The sixth edition of Kent Reliance’s half-yearly (state of the market) Buy-to-Let (BTL) Britain report published June 2017 is a detailed analysis of the key trends in the UK private rented sector (PRS), and in particular the BTL mortgage market.
Changes to the tax regime for buy-to-let property are leading to reduced confidence in the asset class, as landlords review their strategies in the new situation in which they find themselves. Some are selling, some consolidating, some switching ownership, all are looking to reduce costs and increase income, while others are investing through limited companies.
One thing is certain, higher costs mean that landlords need to increase rents to maintain profitability. Fortunately for them, with a shortage of accommodation and steadily rising demand, the market can stand higher rents at this time, with average rents across Britain now at £889 per month, an increase of almost 2% year-to-date.
Commenting on the rapid changes which have affected landlords since the last report, Andy Golding, Chief Executive Officer, OneSavings Bank sets out the main changes over the period:
• Landlords’ confidence has fallen back in the first quarter, with only 41% now optimistic (nearly 70% in the last study) about their buy-to-let portfolios.
• The rate of growth in private rented sector (PRS) has slowed, but it has still expanded to reach 5.5 million households in Q1 or over 20% of households, and predicted to reach 25% of households in 5 years’ time.
• Limited company loans have accounted for 44% of mortgage applications in the period.
• Around 25% of investor landlords are considering incorporating their business or transferring property assets to spouses.
• The value total of landlords’ property holdings has seen the slowest total growth since 2011, but the total value has climbed by £68.2bn in the last year, to a record £1.3 trillion.
Some Key Facts from the report:
• Average rents hit record high of £889 pcm, but annual rent inflation eases to 1.9%
• With rents rising faster than house prices in last six months, yields have edged up to 4.5%
• Landlords now collect a total of £4.9bn a month in rent in Great Britain, with the fastest rise in South East
• Gross total returns have fallen to an average of £17,804 per property, a total return of 7.8% per year on average.
• Despite rising costs, only 4% of landlords report making a financial loss in the period.
During the research period (Q1 2017) the housing market came to the fore in the government’s housing white paper in February, which has recognised the need to stimulate house-building and loosen restrictive planning rules.
However, this was quickly followed by a raft of pledges in each of the political parties’ manifestos ahead of the June general election, with the Conservatives promising to build 1.5 million homes by the end of 2022, while Labour committed to build 100,000 council and housing association homes a year.
With no party with a good voting majority, questions hang over whether these promises will be met, but there is recognition of the housing problem on both sides of the divide, and the Conservatives have a huge building programme in hand, especially in the build-to-rent sector.
All this will gradually change the shape of the housing market for the future, but in the meantime landlords need to adjust and come to terms with the increasing costs, letting regulations, tax changes and new Prudential Regulation Authority (PRA) mortgage underwriting criteria.
All businesses have to cope with rising cost, and make economies and change pricing accordingly. The previous Buy-to-Let Britain Research Series form Kent Reliance showed that the annual running costs of a buy to let property had reached £3,632 – up a quarter since 2007.
The report concluded that “these factors are clearly beginning to drag on the growth of the sector; landlords have had to navigate the changing tides of taxation and regulation, at the same time as seeing the cost of doing business increase.”
Although the business environment will undoubtedly be tougher than it’s been, markets change and businesses adapt.
Read the full report here
— LandlordZONE (@LandlordZONE) June 30, 2017