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Rising demand and the evolving landscape of the UK's private rental sector
Supply and demand is a constant topic of conversation within the wider UK housing market, but specifically within the private rental sector (PRS), especially as the former has appeared to shrink, and the latter has continued to increase.
There are some who believe the impact of that is negligible. The Resolution Foundation’s recent report, entitled ‘Through the roof: Recent trends in rental-price growth’, argues landlords leaving the sector and selling up is ‘highly unlikely’ to be a prominent factor in the recent increase in rents.
There are a lot of arguments for this – increased house prices, the difficulty in saving for a deposit and meeting lenders’ affordability measures, low growth in incomes in recent times, meaning that more people, who historically might well have become homeowners, are unable to make that move.
In 2004 the UK population was literally just under 60 million; currently it is just under 68 million, and the ONS anticipates it will pass 70 million by mid-2031. Now this projection is actually lower than it was predicted to be in 2016, however you can see that a 10 million increase by 2031 means the UK population will have increased by a sixth.
A point the Resolution Foundation makes, when a property does move out the PRS into owner-occupation, it is leaving a bigger hole to be filled. That is because individual homes in the PRS are more ‘intensively occupied’ than those in owner-occupation.
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What we have seen in the PRS – namely landlords refurbing, or buying, properties which can house more tenants in a single dwelling as an HMO, or a multi-unit block. This is not just about meeting the greater tenant demand, but as mortgage and general property costs have increased, landlords have needed to look at properties which deliver a greater yield. And, HMOs/MUBs tend to deliver this.
The PRS market is likely to continue to shift in this direction. Greater demand for property is already dictating this, and landlords have recognised the benefits of owning these – it’s why we launched our ‘Solutions by Foundation’ range earlier in the year.
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A suite of products and criteria that are specifically designed for these more specialist property types, be it HMOs – where we have no bedroom limit – or MUBs – which we consider up to 10 units – and importantly, we are not asking landlord borrowers to have previous experience in this space. We recognise that landlords of more traditional property types want to either convert existing property or diversify their portfolios, not least because the greater demand is there.
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