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The rise of the (rented) bungalow?
Market for traditionally unfashionable single-storey homes set to grow, research shows
Bungalows could come back into fashion over the next decade amid a projected increase in the number of private tenants who are over the age of 55 and prefer the practical benefits of single-storey homes, research shows.
The Where Next for the Private Rented Sector? report, conducted on behalf of Paragon Bank by the Social Market Foundation (SMF), found that homes headed by a person over the age of 55 will account for more than a quarter of all privately renting households by 2035.
It added that nearly one in 10 rented homes in the UK could be a bungalow in the next 10 years, reflecting the country’s ageing population, which is expected to increase to 74.3 million by 2039.
But although bungalows offer practical benefits, particularly for older tenants who prefer not to have to climb stairs, they have fallen out of favour in recent years.
According to recent data, less than one per cent of new builds were bungalows in 2020 (1,833), representing a 23 per cent drop compared to 2019 and a whopping 80 per cent reduction compared with the 9,347 bungalows that were built in 2000.
However, Paragon’s survey of more than 1,300 tenants in the private rented sector (PRS) showed that the percentage of people living in a bungalow is expected to treble from three per cent to nine per cent in 10 to 15 years’ time.
Additionally, while 18 per cent of households are currently privately renting and headed by somebody aged 55 or over, that figure is expected to rise to 27 per cent of households by 2035, according to the SMF’s projections.
Richard Rowntree, Paragon Bank managing director of mortgages, said the evidence suggested that the demographics of private renters was shifting and that the profile of tenants “is getting older.”
Consequently, landlords will have to meet the challenge by “providing the right homes for older tenants.”
He said, “Bungalows are typically regarded as unfashionable, but they offer practical benefits for people who may not be as mobile as they once were, and certainly have their place in the PRS. Landlords are not yet buying this type of property in scale, but we would expect that to accelerate to match forecast levels of tenant demand for bungalows in future.”
Speaking to Mortgage Introducer, he conceded that bungalows had an image problem, but added that the public’s perception was changing.
“If you think ‘bungalow,’ you typically think of your traditional sort of cottagey- type chalet/bungalow that’s in the middle of nowhere, but I think that this outdated sort of ‘70s or ‘80s bungalow view is changing, definitely in terms of the old, adult-type of stock.”
Paragon highlighted a possible shift in that direction. Last year, landlords purchased 3,370 bungalows with a buyto-let mortgage, compared to 1,844 in 2017, showing “strong growth in the number of bungalows purchased by landlords over the past five years,” although the bank stressed that the figures remained low as a proportion of total properties acquired.
The government’s English Housing Survey also shows there are currently 141,000 bungalows in the PRS in England, representing 3.3 per cent of the total number of rented homes.
Rowntree said the research showed that people looking to downsize to a bungalow had limited choices, as there “isn’t really a great deal of bungalow stock available.”
Richard Rowntree
This could be because bungalows are also more expensive to develop due to their larger footprint, an added challenge to an already acute home-building crisis.
According to Crisis and the National Housing Federation at Heriot-Watt University, 340,000 homes a year will be needed by the mid-2020s to solve the shortage backlog in England alone.
But the latest figures show that only 216,000 homes were built during 2020–21.
Paragon’s research also found another significant shift in property type toward semi-detached homes, expecting an increase in demand among renters from the current 20 per cent to 25 per cent in the future.
Conversely, demand for terraced homes and flats is expected to drop. Just under a third (30 per cent) of tenants currently live in a terraced home, with 20 per cent saying they expected to rent this type of property in the future.
Buy-to-let market UK – a solution to a crisis?
The buy-to-let market has undergone numerous changes in recent years due to government alterations as well as adjustments led by the financial state of the market.
“The buy-to-let market has been buffeted, to say the least, in recent years, with changes to tax relief and tighter criteria being implemented by mortgage lenders,” said David Hollingworth, associate director of communications at London & Country Mortgages.
Hollingworth believes that the pandemic brought a renewed focus on homeownership as people sought more space and considered whether working from home could broaden their scope to buy. For the most part, this meant a shift away from city centres and saw people focusing more on larger properties on the outskirts of cities.
This affected both the residential and buy-to-let markets as the desirability of many rental properties in city centres dropped because people were no longer required to go into the office five days a week. He explained that while people do still want to buy property, the race for space has only seen prices rise farther.
“However, buy-to-let has shown perhaps surprising resilience and has proven it can continue in very consistent fashion throughout, despite these various hurdles,” said Hollingworth.
Hollingworth believes this helps to underline to landlords some of the benefits of investment in rental property, both existing and potential new purchases.
