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Buy-to-let market: Get ready for a greater shortage of lettings and even higher rents


Property and Mortgages

Buy-to-let market: Get ready for a greater shortage of lettings and even higher rents
The average monthly amount paid by tenants hitting £1,100 for the first time ever last month, says Hamptons

This year marks 25 years since the creation of the buy-to-let mortgage market

By Iona Bain

This year marks two major anniversaries. The first is the 25th birthday of Dolly the sheep, the first animal cloned from an adult cell. The second is 25 years since the creation of the buy-to-let mortgage market. Only one is still with us – and it is not the cute, fluffy animal.

On the contrary, the private rented sector today looks more like Frankenstein’s monster for any young person trying to get on the housing ladder. Buy-to-let has come alive over the past 20 years amid a contraction in social housing, council tenants cashing in on Right to Buy and the decimation of savings rates post-2008.

Sure, the buy-to-let behemoth took a knock during the pandemic and has been somewhat restrained by stiffer taxes and regulations since 2016.

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But it’s still going strong, with rents growing by 8 per cent in the year to September, and the average monthly amount paid by tenants hitting £1,100 for the first time ever last month, says Hamptons.

Meanwhile, home ownership has dropped like a stone, with the average millennial expected to pay £44,000 more in rent by the age of 30 compared to baby boomers, according to independent think tank Resolution Foundation.

Tenants consistently report bigger debts, smaller savings and more financial worries than owner-occupiers: they’re worse off on practically every financial metric available.

But does the much-hated landlord deserve to be our generation’s financial bogeyman? Sorry, I should include a trigger warning at this point. Some parts of the US media, including regional divisions of NBC, have reportedly stopped using the “L” word due to complaints from the buy-to-let community that it is “dated” with hurtful “feudal” connotations. And where America leads, we are sure to follow. Who knew that “small housing providers”, as they prefer to be called, were such sensitive souls?

Mind you, I don’t blame them for feeling a bit unloved. They may have become a fixture in our housing market, but they’re not as amply rewarded as they were at one time. Sure, rental demand is stronger than ever: the London lettings agency Marsh & Parsons reports an average of 31 people chasing each available letting, while Manchester-based Urbanbubble reports that a three-bedroom flat on its patch will cost you 27 per cent more to rent this year than it did in 2020.

But supply isn’t keeping up. The share of homes bought by buy-to-let investors increased by just one per cent during the recent stamp duty holiday.

It’s thought that around 250,000 landlords have got out of the buy-to-let game since the Government introduced a three percentage point stamp duty surcharge on investment properties.

The market has decisively shifted away from amateur landlords looking for income in favour of professional investors, owning dozens of properties, who establish limited companies and can absorb these changes as the cost of doing business.

These landlords are staying put and now charge as much as the market will bear – everyone else is moving into higher-yielding regions and holiday lets, where they get far more favourable tax treatment.

So, has hammering smaller landlords freed up housing stock and brought down prices for first-time buyers? Well, no.

The most recent monthly jump in house prices was the biggest seen for 14 years according to Halifax: managing director Russell Galley says the average UK house price is now “as expensive as it ever has been”.

Separate research from Nationwide suggests first-time buyers now need to save 113 per cent of their entire annual salary for a deposit.

Buy-to-let doesn’t look like it’s going anywhere. So instead of getting hung up on tax deterrents, which create a host of unintended consequences, we should be prioritising a robust and accessible legal framework for all parties, one that rewards good landlords and tenants. Rogue landlords remain free to ignore 168 pieces of regulation imposed on the sector over the past 10 years – see various horror stories reported by housing charities and tenants on social media. A better reporting/policing system, as well as allowing tenants access to a national database of criminal landlords, is basic common sense.

Meanwhile, thousands of renters in Covid-related arrears face eviction this month.

Yet many landlords who have offered rent breaks and reductions throughout the pandemic can only withstand losses for so long. Pursuing tenants through the courts is expensive and difficult, with waiting times for eviction hearings now taking at least a year. Unless they (or their tenants) receive a special subsidy, landlords may decide simply to take the deposit money, sell up and walk away.

If that happens, social housing is unlikely to fill the gap, so expect a greater shortage of lettings and even higher rent, funnelling more gains into the hands of fewer property entrepreneurs. Great news for them, not so much for everyone else.

Let’s face it: buy-to-let is mutating in ways that are unhealthy for the whole housing eco-system. This is one experimental creation that – unlike Dolly – got way out of hand.

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