2020 has landed and with it the prospect of more change and uncertainty for the UK rental market.
In online letting agent MakeUrMove’s latest Q&As, managing director Alexandra Morris shares her insight into what the next ten years could hold for both landlords and tenants.
What will happen to the number of landlords in the UK?
It’s highly likely that the overall number of landlords will decrease. Our research has revealed that as many as 60% are ‘accidental’ or ‘casual’ landlords, those people who’ve found themselves in the position of renting a property out for one reason or another. This could be due to inheritance, market dips preventing a sale, relocation for work, new relationships, separations or simply to supplement their income.
Far from being the greedy middle-aged man stereotyped by the media, most of these landlords aren’t career professionals and therefore aren’t as market-savvy. They’ve been holding on to properties instead of selling.
However, we’re now seeing an increase in the number of letting properties being sold. And this is simply a result of the current environment, both economically and legislatively.
Accidental landlords are taking advantage of buoyant markets and stable house prices to cash in their assets where they previously were restricted. The catalyst for this is very likely to be the ever-changing landscape and minefield of compliance they face.
These landlords are unlikely to have made megabucks renting out property and, in most cases, consistently lost money. The likelihood of this improving is low due to several pieces of legislation: the end of mortgage tax relief, the tenants’ fees ban and the nervousness caused by the probable abolition of Section 21. Losses are becoming a near certainty that many cannot afford.
Of course there are some semi-professional and professional landlords that may be tidying up their portfolios and making the decision to sell based on the costs of renting, the sales market in their area and the impact that these changes will have on them. These are much more likely to be sold into other landlords.
As these overall numbers decrease, will the ones who decide to stick around have larger portfolios?
Yes. In short, we’ll have fewer landlords with larger portfolios. We’ll also see a surge in rent- to-rent tenancies and serviced accommodation thanks to the ever-growing market of property gurus and experts selling training courses and books on how to become a millionaire with no capital risk.
We’re probably only a couple of scandals away from seeing this face regulation and in my opinion it could not come soon enough. Local authorities are starting to take notice of the serviced accommodation or short-let market and I imagine this will also face intervention in the form of restrictive legislation.
The result will be fewer landlords with larger portfolios.
Will rents inevitably rise?
This is always going to be linked to where a property is. Ongoing rent increases in London, for example, are phenomenal and ultimately unsustainable. Brexit is also still a factor and the effect it will have on areas that accommodate higher levels of migrant workers won’t be known for some time yet.
Ongoing discussions about rent caps or restrictions will move centre stage once key political figures and tenant campaign groups have succeeded in quashing Section 21. After all, once you’ve secured life-long tenancies the next step would be to ensure lower rents.
Critics would suggest that rents can only rise in line with market acceptance, in other words what people can afford. But while in theory this is the case, in practice it isn’t. With fewer landlords on the market dictating the price, choice will be reduced and demand will continue to outstrip supply.
Ultimately rent caps may be needed to manage the housing market as a whole. With average monthly rents in London increasing by 35% between 2011 and 2018 to £1473, the city’s mayor Sadiq Khan has already confirmed his support for rent caps.
Will we see a continued trend of landlords specialising in a certain type of property?
From families to retirees, landlords will be well-advised to specialise in offering high quality properties to a specific type of tenant.
As rents increase, many young professionals need to move further out of cities and also look at smaller properties than they would prefer. As a result, we’re likely to see more flats and smaller two or three-bed properties available to rent in more affordable areas.
If these types of property need work to bring them up to scratch, they’re more likely to be added to a buy-to-let landlord’s portfolio as this generation of first-time buyers seem less willing to take on run-down property. This is especially relevant in high-density student areas where housing stock is often rows of 100+ year-old terraces.
Expectations of a property’s quality have increased, as we continue to see in the rented sector. So are young first-time buyers willing to move from the modern new-build flat to a run-down three-bed terrace and spend two years slowly renovating? The majority of the time the answer is no.
Instead, they want an affordable quality rental property that gives them the flexibility of moving from place to place depending on where their career takes them. They want to be able to walk away from it, go back to their parents’ home if they need to, or spend time travelling.
This generation is so attuned to the message that they can’t afford to buy that many don’t even consider it. This different mindset will leave the door open to landlords snapping up smaller properties in more affordable areas.
Alongside the demand from young professionals, there will be a growing investment in retirement properties too. Recent tenant trends have seen higher numbers of pensionable- age tenants moving from owner-occupier to private rented. This specialist area is unlikely to see the same growth as the student let market or HMOs but we’ll still see an increase in landlords accommodating assisted or adaptive living.
Over the decade, we’ll also find larger families needing rental properties. As current young renters get married and have children, landlords who specialise in three or four-bed properties will have their pick of tenants.
Do you predict any additional government legislation being introduced? What could this cover?
We’ve witnessed the most turbulent time ever for the private rented sector and it’s become a key battleground for votes. This has resulted in a large amount of rushed-through and ill-considered legislation which mainly serves to penalise. That isn’t to say that all legislative changes are unnecessary, in a lot of cases the market itself and the parties within it have forced an intervention by resisting pressure to clean itself up.
With more than 100 pieces of legislation affecting private landlords, refinements and additions will inevitably happen. In the early weeks of 2020, we’ve already seen an announcement about new electrical safety requirements.
Subject to approval by parliament, the Electrical Safety Standards in the Private Rented Sector (England) Regulations 2020 will mean landlords must ensure every fixed electrical installation is inspected and tested at least every five years by a qualified person. The Regulations, suggested to come into force on April 1st, also require landlords to obtain a report of the results and supply this to tenants within 28 days.
We’ll also be watching how licensing schemes develop. These are currently implemented at the discretion of individual councils and lack essential cohesion. There’s a sense within the industry that councils simply use them as a revenue-generation tool rather than for the intended purposes of improving property standards and reducing anti-social behaviour.
There’s been little consideration about how these schemes are administered and with costs varying from a couple of hundred to £1000’s, they’re crying out to be streamlined. You only have to look at what’s currently happening in Liverpool to understand its limitations.
With the end of Section 21 imminent, a dedicated housing court is likely to be required at some point and we’ll be keeping an eye on those conversations around rent caps.
There has been talk of changing the minimum length for tenancies and also a review of the Housing Act although unless this is expanded to cover other areas of legislation and statute law, the fear is it will make it more confusing not less.
Is now the time to invest in buy-to-let?
This will depend on your personal circumstances, how much time do you have to and have you considered the worst case scenario financially if things go wrong?
There really isn’t a yes or no to this question, investing in property is still a great way to plan your future or supplement an income but it is becoming harder to make money without excellent planning and expertise. If buy-to-let is for you then my advice would be to invest in a good agent to assist you use a tool that will help you tackle all the compliance and stay on top of things just like the MakeUrMove Good Landlord tool. Whatever the future holds, stay fully informed with MakeUrMove.