Buy-to-let

23 months

Average length, in months, of tenancy (March 2022, up from 21 in February) – Propertymark, Private Rented Sector Report

£1,091

Average rental price for a new tenancy in the UK per calendar year (April 2022, up by 9.5% from last year, and 1.2% from March’s figures) – HomeLet Rental Index

30%

Percentage of all new tenancies in the capital so far this year secured by someone moving from outside of London (compared to 12% from 2020) – Hamptons Monthly Lettings Index (April)

Regional rental growth

Growth was led by the South West of England, where rents rose 13.9% over the last 12 months, closely followed by London at 12.3%, then the three Northern regions at 9.4% – Hamptons Monthly Lettings Index (April)

Home-movers rely on renting amidst property supply shortage

Jane Simpson

Managing director, TBMC

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 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. 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 homes, highlighting how increasing numbers of people are relying on rented accommodation to free them from the burden of the chain and bridge the gap between selling their existing home and securing their next property.

We’re also seeing an increase in those who let-to-buy. This works similarly in that homemovers are 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 may keep as a long-term investment if they wish.

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

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

A report by the London School of Economics concluded that as a consequence of changes to taxes and increasing regulation, many landlords plan to reduce their involvement in the sector in the coming years, with some having done so already. 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 per cent of landlords own a single property. This 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 these landlords are entering the sector for personal reasons – in order to secure homes for themselves – 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 the context of the 4.5 million households within the sector currently.

And even if let-to-buy landlords do warm to the idea of a lettings business, they may quickly change their minds when they discover the regulations they will be required to meet.

The number of such regulations currently stands at 126. The Renter’s Reform Bill is expected to have a significant impact on landlords, and 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 substantial costs for landlords upgrading properties to meet EPC C or above, and we see that the personal benefit of becoming a let-to-buy landlord suddenly seems outweighed.

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. 

Landlords may lose almost half of annual rents to property damage

Landlords without insurance risk losing as much as 45 per cent of their annual rental income through damage caused by tenants, specialist insurance provider Total Landlord said.

Figures from Total Landlord’s parent company, Hamilton Fraser, showed that 15 per cent of landlords have opted not to insure their property portfolios, leaving them susceptible to hefty losses should their property be damaged.

The average annual cost of landlord insurance in England is £170 per property while the average annual rental income is £11,228 per property, which means the cost of insurance sits at just 1.5 per cent of income.

Total Landlord said that uninsured landlords do make a marginal saving by not taking out insurance, but risk spending substantially more than 1.5 per cent of their rental income if tenants cause damage to their property.

It cited as examples a kitchen fire and a bathroom flooding that could cost the landlord at least £5,000, or 44.5 per cent of the average annual rental income.

Eddie Hooker, chief executive at the Hamilton Fraser Group, stressed that even minor damage to properties is going to cost more than it does to take out an insurance policy.

“Should a major disaster happen, rental incomes can be severely affected – a loss that many landlords would struggle to stomach given the challenges with profitability of a buy-to-let investment following recent and future government policies,” he said.

Hooker pointed out that any rental property is likely to succumb to some level of damage during its lifetime.

“Although this may often be accidental, it can also be the result of a malicious act by a disgruntled tenant, in which case it can be far more costly. We’ve also seen an increase in adverse weather claims in recent years, which in many cases cause a great deal of damage,” he said.

“While the vast majority of landlords are insured against such damages, there is a small proportion that runs the risk of remaining uninsured or, worse still, underinsured, which is quite astonishing given the relatively low cost of obtaining insurance in relation to the potential bill for damages caused.” 