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The PRS remains critical aspect of UK housing
The PRS and the buy-to-let market is a hot topic because it provides housing to almost 4.5 million households in the UK, and the concern is how the supply of those homes holds up, and what it means for the housing gap if it doesn’t.
From the queues of students in many University towns and cities trying to get hold of accommodation for their next year of study, to the rent freeze in Scotland, then the lack of supply across the PRS and what it means for tenants’ rent, to the recent increases to mortgage rates and how this impacts on landlord costs and ultimately property profitability, the mortgage options for first time buyers and landlords are inextricably linked, and the level of rent is pivotal.
There is an assumption that those who couldn’t get on the property ladder were hobbled by a lack of supply, which is absolutely true of the marketplace as a whole but there is more to it for those tenants leaving the PRS as first-time buyers.
For them this year, the biggest obstacles to buying are saving enough for a deposit, accessing high LTV mortgages and meeting tighter affordability measures, all against a backdrop of lower wage growth, particularly when compared to the rise in house prices we have seen as a result of a lack of supply of housebuilding.
People who can’t purchase homes still need somewhere to live, which means they need homes in the PRS, at a time when landlords’ ability to provide these homes has been hampered by a variety of measures including increased stamp duty costs, rising tax, falling interest relief, etc. What this has meant, is a reappraisal – particularly by individual landlords – of how they could keep on offering properties via the PRS and whether they were in a position to add to portfolios given the current situation and the increase in mortgage interest costs.
This is not to say that a large number of landlords haven’t been able to bridge this gap. To keep their properties available, and to add more, however, this is more likely to be done by portfolio/professional landlords and as a result, we have seen a dip in those ‘amateur’ landlords which comes at a time when demand for PRS properties has continued to increase.
We await to see what the rental freeze in Scotland will do to property numbers, especially for those who are coming up to a refinance period, it is likely that further sales of rental properties may not make it back into the PRS. Particularly, those who only own one or two properties and who may conclude that they can’t afford to keep renting them out with the inevitable higher mortgage costs.
Overall, it’s been a tricky time for the PRS, but it has some positives. Landlords are still acquisitive – we have fewer of them and buying property is more expensive for the reasons outlined above. Mortgage costs have risen over the past couple of months, however, there are signs of rates coming off recent highs and we anticipate this will continue into the new year when lenders begin trying to hit targets again.
Plus, of course, expectations around rate rises and peaks have been dampened and the measures announced in the Budget might continue this trend. Inflation is expected to fall in mid-2023 by a significant margin, and this should feed into product pricing which hopefully makes it more appealing for landlords and ensures they can continue to run profitability.
Mark Whitear is Director of Commercial Development at Foundation Home Loans
*This article was originally published on BestAdvice
References:
https://www.statista.com/statistics/286444/england-number-of-private-rented-households/
#:~:text=Number%20of%20private%20rented%20households%20in%20
England%202000%2D2021&text=The%20number%20of%20households%20occupied
,reached%204.43%20million%20in%202021
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