What impact is the property market having on the rental sector?
I am in complete agreement with the FSA’s plans to introduce mortgage affordability testing. Loan to values will be lowered, and we will see an end to self-certification, which is no bad thing.
The FSA’s new approach will mean borrowers can really afford to repay the loans they are given.
I believe one of the main reasons why default rates have gone up in recent years is due to irresponsible lending. If people don’t have the ‘carrot dangled in front of them’, then financial stability is sure to return. Thankfully, loan to values are no longer at the heady heights they were two years ago.
Over the next decade property prices are likely to stabilise. And, I am confident that interest rates will continue to remain low.
In contrast with this, the UK rental market will experience real growth during this period – both in terms of supply and demand. I firmly believe that 2010 will be the year of opportunity for the residential landlord.
The number of buy-to-let mortgages available has increased and will continue to do so. And, a plethora of new providers are beginning to enter the buy-to-let space.
Recent studies have highlighted that the majority of existing UK landlords are seeking to increase their portfolio size. However, there has been a fair amount of discussion that 90 percent of banks’ activities today is based around re mortgaging, as opposed to purchases. There is a desire for people to purchase buy-to-let properties, but banks need to begin offering mortgages again.
I also believe that new landlords will enter the property rental sector (PRS), whether they opt to release money from their pension to buy property, or they simply choose to diversify. Now is the perfect time – before inflation kicks in.
Today, more than ever before, there is greater incentive for new landlords to enter the sector. Everyone knows at least one landlord, and increased media coverage of the buy-to-let sector keeps it top-of-mind.
People have also become frustrated with the stock market and are always looking towards new ways of investing their money. Through buy-to-let purchasing, they have the ability to leverage up their investment, which is something you can’t do with stocks and shares.
Buy-to-let mortgages have – historically – been seen as ‘sub-prime’, but we should be looking at them as ‘super-prime’. If the property is managed properly, through effectively sourcing of tenants and taking out the right level of insurance, this type of
mortgage should, in theory, be less likely to default than a residential one – where unemployment occurs.
Managing a property portfolio has also become easier, through factors such as technology and online management. It isn’t as difficult to be a landlord today, as perhaps it was 10 years ago. Advertising property is now made easy through the plethora of portals, and insurance protection schemes also exist, to protect landlords from tenants who default on payments. And, sourcing tenants to fill properties in the first place has never been easier, thanks to the Internet.
On the demand side, more people will choose to rent in the UK, due to factors such as increased flexibility, and the barriers to entry that exist for first time buyers.
It is expected that by 2015, there will be five million UK households in social housing, but the Government doesn’t own the stock, and will need to source it. This alone will create a real demand.
Socio-economic factors will also increase the incidence of property rentals. The affordability gap is likely to increase for first time buyers, which will result in an increasing demand for property rentals. And, house prices will continue to increase, but this will not be reflected by peoples’ salaries. A shortage of housing will also drive up prices in 2010, particular in tenant hot spots, such as London and other major UK cities.
From a tenant’s perspective, renting a property in the UK will no longer be seen as a taboo.
Overall, I believe that the rental market is ripe for growth as more and more landlords and tenants enter the space, and I believe it will remain unchanged, in spite of the changes to the property sector.
But, the red tape imposed must work to empower landlords. I believe that schemes should be introduced to encourage landlords to improve their property, such as advice on energy saving, or subsidised maintenance activity. This would gear landlords up towards renovating their properties to a high standard, which would – in turn – attract and retain good quality tenants.
James Davis, founder and CEO of Upad.co.uk