A combination of tax reform and stricter regulation for landlords is slowing the growth of the private rented sector (PRS), but private landlords are being encouraged to accept the changes and focus on long-term gains.
Despite a challenging time for the buy-to-let market, characterised by tax and regulatory changes, investment in buy-to-let continues to outperform most major asset classes, and property investors must not lose sight of that fact, according to Spicerhaart’s operations director Paul Sloan.
He said: “No-one said being a private landlord was an easy way to make money – tax changes and moving legislative goalposts are keeping landlords on their toes.
“However, individuals looking to make longer-term investments are finding limited choices are available to them – interest on savings continues at historically low levels, and the volatility of the stock market provides uncertainty in both the short-and longer-term.”
Sloan points out that the private rented sector is a growing market, and both past performance and the key economic indicators are all positive.
The letting expert has compiled five reasons why he believes that landlords should embrace change, and watch their portfolio thrive:
+ Rising energy standards can help increase property values
On 1st April new Minimum Energy Efficiency Standards regulations went live. This new requirement is aimed at raising energy efficiency in the private rented sector. Before a new tenancy can be granted, landlords must ensure their properties adhere to minimum energy efficiency ratings. Properties must have a minimum rating of E, which means that a new tenancy cannot be granted if the SAP point score is 38 or lower.
However, homes which are more energy efficient will be more attractive to tenants, and any improvements which need to be made to comply are only likely to add capital value.
+ Regulation drives up standards
The Department of Housing, Communities and Local Government announced the introduction of a so-called ‘Rogue Landlord Database’ in a bid to expel landlords who fail to comply with regulation or who rent out substandard accommodation. This is a move to be welcomed as we believe all tenants should have the right to live in safe, comfortable homes. So-called ‘Rogue Landlords’ give our industry a bad name and as we continue to provide homes for an increasing population of tenants, the service we provide should be respected and valued.
+ Property values are rising
As a long-term investment, property remains attractive. Recently released figures from the Office for National Statistics showed that average property values in the UK increased 4.4% versus March last year. In real terms this is growth of £9,000 – or the equivalent of £750 each month.
The majority of landlords are making a modest profit from rental income on a monthly basis – and when combined with a continued rise in average property values this is positive return.
+ Rents remain in line with earnings
According to the latest Rental Index from HomeLet, rents are continuing to rise across the UK at 0.9% - which is far lower than the growth in average weekly earnings, at 2.8%. For tenants this will mean their monthly rental payments will be feeling more affordable in real terms. The good news for landlords is that if tenants are less likely to struggle to meet their monthly rental commitments there is a reduced risk of arrears - and of course, happy tenants will often stay in their home for longer.
+ Private rented housing is in demand
The UK continues to have a shortage in the provision of social and council-owned homes, and the upfront cost of home ownership remains prohibitively high for many. Private landlords are now providing homes to over 20% of UK households – a number only set to grow over the coming years, with some predictions that private rented homes will account for approximately 25% of all households by 2021.
With landlords enjoying a combination of portfolio growth, rental price growth and growth in the value of their properties, the overall experience for many remains positive. Reduced tax relief and tightening legislation haven’t deterred smart landlords from carefully strengthening their portfolio, to match the increased demand.