A year on from April 2016, much has changed for existing landlords and potential buy-to-let investors.
A 3 per cent increase in stamp duty, scrapping of the wear and tear allowance, tougher lending procedures that include increased interest coverage ratio from 125 per cent to 145 per cent of mortgage interest and an introduction of a ‘stress test’ using an interest rate of 5.5 per cent to work out the minimum rent required.
All this on top of the 25 per cent reduction in mortgage interest relief, effective from 6 April this year, which is gradually set to increase to 100 per cent by 2020. There have been no less than 145 new pieces of legislation impacting landlords or the lettings market in the last five years.
Inevitably, this has got me thinking; at what point will landlords start wondering if it’s worth their while, and, if they decide it isn’t, what implications will this have on the lettings market? Already in the last year, 10 per cent of our landlords decided to sell off or reduce their portfolio when tenancies came to an end. On the one hand, this has released much-needed stock for potential buyers – but what about tenants?
The average age of a first-time buyer has moved up to the late 30s, which means that people rent for longer. According to the Mayor of London’s Housing in London: 2017 report, more than one in three privately rented households include children, up from one in five in 2004. Families require the stability of long-term rental accommodation to remain in their chosen school’s catchment area.
Many professional tenants need stability too; a 40-minute commute after some 36 hours on duty is not acceptable for doctors and nurses, for example. This clearly demonstrates strong demand for geographically-balanced availability of rental stock, which has historically been challenging to achieve.
Discouraging private investors acquiring or expanding their portfolio in a bid to help tenants get onto the property ladder might help first-time buyers, but this needs to be carefully balanced against the implications of the reduction in supply on tenants. Reduction in supply inevitably triggers increase in demand, which in turn causes prices to rise.
Considering that recent regulations will affect small-scale private landlords the most, and that, according to the latest HomeLet report, 49.7 per cent of landlords only own one property, it raises concerns. This is why addressing a likely reduction in stock levels is crucial for the stability of the lettings market.
If the government sees the developing Private Rented Sector (PRS) as the solution to addressing the shortage of affordable stock, then local councils’ planning restrictions need to be looked at, making it easier for builders to get permission for new PRS schemes. This will take time; PRS makes up less than 5 per cent of the total London lettings stock at present.
For the time being then, it looks as if the market will depend heavily on private landlords to provide rental stock. Perhaps it’s time to realise that the interests of tenants aren’t totally unconnected from the interests of landlords and it’s to everyone’s benefit to find common ground.
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