Summary of the Private Rented Sector and Buy to Let market 2011
- Buy to let finance has been the catalyst for the revitalisation of the modern Private Rented Sector (PRS). The flow of capital into the sector has helped drive up standards and choice for tenants.
- 3.4 million households in England now class PRS as home, an increase of 1.4 million since 2001, representing nearly 1 in 6 households. Private renting is the only growing tenure type – both owner-occupation and social housing have bee in decline for the best part of the last decade.
- The PRS is a popular choice with transient sectors of the population, including students, economic migrants and those who relocate for employment purposes, in addition to people who choose rented accommodation for lifestyle reasons. The perception of renting is changing: it is increasingly seen as a tenure of choice.
- Long term demand for the PRS is forecast to rise, fuelled by major socio-economic factors. These include positive net migration, growing numbers of single person households, people starting families later in life and an increase in the age of first time buyers.
- Recent reforms to the social housing sector are likely to increase demand for PRS accommodation and increase pressure on landlords.
- The current economic environment is placing severe pressure on the PRS, with rising levels of tenant demand outweighing existing stock. Department for Communities and Local Government (DCLG) figures show a 300,000 jump in the number of households in the sector between 2009 and 2010. This is filtering through to rental inflation.
- The UK population is expected to grow to 71.6 million by 2033 but housing supply is failing to keep pace. It has been estimated that 290,500 new homes will need to be built each year to satisfy demand. Only 102,570 homes were built in England in 2010.
- Demand from landlord investors remains robust> Association of Residential Lettings Agents’ (ARLA) data shows that twice as many landlords plan to buy in 2011 than sell, whilst the Royal Institution of Chartered Surveyors’ (RICS) Residential Lettings Survey revealed that just 48% of landlords plan to sell at the expiry of a tenancy.
- Buy to let is a sector in recovery. According to the Council of Mortgage Lenders (CML), the value of buy to let lending in 2010 rose by 22%. This return to growth follows a 73% decline in the number of gross advances between 2007 and 2009.
- Buy to let mortgage product numbers remain 90% lower than 2007 levels, but availability has improved over the past year. The number of lenders in the market increased by 20% during 2010, and both product availability and criteria improved during the year.
- Arrears in the buy to let market are expected to continue to decline during 2011 with landlords benefiting from stable economic conditions, low interest rates and high levels of tenant demand. Buy to let arrears have only been above those in the wider mortgage market for three quarters since the CML began collating the data in the late 1990’s.
- The role of “novice” landlords in the PRS has been overstated. The DCLG’s Private Landlords Survey shows that three quarters of landlords are either individuals or couples, with nearly half having between six and twenty years’ experience.
- The Government must foster a regulatory environment that encourages continued investment in the PRS by landlords. The Coalition Government has shown a good understanding of the PRS and has stopped further layers of landlord regulation. However, the UK should continue to recognise that landlords operate as small businesses, and maintain its recognition of the purchasing and financing of PRS property as a commercial activity.
- The main obstacle to returning to a fully functioning buy to let market remains the dysfunction in the wholesale funding markets. However, there have been clear signs of improvement in this area, with a significant increase in the number of Residential Mortgage Backed Securities deals between 2009 and 2010./ There was £60 billion of primary insurance in 2010 compared to £10.5 billion the previous year, and 2011 has begun in a strong fashion.
Taken from the UK Private Rented Sector & Buy To Let Market 2011 report from Paragon plc.
