Growth in the private rented sector has slowed, according to the latest half-yearly Buy To Let Britain Report conducted by Kent Reliance. The report attributes this in part to economic uncertainty, but also to landlords coming to grips with the raft of tax and regulatory measures introduced in recent years.
The eighth edition of the report also suggests that, over the course of the next decade, there will be nearly a million fewer first time buyers than in the 10 years before recession, highlighting the prolonged shortage of FTBs in the market. This shortage will, it argues, fuel the growth of the PRS in the longer term.
The combined effects of higher stamp duty costs, reforms to the tax treatment of mortgage interest and tighter lending rules are responsible for the slowdown, the report says. The number of households in the sector increased by 3% in the last year, to 5.7m, a tiny increase compared to that seen over the past decade.
On the supply side, only 1% more landlords increased rather than shrank their portfolios in the last three months, according to a survey of 1,043 landlords, run in association with BDRC Continental.
Meanwhile, analysis of UK Finance data shows the number of outstanding buy to let mortgages increased by just 1.5% a year, one sixth of the rate seen three years ago, as house purchase demand has slowed.
Tenant demand has eased at the same time, with just 19% of landlords reporting tenant demand increasing in the last three months, and 23% seeing demand fall. This figure was heavily influenced by London, where political and economic uncertainty is having a major effect in prime areas.
While landlords have seen reduced tenant demand in recent months, first-time buyer activity is still a long way from recovering to its pre-recession levels, despite a raft of government support measures. This has contributed to the long-term growth of the PRS, and is set to do so in the future.
In the last decade, two million fewer first-time buyers have been able to buy with a mortgage than in the 10 years prior to 2008. Over the same period, the PRS has grown by 2.2m households, accommodating frustrated buyers.
This fundamental support for rental demand has not changed, as first-time buyers continue to struggle with affordability issues and insufficient housebuilding. Just over 363,000 first-time buyers used a mortgage to buy a home last year, 94,000 fewer than the typical number seen in the 10 years prior to the financial crisis, despite an increasing population. Without a sustained recovery in first-time buyer activity, this means 940,000 fewer first-time buyers will purchase their first home over the next decade than in the 10 years before the financial crisis.
ONS forecasts suggest an additional 2.4m households will be created in Great Britain over the next 10 years. Conservatively, assuming first-time buyer numbers recover somewhat, and private renting continues to account for a little over a fifth of households, rental housing supply will still need to cater for an additional half-a-million households.
In the long-term, the report says, the market will continue to professionalise as it bridges the supply gap, improving the service landlords provide for tenants as amateurs leave the market. This process has already begun: 31% of landlords now make a full-time living from property investment, compared to 26% three years ago.
Furthermore, landlords are increasingly operating as a business, and those buying property are increasingly doing so as a limited company, allowing them to continue to offset mortgage interest costs against tax. Kent Reliance's data shows that in the first quarter of 2018, 72% of mortgage applications for purchase were via a limited company – more than twice the level seen two years ago.
"Political opinion may be set against the PRS, but without it, the housing crisis would be deeper still. First-time buyer numbers, despite recent fanfare, are a long way from pre-recession levels and with household numbers growing, and new housing starts inadequate, it is the PRS that will continue to pick up the slack. Policy should recognise that, and support growth in supply across all tenures.