Are we heading for a two-tier private rented sector?

Are we heading for a two-tier private rented sector?


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It may seem a case of stating the obvious, but policies introduced by governments have consequences, sometimes unintended. 

We recently examined regional trends in the buy-to-let mortgage market and found that over the past 10 years, the proportion of mortgages written for properties in the north of England has grown at the expense of southern regions. 

Our new report, The factors driving the buy-to-let market in northern England, showed that in 2014, 46% of buy-to-let mortgaged house purchases were in London and South East. Last year, that fell to 32%. 

Conversely, the North East, North West and Yorkshire & Humber grew from 22% of purchases in 2014 to 35% last year. 

Examining the data highlights the exact period of change – the introduction of the 3% Stamp Duty surcharge for buy-to-let purchases in 2016. 

That made purchasing a buy-to-let property in southern England significantly more expensive. Based on our own lending data, landlords would pay Stamp Duty of £46,633 based on the average purchase price of £739,166 in Greater London. 

A landlord buying the average property in the North Westfaces a £6,816 Stamp Duty bill, falling to £5,595 for those in the North East. 

Industry data shows there were just 6,430 purchases funded with a buy-to-let mortgage in England’s capital in 2023, a fall of 66% compared to 2016. 

As a native of the north, I can extol its virtues and understandwhy people choose to live in the region, given its burgeoning economies, relatively affordable housing and beautiful geography. 

But the south needs rental property, particularly London.

London is one of the most transient housing markets in the world, attracting people from all over the country, indeed the globe, who have no intention of buying a place there, but want to work and enjoy all the good things the city has to offer. It also hosts top-tier universities, attracting students worldwide. 

But given the rate of new rental property purchases in these important regions, the supply demand imbalance will only deteriorate. Build-to-rent can play a role, but is not the answer. The market still needs private landlords. 

Without an effective rental market and adequate choices, tenants face difficulties. Until recently, rental inflation in London was higher than anywhere else in the country, with most tenants able to recount stories of competition for property more intense than trying to secure an Oasis concert ticket.

It also impacts the economy and the provision of services. Without affordable homes to rent, the top talent will seek alternatives, maybe opting to work in cheaper markets in Europe or the US. Public sector workers on lower incomes may not fancy the long commute from the periphery of the city and opt to live elsewhere in the country. 

With the infamous £22 billion black hole in the public finances recently reported to have swelled to an eyewatering £40 billion, there is zero chance of Rachel Reeves rolling back the surcharge, that train has gone. 

However, the Government should be wary of causing further disruption to an already challenging private rental market in southern regions, or indeed the rest of the country, by layeringtoo many new regulations onto landlords too quickly. 

We know a consultation paper will be out before the new year on the introduction of new energy standards for rental property. Plus, landlords will be bedding in the new Renters’ Rights Bill legislation from 2025 onwards.

This isn’t a game of buckeroo, landlords have a tolerance, particularly those with just one or two properties. It’s vital that they are encouraged to remain in the sector.

  • Louisa Sedgwick is Paragon Bank Head of Mortgages *

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