Shamplina Speaks - It’s Key To Level With Landlords

Lack of rental stock is now the biggest challenge facing letting agents today. That is what every agent I’ve spoken to nationwide has been telling me in recent weeks. 

As the supply of homes available to rent in the private rented sector continues to fall, agents have a queue of tenant applicants whose needs they simply cannot meet – one agent in Gravesend explained to me that they have a minimum of 15 applicants to one property. And once the listing goes online, they stop taking viewings within just a few hours.  

This is backed up by a recent Propertymark survey of 440 letting agency businesses, spread across 4,000 branches UK-wide, which found that, on average, letting agents have seen the number of available rentals on their books halve, from over 30 to just 15.  

Reasons for shortage of rental stock

The latest English Private Landlord Survey showed that 10 per cent of landlords plan to sell up and exit the market in the next two years, up from five per cent in 2018. And over half of landlords said that private rented sector legislation was central to their decision to quit, citing upcoming legislative changes such as the ban on Section 21 being the final nail in the coffin. 

And that was before the release of the long awaited government White Paper which confirms not only abolishing Section 21 ‘no-fault’ evictions, but also proposes transitioning all tenants under assured or assured shorthold tenancies to one system of periodic tenancies. Meaning that a tenant will be able to leave at any time by giving two months’ notice, but landlords will be required to present ‘reasonable circumstances’ in which to end the tenancy. 

At Landlord Action we are already seeing a lot of smaller landlords looking to exit, using Section 21 pre-emptively because of incoming policy changes and economic pressures. 

Add to this changes in tax policy following the phasing out of tax relief on buy to let mortgage interest; the growth of build to rent and corporates such as John Lewis and Lloyds Banking Group entering the market; the introduction of costly mandatory green upgrades, including the requirement for an EPC rating of C or above and the eventual phasing out of gas boilers; along with the impact of rising interest rates and inflation on landlords with mortgages, and there’s no denying that today’s buy to let market is not for the faint-hearted.

Impact of stock shortage on tenants

The shortage of rental stock is also putting tenants under considerable pressure, particularly those on low incomes.  

With such fierce competition for fewer properties, ‘rental bidding wars’ have become commonplace, with the advertised rent becoming the minimum bid amount. 

People looking to rent a home are having to go to ever greater lengths to secure one, not only paying higher monthly rents – rents have surged more than 10 per cent post-pandemic - but offering six months’ rent in advance, shelling out for much bigger deposits and providing photos and other ‘evidence’ to show they are desirable tenants. This is obviously very difficult for renters in the midst of a cost of living crisis, and many are being priced out of the market. 

Of course, those most affected are the less well off and vulnerable people - the elderly or those on benefits. 

And with around 1.5m already on the waiting list for social housing, this safety net simply won’t be an option for the growing numbers of renters, which increasingly includes working families, who are struggling financially. This shortage of social housing will be exacerbated further if the Government extends the Right to Buy scheme, as it has proposed, as it will reduce the supply of social housing even more.

While it may seem like a landlord’s dream to have multiple applicants vying for their property, in some cases the situation has become so extreme that landlords are having trouble getting their properties back. 

At Landlord Action we are noticing that tenants who cannot find anywhere else to rent or are worried that they will end up in a bidding war, are more inclined to use their rights to remain in their homes until they are evicted. 

With the government unlikely to meet its manifesto target of building an additional 300,000 homes each year by the mid-2020s, it doesn’t look like the underlying housing shortage is going to be resolved any time soon. Especially now it has more pressing priorities such as finding a new leader to address! This means that it will continue to rely on the private rented sector to provide much needed housing.

How should landlords respond?

In the midst of such a hot rental market, many landlords can now take their pick out of a pool of tenants. But how do you choose the best tenant when you have multiple applicants? Let’s remember that the tenant who can move in straightaway and pay the highest rent may not be the best tenant in the long term. Landlords need to bear that in mind. It’s not just about getting the highest rent, it’s about making a really informed decision on the right tenants.

The reality is that the financially best placed tenants will be successful, pushing less appealing tenants such as those with smaller pay packets or on benefits, or even those with children or pets, further down the pecking order. Ironically, this goes against the rental reform White Paper sentiment of a ‘fairer private rented sector for all’ – a consequence the government, reliant though it is on private landlords to satisfy the UK’s housing needs, clearly didn’t anticipate. 

However, landlords should be aware that under the proposed reforms, the likelihood is that periodic tenancies will be coming in, in say, two or three years’ time. Although tenancies are lasting longer than ever (on average four years and three months), landlords should be asking themselves how likely the tenant is to stay long term. If a landlord goes for the highest earner, but they move out after three months, they will be back to square one. 

Of course, as a landlord you are running a business not a charity, and affordability remains key - no tenant should really be paying more than 30 per cent of their income on rent, and sometimes the figures just won’t add up. But matching the right tenant to your property can make business sense, and you may actually decide to offer a lower rent to secure your perfect tenant. If an applicant is struggling with cashflow issues, you can offer them the option of a deposit replacement scheme, such as Ome. 

It can be tempting to go for the highest bidder, but in today’s climate it’s particularly important to build up a picture of the tenant through thorough tenant referencing so that you can be sure that your tenant is who they say they are. But I also think more landlords should be looking to take out rent guarantee insurance, to protect themselves against a non paying tenant. Especially as inflation will increase in Q3/Q4 when we hit the winter months and the cost of living crisis really begins to bite.

Understandably, many landlords have had enough and are getting out of the sector. But the rental stock shortage and strong tenant demand offer opportunities for those who have a long term view and are willing and able to weather the current uncertainty. 

I would urge you to read the full White Paper – knowledge is power and understanding the changes fully will help you to make informed decisions. 

* Paul Shamplina is founder of Landlord Action, Chief Commercial Officer at Hamilton Fraser, and is on Channel 5's "Nightmare Tenants, Slum Landlords” *

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