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Home-movers rely on renting amidst property supply shortage

Increasing numbers of owner-occupiers are turning to the private rented sector as competition in the sales market continues.

The imbalance between supply and demand evident in both the sales and lettings markets is leading to fierce competition for homes, with the current cost of living crisis and economic headwinds seemingly yet to cool the property market.

Chains are often a source of frustration and angst for buyers and sellers alike, but this competition has increased the stakes. Some homeowners have only been allowed to view properties once their current home is sold subject to contract and there are instances where offers are only being considered once the offer on the next property in the chain has been accepted.

This is leading to home-movers turning to the PRS, many as tenants but some as landlords too.

Recent Hamptons research revealed a rise in the share of prospective tenants who have sold their home, highlighting how increasing numbers of people are relying on rented accommodation to free themselves from the burden of the chain and bridge the gap between selling their existing home and securing their next property. Interestingly, the highest share of stop-gap renters was seen in Wales, also one of the regions to see the highest proportion of landlords report increasing tenant demand, according to a Paragon survey.  

Alongside those who choose to rent from a private rented sector landlord while they search for a new home to buy, we’re also seeing an increase in those who let-to-buy.

This works similarly in that the home-mover is freed up to proceed with the purchase of their next property but they key difference with a let-to-buy mortgage is that they are able to take advantage of strong tenant demand to quickly rent out their existing home which they keep as a long-term investment if they wish.

In addition, with house prices climbing at the fastest rate in over a decade to reach record highs, many people have amassed significant equity and let-to-buy enables them to tap into this to purchase a new one.

This appeal means we could be seeing more small-scale or ‘amateur’ landlords enter the sector.

A report by London School of Economics concluded that as a consequence of changes to tax and increasing regulation, many landlords plan to reduce their involvement in the sector in the coming years, with some having done so already. The authors highlighted how 52% of the 1400 landlords responding to their survey said that tax changes had impacted them to some degree, a figure that dropped to 33% when asking about the effect of Covid.

With this and other evidence suggesting a contraction of the PRS, a boost in the number of private landlords would appear to be a positive but it isn’t quite so simple unfortunately.

The English Private Landlord Survey, last published in 2018 by the Department for Levelling Up, Housing and Communities (DLUHC), found that 45% of landlords own as single property. This alone highlights the valuable role of small-scale landlords in providing homes for renters but the let-to-buy landlord I refer to here may be quite different.

This is because they are entering the sector for personal reasons, in order to secure a home, and not to start a lettings business. This means that they are unlikely to have plans to invest further in the PRS so the number of properties they will inject into the tenure will be insignificant when viewed in context of the 4.5 million households within the sector currently.  

And, even if the let-to-buy landlord does warm to the idea of a lettings business they may quicky change their mind when finding out about the regulations they are required to meet.

This currently stands at 126 and the Renter’s Reform Bill, highlighted as a key piece of legislation during this year’s Queen’s Speech, is expected to have a significant impact on landlords.

No date for the when the Bill will come into force has been provided and there is still ambiguity around the details, but we know that the repealing of Section 21 of the Housing Act 1988 will see ‘no-fault’ evictions abolished. It seems pretty certain that there will be an increased focus on ensuring properties meet the Decent Homes Standard too.

Add to this the proposed changes to EPC regulations, likely to result in substantial costs for landlords to upgrade properties to meet EPC C or above, and we see that the personal benefit of becoming a let-to-buy landlord seems suddenly outweighed.

Although we would always advise that customers do their own research, all of this highlights the important role that brokers can have in educating their clients, even if it is just a case of pointing out some of the things they need to consider.

The property market is particularly dynamic at the moment, with different factors driving demand across all tenures. This means that a broad knowledge of the options available to clients, and the potential implications of choosing them, is as important as ever.  

This website is aimed at mortgage intermediaries and investment professionals only and is not intended to be relied upon by borrowers or investors.

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The Business Mortgage Company Services Ltd is authorised and regulated by the Financial Conduct Authority (No. 302764) to transact regulated mortgages and registered as a Consumer buy-to-let arranger. The FCA does not regulate some investment mortgage contracts.