8 minute read
Buy-to-let review
Taking aim at BTL is short-sighted
Richard Rowntree
MD, mortgages, Paragon Bank
In previous Mortgage Introducer columns I have talked about the challenges posed by a volatile economy, but couldn’t have predicted upheaval of the magnitude experienced by the industry following the mini budget.
At the time of writing, intervention by the Bank of England and a U-turn on the planned scrapping of 45 per cent income tax has stabilised the economy somewhat, but we are in a period of uncertainty.
Recent announcements suggest that politicians sitting on both sides of the House of Commons see a thriving housing market as an essential component of national prosperity, so, while I can’t predict the fate of the economy with any level of certainty, one thing that I can say with confidence is that anti-landlord sentiment will continue.
Never too far away from political posturing and promises, housing policy was a notable focus of this year’s Conservative and Labour party conferences, giving us a clue to the direction of future policy.
Conservative MPs were more open in their criticism of the private rented sector (PRS) than we’ve seen previously, spearheaded by former housing secretary Michael Gove, who spoke of rogue landlords and poor housing stock.
Labour Party leader Sir Kier Starmer said that if elected he would set a new target for 70 per cent of homes to be owner-occupied, up from the current 63 per cent, achievable through a new set of political choices that would see “no more buy-to-let landlords or second homeowners getting in first.”
Similar to the Tories’ “Fairer private rented sector” white paper, many of the measures outlined by Labour seem sensible – long-term tenancies and a national landlords register, for example. It is also encouraging to hear the party say it would consult with lenders and landlord groups as well as tenants on various aspects of the sweeping reforms. But, for all the listening, there is also a lot of talking that I feel is unhelpful.
Shadow levelling up secretary Lisa Nandy told private renters that they have “the right to live in a home that isn’t cold, mouldy, damp, and unfit for human habitation.” This goes without saying, but is unfortunately an all-toocommon picture painted by politicians, suggesting that such conditions are the norm and not a minority of extreme cases.
With both Labour and the Conservatives outlining plans for a new decent homes standard, I think the role of buyto-let lending in improving standards in the PRS should be acknowledged. Industry figures show a drop from 46.7 per cent to 23.3 per cent in the proportion of privately rented homes classed as non-decent between 2006 and 2019. During this time, the number of outstanding buy-to-let mortgages increased from 835,000 to 1.9 million.
Paragon doesn’t lend on poor-quality homes, and I’m pretty sure many of our competitors don’t either. Put simply, it’s bad for the customers we have a duty to protect, it’s bad for tenants, and it’s bad for business.
Research carried out for the Social Market Foundation’s Where next for the private rented sector report found that 81 per cent of renters are happy with their current property, and 85 per cent say they are satisfied with their landlord.
Such stats highlight how the notion of uninhabitable homes let by conscienceless landlords is a misconception in many cases. Unfortunately, this narrative plays on our national view of homeownership as a hallmark of aspiration and success, one that isn’t seen in some other countries like Germany.
Instead, championing first-time buyers trying to provide homes for their families and pitting them against tycoon-like landlords is more effective in garnering voter support than admission of the uncomfortable truth that PRS investors contribute a valuable societal role in filling the gap left by the undersupply of affordable homes under successive governments.
Supplying the numbers of new homes promised by politicians will require significant investment and infrastructure at a time when interest on national debt is at a record high, so this is unlikely to be achieved in the short term.
In the meantime, those who cannot afford to buy their own homes – likely to be a growing number due to rising interest rates and the cost-of-living crisis more broadly – will continue to rely on rented accommodation. So will those, such as young professionals or essential migrant workers, who choose PRS properties due to their flexibility or close proximity to busy city centres or places of work; the sector is home to people from all walks of life, so its health has broader implications for our economy.
