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BTL sector is becoming the preserve of experienced long-term investors

A combination of tax reform and stricter regulation for landlords is slowing the growth of the private rented sector (PRS), despite its value hitting a new high, according to the latest edition of Kent Reliance’s Buy to Let Britain report.

The value of the PRS has increased by 6.4% or £82.6bn over the past 12 months to hit almost £1.4trn, supported by a 4.2% hike in the average rental.

The report also reveals that the total number of households in rented accommodation is growing much more slowly.

There are almost 5.6m households across Great Britain in the private rented sector, just 2.2% more than a year ago. This is less than a third of the rate of increase seen in 2014.

Slower growth reflects landlords’ fragile confidence in the sector, although there has been a slight recovery in confidence among landlords since the second quarter of this year, with 41% of landlords assured by prospects for their portfolios.

But confidence remains historically low because of recent tax reform reducing the amount of mortgage interest that can be offset against tax, rising costs, and new mortgage rules that have tightened criteria.

Tenant demand is also growing more slowly. Just 5% more landlords reported rising tenant demand than those reporting it fall, the lowest balance in at least five years, which partly explains why rental inflation has been easing.

Average rents per property now stand at £895 per month across Great Britain. Although this is another new high, the typical rent increased by 1.5% annually, down from 2.4% a year ago, with sluggish growth in London weighing on the national average.

Rents are likely to continue to rising as 29% of landlords expect to increase rents over the next six months.

Andy Golding, chief executive of OneSavings Bank, which trades under the Kent Reliance and InterBay brands in buy-to-let, said: “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 underway, 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. The pace of professionalisation will only increase following the PRA’s latest moves, and incorporation continues apace.

“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. Landlords’ confidence is better but still clearly fragile, and as the new tax reforms gradually come into force, any further financial burdens may prove to be a tipping point.” 

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