‘Portfolio landlords’ the driving force behind buy to let

8 December 2017

Tax reforms and tighter regulations for landlords have resulted in the growth of professional landlords and a slowdown in the private rented sector, analysis of official data has revealed.

Research by Kent Reliance suggests the buy-to-let market is being driven by larger-scale professional landlords. In a survey of 856 landlords, it found that among those who had bought or sold properties in the past three months, landlords with more than 10 properties added one property to their portfolio. In contrast, landlords with fewer than five properties typically didn’t invest in additional houses.  

In its Buy to Let Britain report, the specialist buy-to-let lender points out that landlords with just one buy-to-let property make up 62% of this sector, so a lack of growth among this cohort will impact on the number of rental properties available.

Limited company lending grows

To offset mortgage interest costs against tax, more large-scale landlords are holding their properties within a limited company. Kent Reliance’s data shows that in the first three quarters of 2017, more than seven in 10 buy-to-let mortgage applications were via limited companies – up from 45% in 2016 – and this is likely to rise over the next four years as mortgage interest tax relief gradually is reduced.

The growth of the professional landlord is also being driven by the Prudential Regulation Authority’s recent intervention in the market. Since 30 September 2017, property investors with four or more mortgaged properties have had their entire portfolio of properties assessed when remortgaging a buy to let or taking out a new buy-to-let mortgage. This means many landlords have had to produce business plans for the first time for their portfolios.

The value of the private rented sector in the UK is now almost £1.4 trillion – up by 6.4%, or £82.6 billion, in the past year, with the average rental property going up in value by 4.2%, according to Kent Reliance.

However, the total number of households in rented accommodation is growing more slowly. There are almost 5.6 million households across the UK in the private rented sector – just 2.2% more than a year ago. 

Tenants put off by rising rents

Researchers report that tenant demand for properties is slowing, with just 5% more landlords saying they saw a rise in tenant demand than those reporting a fall – the lowest balance in more than five years.

Kent Reliance puts this down to rising rents, with the average monthly rent now £895 across the UK, with a slowdown in London bringing down the national average.

Andy Golding, chief executive of OneSavings Bank, which trades under the Kent Reliance and InterBay brands in buy to let, says: “Landlords are swallowing the unpleasant cocktail of higher taxation and tighter regulation, and this is undermining the expansion of the private rented sector.

“A fundamental shift in the landlord population is now under way, as buy to let moves from being a popular past-time for hundreds of thousands of British amateur landlords, to the preserve of committed long-term investors with experience and expertise.

“Creating a more professional sector is no bad thing, but there is a limit to the amount of change the sector can absorb before we see a damaging reduction in supply – an outcome that would see rents increase for tenants and reduce their ability to save for a deposit for house purchase.”

See our Renting section for more news and advice. 

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