There seems to be a lot of noise around the buy-to-let/private rental sector at the moment, not least because of a shortage of supply, the impact this is having on rents, and the wider understanding – or otherwise – about what this means in terms of meeting housing need in the UK.
It still seems to me a truly odd state of affairs, that many people who should be ‘in the know’ about our sector, seem to have such a warped worldview, particularly when it comes to buy-to-let landlords.
For example, I read recently that the Labour Party – if elected – might look to raise the tax it charges on ‘unearned income’ such as rent from buy-to-let properties. As a start, I have an issue with how you might describe rental payments as ‘unearned’ and I’m sure every single landlord would think the same too.
The notion of ‘unearned’ suggests that properties have just somehow landed in the lap of landlords and that there has been no monetary outlay at all in buying a property, paying the stamp duty, making it fit for purpose, paying for the insurances or licenses, securing tenants, and every other single and not insignificant cost that comes today with offering a property up to rent.
That investment takes time, costs money and involves a real outlay, plus of course the ongoing cost of running a buy-to-let property in terms of the mortgage, lettings agents, upkeep, maintenance, etc. The income from that investment and endeavour is not unearned in my view, but appreciate that some politicians might disagree with that.
The problem of course is that many see landlords as some sort of taxation ‘cash cow’ and don’t even pretend to care about the unforeseen circumstances of such policies. Indeed, you might rightly argue that these are not ‘unforeseen’ at all because we have plenty of recent precedents to show that when you raise taxation and increase the overall burden on landlords, a significant number will divest themselves of those properties, which leaves us with a further shortage of supply.
According to recent research from Direct Line Home Insurance, the average cost of a first-time buyer home in the UK is now just shy of £224k. That’s a 24% increase in purchase price on 2016, and in monetary terms its £43,623 more than back then. As Direct Line also point out it’s approximately seven times more than the average salary earned by your average 30-39 year old.
We’re all acutely aware that many would-be first-timers – particularly those who cannot call upon the Bank of Mum & Dad – would look at such numbers and wonder just how long it is going to take them to save for a deposit, let alone make a purchase. There is better news in terms of the increase in the number of 95% LTV mortgages available to this borrower cohort, but there will also be affordability constraints, and the like, that will mean many first-timers can’t get to a place where they want to be in order to buy. At least not for a very long time.
Which leaves them with a housing dilemma, that can generally only be solved by the PRS. A PRS which unfortunately has seen a shift downwards in supply levels, which is having an impact on rents, which again ultimately hits those tenants who may also be trying to save for their first deposit.
However much some politicians and policy-makers might not want to think about how our market is connected in so many ways, the truth of the matter is that a decision taken in one part, will always have an impact elsewhere. And a belief that landlords are bad and somehow need to be punished, is going to continue to have an impact in terms of the supply of properties available to rent, which in turn has the impacts I’ve outlined above.
The overwhelming focus on helping first-time buyers into property over the last decade of course has its merits, but it shouldn’t have come at the expense of much-needed landlords and the much-needed properties they bring to the PRS. Nor should it have impacted on their ambitions to bring more supply to the market, because that ambition exists in spades and, with certain obstacles removed as we saw last year with the stamp duty holiday, it can be seen how landlords are wanting to invest more and add to portfolios.
There is good financial news in this space as well in terms of access to mortgage finance and a highly-engaged buy-to-let lending community. A year ago Moneyfacts noted there were 2,302 buy-to-let products available in the market, just this month that number had improved by over 1,000 to 3,374, and even if it has dipped slightly on a month-to-month basis, I think it’s going to be in a strong position for some time.
So, perhaps instead of looking at ways to hurt landlords even more, those in positions of power should be looking at ways to encourage greater levels of supply into the PRS to meet the growing tenant demand. At the moment, that lack of supply is hurting tenants. The housing market is not just about owner-occupation – the sooner that is understood, the better.
Steve Cox is chief commercial officer at Fleet Mortgages