With the Bank of England meeting everyone’s expectation with its 50 basis points increase to Bank Base Rate (BBR) at the start of the month, I suspect much attention will now be focused on next month, specifically March 15th when the Chancellor, Jeremy Hunt, is due to deliver his Budget.
Between then and now we’ll see a combination of the rumour mill whirring into action in terms of what measures that Budget might announce, but also we’ll see a familiar and significant lobbying effort aimed at persuading HM Treasury/the Chancellor/Government of what actions it should be taking.
With the private rental and buy-to-let sectors that effort has moved up a number of notches recently with a number of trade bodies and associations attempting to focus attention on what is required in order to bolster the supply of property to the PRS, and to consider landlords as a source of much-needed housing, rather than an enemy that needs to be repeatedly beaten back.
It’s fair to say that the PRS/buy-to-let markets do stand at something of a crossroads at the moment, and a series of policies which have undoubtedly ‘worked’ in terms of removing ‘amateur landlords’ from this space, may well need a thorough reassessment having ‘worked’ too well.
To put that into context, according to research from Twenty EA, the supply of rental accommodation to the PRS fell by 8% during 2022, and since 2019 this has meant a fall in total of 25%. That translates in terms of available lettings stock to a figure of just shy of 200,000 properties in December last year, compared to 328,412 in the same month in 2019.
And, of course, it’s not as if demand has fallen to a level where this supply is sufficient for the numbers looking to rent. If anything, particularly in high density areas of the country – cities in general but also commuter and University towns – that demand has risen substantially, and coupled with the increase in households we have witnessed in recent years, it leaves a real supply/demand discrepancy.
As we know, landlords are invested in property for the long-term, but coupled with an increase in running and mortgage costs, plus (notably in Scotland) an inability to raise rents recently, and the cuts to mortgage interest tax relief and the increases to stamp duty, the environment has not been positive for those who would not only wish to keep on being invested but also add to their portfolios.
It has meant, as mentioned above, that large numbers of single/double-owner PRS landlords have divested their portfolios already, plus figures from the most recent BVA BDRC landlord research report, reveal only 9% of landlords plan to add to their portfolios in 2023, while those planning to divest is the highest it has been in years across all segments of landlords/property numbers, etc.
Is it any wonder – when you also add in those increased costs – that rents are rising, with many landlords planning to increase rents during the year ahead. Those landlords with smaller portfolios are, perhaps unsurprisingly, planning the largestincreases of 8.7%, while looking at landlords as a whole, they intend to raise rents by 7.7%.
You can perhaps see why many are worried about the overall supply of property to the PRS, the ability of landlords to keep on investing and adding to portfolios, and the knock-on effect this will have on rents but also in terms of the properties that tenants may have to accept in a highly limited supply market.
When tenants have plenty of choice, there is an imperative on landlords to produceproperties of the highest standards in order to compete. At the moment, because there is so little supply, the choice is slim, and certain disreputable owners may feel they don’t need to increase the quality of a property which is fully let, and for which there is plenty of demand to choose from if the existing tenants leave.
Overall, we need a reassessment of the PRS and landlords place in it from the Government, and we certainly need to revisit some of the policies and measures, introduced over the last decade, which have acted as disincentives to invest.
Providing existing landlords with the opportunities to add to portfolios is difficult enough, let alone bringing new blood into the PRS. No-one is suggesting we should go back to the ‘no skin in the game’ days for new landlords – it is imperative that we do not return to that market, but we need to find a way to ease the pressures on acquisitive landlords and to entice some new ones to make their first forays into the sector.
If we are not able to square this supply circle in the PRS, then the same issues are going to be felt by all stakeholders for many years to come – particularly those tenants who are suffering as a result of the lack of property available.
Mark Whitear is director – customer experience at Foundation Home Loans