Here, Hiten Ganatra of Visionary Finance, explains why he believes smaller landlords holding on to their properties could be the key for protecting the PRS.
The swift and unprecedented action taken by the Chancellor has helped to ease the financial strain, particularly for renters, who are spending anywhere between 34 per cent and up to 65 per cent of their monthly income on rent.
Extending mortgage payment holidays to buy-to-let landlords has really helped to ease the pressure on landlords, who are finding it increasingly challenging to continue with their rental investments – because of previous government actions over the last five years.
There are now approximately 183 pieces of legislation which landlords and the rental sector, in general, need to contend with.
With the Covid-19 outbreak, the level of unease among landlords is increasing even further, and many are now beginning to question whether they should exit the market permanently.
As the owner of a financial services business and a real estate business, I am seeing first-hand the challenges that are being faced by tenants, the negative sentiment among landlords and the pressure on the housing market that could have long-term unintended consequences which will last way beyond this outbreak.
The policies and legislation introduced by former chancellors are starting to shape into an impossible situation for the very people they set out to help – hopeful first-time buyers and generation renters – especially now in light of the Covid-19 outbreak.
According to the latest Hamptons International Lettings Index, rents in the UK are rising twice as fast as they did in 2018. It showed that average rents rose by 2.1 per cent in November 2019 – nearly double the rate recorded in 2018, which equates to the average UK rent now being £989 per calendar month, £20 more than compared to this time last year.
Rent increases only serve to reduce the amount that would-be first-time buyers can save towards their deposit – pushing their dream of homeownership further into the future.
The average household now spends 42 per cent of their monthly income on rent. Although tenants have been given a lifeline by Sunak by allowing them to defer their rental payments by up to three months, tenants will still have the obligation to clear their arrears and bring their rental account up to date.
While many of our buy-to-let mortgage clients, who are classified as small non-professional landlords, are being sympathetic to tenant circumstances, the impact of these measures on the sustainability of the private rented sector could be long lasting.
The National Residential Landlords Association (NRLA) recently pointed out that 94 per cent of private landlords let their property out as individuals and 39 per cent have a reported gross income of less than £20,000.
As the likelihood of rental arrears and voids start to rise, could this be a final nail in the coffin for the smaller landlords who decide to sell up, creating even more of a shortage of rental properties available for those who want to rent?
We already know that there is a distinct shortage of rental properties available in the marketplace and, as the rule of supply and demand dictates, the result is higher rental costs.
The number of homes available for rent fell by 7.8 per cent in the first 11 months of 2019. The fall is mainly down to the measures put in place over the last few years, designed to stem the (previously) growing number of landlords in the UK.
The quick solution is to explore areas which have a direct impact on landlord desire to want to hold onto their properties, as this will help to hold up the supply and keep rents at affordable levels.
This needs to be done in the short-term to help suppress the desire of landlords looking to raise rents to cover the increased costs.