“Many will have secured low fixed rates to help protect from the rate rises now feeding in, which suggests that many have not got plans to jettison their properties,” he said.
David Hollingworth
PRESENTING A SOLUTION TO A CRISIS
For those who secured a new mortgage at the height of the pandemic, once their terms conclude it is expected they will be hit with the highest interest rates since 2015. The Bank of England has continued to increase the base rate, with it reaching one per cent in May and expected to hit 2.5 per cent by the end of the year. On top of this, inflation has reached its highest level in 40 years, with many anticipating this to get worse due to the cost-of-living and energy bills crises.
“It also means that the affordability challenges that have blighted first time buyers’ hopes of getting on the ladder for many years are only heightened,” added Hollingworth.
“That is especially true as we have emerged from the impact of the pandemic, when the ability to save was enhanced.”
According to Hollingworth, with everyone facing substantial increases in the cost of living, that ability to save could be curtailed. He believes that, as such, the buy-to-let market has an important and ongoing role to play; with property prices continuing to rise due to a lack of supply, many, whether they want to or not, are turning to the rental market for housing.
Hollingworth explained that at London & Country Mortgages, he has seen lenders review their approach, so there is more variance on offer now, depending on the individual circumstances.
He concluded by saying that “that is not to say that it will necessarily be plain sailing, and the potential for the ante to be upped on the required Energy Performance Certificate [EPC] rating in coming years could heighten landlord concerns about how much they may need to invest to meet any new stipulation.”
Holiday-let lending rising
Rise continuing despite removal of restrictions
The popularity of holiday lets has continued to rise, fuelled by the staycation boom.
“We’ve continued to see a substantial increase month-on-month in holiday-let lending since launching into the market in 2019,” said Emma Graham, business development director at Hodge Bank.
Over the course of the pandemic, Graham said she saw business increase by 154 per cent, with customers opting to purchase second homes for their own personal use, as well as letting them on a short-term basis for lucrative yields.
Looking to the future of holiday-lets, Graham believes the picture is bright for the market and expects to see this continue.
At the height of the pandemic the government introduced travel restrictions, and this meant that many members of the UK public looked close to home for holiday destinations. As a result, there was a boom in the number of landlords or potential landlords looking to purchase properties across the country with the intention of letting them out.
Graham said that you only have to look at the flurry of lenders that have recently started supporting the market to confirm that this is viewed as a growth area.
The dynamics of the market are also changing – Graham explained that lenders have historically lent in areas such as Devon, Cornwall, and the Lake District, but are now seeing a lot of activity in larger cities, particularly across the north of England, where short-term lets can accommodate weekend breaks now that restrictions have eased.
A recent Holiday Letting Outlook Report from Sykes showed that 39 per cent of enquiries this year to date have been from consumers who are new to the holiday let market, with bookings looking stronger than ever.
With travel restrictions having been removed for the most part, Graham said the popularity of holiday lets has still not dropped off.
“In fact, we continue to see a very healthy appetite for our holiday let offering,” Graham said.
She believes this has been helped by the past restrictions, as people have had an opportunity to reconnect with the UK and have a new appreciation for the country they call home.
“Before the pandemic, our research showed people were accustomed to taking one UK break a year, but we are now seeing more people opt for two UK breaks a year alongside their standard overseas trip,” she said.
She also believes that the new way of working, for many who live in the UK, feeds into this.
“With hybrid working becoming the norm, people working remotely can be more flexible with their leave, and this is also helping to drive the market forward,” Graham added.
Turning to what impact continued base-rate rises will have on holiday lets, Graham said the rate environment will inevitably have an impact across all areas of the property market, but she does not think it will adversely affect holiday letting.
Even if demand wanes slightly, Graham believes consumers will still get a healthy return on their investment, especially when letting their property out over peak times.
“It is also worth noting that the majority of business we have written has been on a five-year fixed-rate basis, so the majority of customers will not be subject to variable rate rises in the short term,” Graham said.
When focusing on the future and new opportunities for the holiday-let space, Graham said that innovation is important and, in the short term, she thinks there are opportunities from a refurbishment perspective.
Although an Energy Performance Certificate (EPC) rating is not currently required where furnished holiday lets are concerned, this is something that could change in the future.
New EPC regulations coming into force from 2025 mean rented properties will need to have a certification rating of C or above.
“The majority of lenders in the market expect properties to be lettable from day one, and some additional flexibility here would help investors improve both the energy efficiency as well as specification of their properties, which will in turn increase the potential for a stronger rental yield,” Graham concluded.
