Government must see that supporting good landlords also helps first-time buyers

Originally published by Mortgage Solutions

It’s fair to say that the private rental sector (PRS) has not exactly figured heavily in any of the general election campaign discourse we’ve seen so far according to Steve Cox, our Chief Commercial Officer.

In the first couple of weeks of the campaign that might have been expected, and I hoped the publication of the manifestos would have some focus around how we might improve the supply of properties to the PRS, rather than just focusing on owner-occupation. 

Don’t get me wrong, this is incredibly important too, but we need to have a housing policy that ties the PRS and owner-occupation together, because without the former we do not have anywhere near a smooth pathway to the latter, as I’m afraid has been proved in more recent times. 

Little attention given to PRS landlords 

That being said, do I believe that any party forming the next government is likely to look at supporting private landlords, rather than continuing to increase the costs it has to meet, which doesn’t even include the increased mortgage costs they will have seen since Liz Truss’ disastrous tenure in office?

I’m afraid not, but if the government does want to get the PRS on a firmer footing, and if it does want to bring in more supply to meet the demand that clearly exists, then measures to do this have to be seriously considered. 

For tenants, Zoopla’s recent rental report does contain some good news, in that the average rent has ‘only’ risen by £80 per month, compared to a year ago, meaning an average increase of 6.6% over a year. Of course, this will depend on where you live in the country; in London, the average rent is £2,122, while the UK average as a whole is £1,226.

And Zoopla anticipates that rental inflation will drop back to 5% in the rest of the year, although clearly those rents have increased significantly over any recent period of time that you might consider to analyse.

Lack of rental supply causing issues 

For landlords, I think it was always going to be self-evident that the significant increase in rents they will have required and indeed introduced, particularly over the last 12-18 months, would eventually tail off slightly.

However, it should also be noted that our own most recent rental yield data – for the first quarter of this year – revealed that every single region in which we lend in England and Wales had a yield of over 5.9% (this lower figure being for Greater London) and that in areas such as Yorkshire and Humberside (8.5%), the North East (8.4%) and the North West (7.9%), the figure was much higher. 

A big part of that, will of course be the disconnect between supply and demand for rental property, with Zoopla also reporting there are 15 prospective tenants for each available rental property. 

Bear in mind that, pre-pandemic, this number was six people per property, and one would surmise that while we have this huge demand, coupled with the number of PRS properties we have to present to tenants, plus landlords have seen costs – particularly mortgage ones – increase in recent years, then rents are unlikely to move downwards, albeit as Zoopla agrees, they might rise less quickly than they have done in recent times. 

A need to nurture landlords committed to the PRS 

So, where does this leave us? Well, for tenants, it is clearly not ideal, and will certainly not have been helped by a significant number of landlords feeling they have to disinvest because they can’t make the money required to pay a mortgage and make a profit. 

No one can truly say this hasn’t been coming for some time, and the rise in mortgage costs will have exacerbated an already difficult situation. 

That said, those landlords that are invested do want to add to portfolios, and do want to provide further housing options to those tenants that need them. However, there are clearly large costs to be able to do this, particularly upfront ones, and when you add extra stamp duty charges to purchase deposits, you can understand why it is not plain sailing for them to get to the point of purchase. 

Falling interest rates will certainly help – and I do not believe we are too far away from them – indeed we’ve already seen this at different times through the tail end of last year and into 2024. However, government support for landlords, and potentially some stamp duty incentives, would certainly act as a considerable catalyst.

Will we get these? I’m not exactly holding my breath but it’s not impossible, and any government that does want to support tenants, that does want to make it easier for them to save for deposits to buy, is going to need to recognise that current supply levels in the PRS need boosting in order to be able to achieve this. 

They are, as I have said many times before, two sides of the same coin and we need a government that is willing to accept this and treat them as such.