News Review: Buy-to-let
Spending review turns up heat on private rental sector if the government is seri-
by
Bob Young, managing director, CHL Mortgages
Let’s take a look at how the coalition
government’s
comprehensive Spending review will impact on the pri- vate rental sector. ever since clegg and cameron formed their political marriage back in may the writing seemed to be on the wall for ‘social hous- ing’ and with the chancellor’s announcement a couple of weeks ago, nothing seems to have changed in that regard. While existing social hous-
ing tenants will see their rents remain unchanged, new ten- ants will have to pay rents around 80% of the current market value. the govern- ment anticipate this will free up around £4.4 billion of what it calls ‘capital resources’ which it says allows it to build
150,000 affordable homes over the next four years. at present, eight million
people live in ‘social hous- ing’ with another five mil- lion on waiting lists. it does not take a genius to work out that demand and supply for affordable social housing is somewhat skewed and, prior to this point, we were already witnessing a significant in- crease in the demand for pri- vate rental properties because of this, not forgetting further demand pushes from, for ex- ample, potential first-time buyers unable to get on the property ladder because of greater deposit/tighter criteria requirements. all in all, it is clear that
the government expects the private rental sector to fill the housing gap however it is unclear how it will achieve this aim. certainly, with social housing rents now having to be more in line with the pri- vate rental sector, there will be
Demand is already increasing
Paragon’s Private Rented Sector Trends report was released the day before the Comprehensive Spending Review and it seemed to suggest ongoing increases in rents. Some 36% of those landlords surveyed said they had seen rents increase in Q3 this year, compared to just 6% who believed rents had fallen. While 29% reported growing tenant demand and this is only likely to increase when the Government’s decision on social housing filters through to the private rental sector. Another 42% believe that tenant demand will be greater in 12 months’ time than it is now – we should remember that this was the viewpoint before the Chancellor’s announcement. I would hazard a guess that the survey results for Q4 2010 will see a much greater number of landlords with this opinion.
8 mortgage introducer NOVEMBER 2010
even greater pressure and de- mand for private rental prop-
erties.given this announce- ment on social housing, and the fact that there is already significant pressure on private rental property availability, one wonders how supply can meet greater demand in the future? While professional land-
lords (and we know because we have asked our borrowers), are keen to purchase more property and add to their portfolios. the simple facts are that with funding still de- pressed and deposit require- ments particularly high, turn- ing opportunity into reality is still difficult. the reintroduction of lend-
ers such as Paragon back into the market is positive news for landlords however at the same time we have Lloyds Banking group pulling back from the sector with its decision to maximise lending to landlords at £2m or three properties.
It is the same message but one that is absolutely vital if the private rental sector is to meet growing demand – a greater supply of property is going to be needed. Unfortunately, and I really am in danger of repeating myself here, mortgage finance is constrained and landlords are only too aware of it. Paragon’s report showed 34% of landlords saying finance was limited in its availability, while 29% said it was very restricted. Only 17% said it was either widely or reasonably available. There is no reason to suggest that the outlook for buy- to-let mortgage finance is going to change soon; interestingly from the research it would seem that landlords are managing to increase the numbers of properties in their portfolios, up from an average of 12 to 15. However, the big question is can we increase this enough so the sector as a whole is in a position to meet the increase in demand we are inevitably going to see?
ous about the private rental sector taking up the slack that its social housing cuts will generate then there will cer- tainly need to be an increase in buy-to-let lending. and there is a further bal-
ance to be achieved here – those who operate in the buy- to-let lending sector do so with conservative, dare i say it, responsible criteria. We do not want another sit-
uation whereby we move from maximum 80% LtV products offered at 125% rental cover to 100% LtV products offered with 100% rental cover as some lenders provided in the boom time. However to meet greater demand for private rental properties we will need more stock than is currently avail- able and therefore existing and new landlords will be needed to bring properties to market. to do this we need existing lenders to increase their lend- ing capacity and new lenders to enter the sector which is one more reason why a fully- functioning, dynamic capital market is essential to uKPLc. as i’ve said, both pre- and post-credit crunch, buy-to-let lending must be offered at the same responsible levels; this is not a call for more lending pushing further up the risk curve, it is however a call for help and support to allow greater levels of responsible buy-to-let lending. if this is not achievable, then it is high- ly unlikely that the private rental sector will be able to meet the greater housing de- mands that the government is placing upon it.
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