This means that while it may be popular with voters, policy that removes the incentive to invest in the PRS will lead to a contraction of the sector, which, in turn, will limit supply already failing to meet demand – and ultimately harm the very people it is trying to protect: tenants. M I
First-time buyers have steep hills to climb
Cat Armstrong
mortgage club director, Dynamo for Intermediaries
It’s not easy to sum up recent events, especially when, at the time of writing, we still don’t really know the full extent of their impact, if there will be any further government U-turns in the offing, or what other changes might be coming our way.
From a buy-to-let perspective, it’s important to evaluate all elements when assessing any potential impact on the sector, and this is especially evident from a residential purchasing standpoint. So let’s start with how higher mortgage rates are affecting buying power, as this is likely to have a direct impact on tenant demand.
Recent analysis from Zoopla showed that higher mortgage rates could reduce buying power by as much as 28 per cent if mortgage rates reach five per cent by the end of the year, assuming buyers want to keep their monthly repayments unchanged.
The property portal anticipates that higher mortgage rates will have the greatest impact on buying power in the high-value markets of London and the South East – as well as regions such as Wales that have registered the greatest surge in house prices over the pandemic. It says there are early signs that price sensitivity is emerging, as six per cent of homes listed for sale have seen the asking price adjusted downwards by five per cent or more – the highest level since before the pandemic.
Rising living costs seem to have become the greatest barrier to purchasing a home, with seven out of ten (72 per cent) prospective first-time buyers (FTBs) affected by the ongoing crisis. This is according to new research from Aldermore, which added that this factor has delayed a third (32 per cent) in buying a property and realising their home-buying dreams, with delays of 20 months on average. Nearly two-thirds of all first-time buyer hopefuls have had to scale back their regular savings (64 per cent), likely increasing the time it takes to get on the property ladder, while one in five (19 per cent) has had to look for a cheaper home.
This data helps to emphasise the scale of the challenges currently facing FTBs and the ever-increasing reliance on the private rental sector. From a buy-to-let standpoint, landlords, lenders, and buy-tolet (BTL) specialist brokers/clubs are certainly not looking at these struggles with any glee, far from it.
We all appreciate that FTBs remain the bedrock of a healthy housing and mortgage market, and these markets function best when the supply of affordable housing is strong, when there are consistently high FTB numbers, when rents remain at reasonable levels, and when there is far greater economic certainty.
Whilst I’m at it, there’s also another preconception to shatter – that landlords are selfish and are only interested in maximising their profits. In the face of rising living costs, a huge number of responsible landlords are playing their part in reducing the burdens being faced by their tenants. This was evident in research from Shawbrook which suggested that 75 per cent of residential landlords have taken steps to support tenants during the current cost-of-living crisis. With 85 per cent of tenants having made lifestyle changes to cope with inflationary pressures, many landlords have been taking action to help. 25 per cent have frozen rents, while 22 per cent have offered a payment holiday to those who needed it. Twentytwo per cent have offered those who are struggling with their finances a reduction in rent, and 19 per cent have offered rent inclusive of bills.
Fourteen per cent of landlords haven’t made any changes in response to the cost-of-living crisis, but say they would be willing to do so if their tenants are having financial difficulties in the future. Thirty-six per cent of renters surveyed said they would consider asking for a reduction in rent, and 35 per cent would consider asking for a rental holiday. In addition to offering direct financial support for tenants, 26 per cent of landlords have made energy efficiency upgrades – such as insulation, double glazing, or a new boiler – to their properties to help with rising energy bills.
As outlined in this research, in order to have a fair and sustainable rental market, it’s vital that landlords be open to supporting their tenants through some tough times, and it’s extremely reassuring to see that a large percentage of landlords are doing just that.
There is often a somewhat lazy narrative around a perceived FTB v landlords battle. It’s true that they may sometimes be in competition for certain properties, but that doesn’t mean they cannot coexist or that landlords are anti-FTB. After all, their actions in helping tenants to overcome some challenging financial times will help pave the way for a greater number of tenants to potentially achieve their property ownership dreams in the future. So let’s give these landlords the credit they are due. M I
