For a sector that has been through a significant amount of change over the past few years, there has been little time to reflect on the new ‘normal’ that now exists for the buy-to-let market. However, the recent market report from Connells Group – covering Q1 this year as compared to last, and providing an overview of the market in the last 12 months – does highlight a number of key changes that have taken place and just where this leaves the buy-to-let market now.
In terms of advisers’ buy-to-let clients – especially those willing to maintain their presence in the sector over the long term – there is plenty of positive news to impart. While, as Connells’ points out, there are ‘definitely less investors in our marketplace so far this year’, this does mean that there is somewhat constrained supply of properties to the private rental sector, but there has been no corresponding drop in tenant demand.
This was always one of the ‘unforeseen circumstances’ for all the previous Government’s changes which were designed to take properties out of the PRS and put them ‘back’ into owner-occupation. Demand for quality private rental properties was never going to slide back significantly just because of Help to Buy schemes, changes to mortgage interest tax relief, the introduction of tighter criteria/affordability for buy-to-let loans and portfolio loans.
This didn’t take a genius to work out but it would seem that certain political animals believed it could have both its home-ownership and private rental sector cake and eat it. So, while this was ‘unforeseen’ for some, many in the industry pointed out that some amateur landlords would either seek to sell up, or simply hang onto what they had, while professionals would continue to add to portfolios but that sort of regular purchasing might be either put on hold or would take place over a longer timescale.
The result has been that many people still want and need to rent, but we’ve seen a slight drop-off in choice for them. And the obvious result of this has been that rents have generally risen and rental incomes have stayed firm – indeed Connells also points out that it has seen its ratio of registered applicants to new PRS instructions rising in this quarter to 5.9 from 5.6 in the last quarter of 2017. In other words, demand for properties has increased and there are slightly less properties for them to choose from.
In terms of the tax relief changes and their impact on landlords, Connells says that these have ‘yet to bite fully but branch activity shows some ‘accidental landlords’ looking to exit the market when an opportunity arises, yet more serious investors remain committed to the PRS’.
This is the underlying truth of the buy-to-let sector at present. It’s interesting that there is no talk of a mass exodus when it comes to accidental landlords, instead they’ll sell when the opportunity presents itself. They might not be adding to any portfolios – if indeed they have more than one or two properties – but there is no overwhelming rush for the buy-to-let exit.
Added to this, we can view that the market – particularly purchase – is now predominantly in the hands of the professionals/portfolio landlords. They too might have taken some time to get their heads around the changes, and what they needed to do in order to continue purchasing, but that time has come. The use of limited company vehicles in order to purchase and hold properties grows with each week and we, at Fleet Mortgages, have seen a tangible increase in the number of landlords purchasing through a limited company.
This all means a good long-term outlook for the sector, and those that might have wanted the Government and regulatory reforms to wreak havoc on buy-to-let, will be sorely disappointed and will clearly not be aware of just how malleable it is, given that those who operate within it have withstood much worse in the past.
Of course, buy-to-let remains a political football that is bound to be kicked around some more but the nature of UK housing demands a healthy sector, and perhaps the sooner Government (and political parties) of all persuasions realise this, the better.
The further good news for advisers (and clients) is that we have a vibrant lending community, totally committed to the sector, often highly experienced and specialist in nature, and willing to lend. This is now the time for you and your buy-to-let borrowers to make the most of it.
Bob Young is chief executive officer of Fleet Mortgages