Government need to keep building houses to meet demand
The UK government need to keep building houses to support the dire need for homes and boost the economy.
According to figures from the Department for Levelling Up, Housing and Communities analysis of the English Housing Survey 2020 to 2021, over 4.4 million households in the UK are in the private rented sector and it’s doubled in size since the early 2000s.
The last Tory election manifesto pledged to build 300,000 houses a year by the mid-2020s to help relieve the housing shortage, but it’s failed to live up to its promises, resulting in a dire shortage of housing. In part the pledge has been affected by shortages of labour and issues with the supply of materials over the last few years, but with additional changes coming that will affect existing buy-to-let property landlords, more houses are desperately needed.
Ex-housing secretary, Michael Gove, who resigned from the position on July 6th 2022, recently announced new measures that could have an impact on buy-to-let landlords and reduce the number of rentals available at a time when they’re needed the most. The plans are outlined in the new Private Rental Sector Reform white paper and include clauses such as the scrapping of Section 21 repossessions – or so-called ‘no fault’ evictions, a ban on landlords discriminating against tenants with pets or those on benefits, plus the need for all landlords to meet new minimum standards.
Some of the measures have been met with concern by buy-to-let landlords, especially those running small-scale letting businesses, as they fear it could result in their businesses becoming unviable.
It comes on the back of other measures brought in by the government in recent years that have had a detrimental effect on landlords, such as the tax relief cut on buy-to-let mortgages and the 3% stamp duty surcharge on additional properties.
Section 21 currently gives control to landlords so that they can easily deal with tenants who are in arrears with rent payments and ensure they can maintain their own mortgage repayments.
However, if the ‘no-fault’ eviction clause is removed, it will mean that landlords will need to go through a potentially lengthy court process in order to repossess their property. It would involve using Section 8 of the 1988 Housing Act and having to prove that a tenant has breached the terms laid out in their contract. This process could result in landlords being out of pocket on rent for some time, causing a knock-on effect and making it tricky for landlords to service the payments on their buy-to-let mortgages.
In fact, some buy-to-let mortgage companies have already reacted with concern over the reform plans, suggesting that it could result in higher rents, fewer landlords and less rental properties being available. There’s also the possibility that banks will be less reluctant to lend to buy-to-let landlords or put up their rates in response.
Given the already short supply of rental properties and growing demand for housing in the UK, and the vital role that buy-to-let property landlords play in providing rentals, it seems like the government could be shooting themselves in the foot with their reform plans. Yet the government claims their plans will help to create a fairer private rental sector and prioritise the need for people to have secure and decent homes. In other words, they’re prioritising the needs of tenants over the landlords.
The Private Rental Sector Reform bill is now up for consultation before being finalised. Organisations such as the National Residential Landlords Association (NRLA) trade body are hoping for more clarification and understanding from the government as to how the proposed bill will affect landlords.
Ben Beadle, chief executive of the NRLA commented, “The eventual legislation needs to recognise that government actions have led to a shortage of supply in the sector at a time of record demand. It is causing landlords to leave the sector and driving up rents when people can least afford it.”
The effect of the ‘built-to-rent’ trend
As if that wasn’t enough potential bad news for landlords, another potential blow could come in the form of the large organisations who are moving into the rental market, in the so-called ‘built-to-rent’ property trend. For example, the John Lewis Partnership has announced it’s proposing to build new rental homes in three sites in London and Reading. Not only will they be developing the properties, they’ll also be furnishing and managing them.
In fact, the John Lewis Partnership aims to deliver 10,000 homes in the next 10 years, 5,000 of which will be from schemes developed via their own property portfolio. By 2030, they are aiming for 40% of their profits to come from the rental homes market, instead of retail.
It’s quite a change in direction and, although in theory it could be a good use of otherwise vacant buildings, there’s also the fear that a large organisation could end up dominating the rental market. This could especially pose a risk if banks were to reduce their buy-to-let lending, as the John Lewis Partnership have and will be able to secure finance, whereas smaller individual landlords may be unable to.
Thankfully, and especially if mortgages do become trickier for landlords to secure, bridge-to-let finance options are available to help secure properties. The fixed term loan can be used by landlords who are intending to rent out a property, but are unable to secure a mortgage or arrange a deposit.
Unlike traditional mortgages, a bridge loan can be a much more convenient, flexible and cost-effective option, as they can be processed and finalised in a much quicker time period. They do as the name suggests and help bridge a gap in financing.
In the meantime, landlords will be waiting with baited breath for the final outcome of the Private Rental Sector Reform plans and thinking ahead to how their business might cope best with the proposed changes. It’s hoped that the government will keep building houses too, both to meet the need for housing and to help boost the economy.