The ongoing shift in the letting market following recent regulatory and taxation changes will result in more professionalism in the sector. Amateur landlords are being squeezed out of the scene as they struggle to provide the same standards that are offered by more professional players. This article will highlight the importance of timely renovation, improved strategies and updated amenity provisions.
There are currently around 1.3 million landlords in the UK, many of whom can be classed as amateur landlords. Given the tendency for rents to rise with inflation and wages, the letting market typically serves as an attractive hedge against inflation for property investors. However, the recent discrepancy between real wages and rents has pushed many amateur landlords out of the scene.
The usual risks associated with engaging in small-scale lettings by unexperienced players include large unexpected expenses, service charges, maintenance and void periods. Such risks have become more noticeable following the introduction of a 3% stamp duty surcharge for additional property purchases in April 2016 and the announcement that income tax relief for landlords would be gradually phased out by 2020, starting in April 2017. Additional pressure was added this year through stricter affordability rules and underwriting guidelines introduced by the Prudential Regulation Authority (PRA). The latter changes have resulted in a fundamental shift in the landlord population, with hundreds of thousands of British amateur landlords being replaced by committed long-term investors with experience and expertise.
The emergence of the build-to-rent sector serves as a good example of the shift in the letting market. Developers engaging in this scheme aim not only to increase the supply of housing, but also to improve the quality and choice available to renters. According to the British Property Federation, there are over 105,000 such homes either completed or planned across the UK, just over a half of which are located in London. Whilst higher taxation and tighter regulation are undermining the expansion of the rental sector, the existing housing shortage across the UK will force more people to rent for longer periods of their lives, in turn, generating constant demand for such properties.
Industry leaders believe that the pace of professionalisation is likely to increase further following the latest policy changes, as underperforming landlords will be squeezed out by increasing costs and requirements. However, this environment is still likely to offer numerous opportunities for less-experienced players, as long as they remain committed to timely renovations, as well as strategy and amenity provision updates, in order to match the high standard of properties made available by professional landlords. Furthermore, the recent cut to tax relief has driven a surge in borrowing via limited companies, which are not affected by the changes. With seven out of 10 buy-to-let applications for house purchases being made via limited companies, this represents a 25% increase from the previous year, suggesting that dedicated market players will continue finding ways to circumvent the tightening policy measures.