise in rents may go some way to compensate those landlords who choose to remain in the sector.