Landlords are reaping the rewards of a booming rental market with record-high yields and robust tenant demand, but the spectre of rent controls is casting a shadow over the sector, a survey reveals.
Average rental yields have soared to a 10-year peak of 6.3%, providing a lucrative environment for property investors. That’s according to the latest Landlord Trends report commissioned by Foundation Home Loans (FHL).
The research, based on 799 landlord interviews, found that a substantial 82% of landlords describe tenant demand as ‘strong’.
Landlords financing their portfolios
FHL says that with 60% of landlords financing their portfolios through borrowing and an average of 5.3 loans per landlord, the mortgage market is well-positioned to benefit.
More than a third of landlords plan to remortgage or transfer products within the next year – a refinancing pipeline that could be worth up to £665,000 per landlord. The report also reveals a growing trend towards limited company ownership among landlords, with 67% of new property acquisitions now held within corporate structures.
Despite rising costs and interest rates, 74% of landlords have increased rents in the past quarter, driven by escalating portfolio management expenses.
A third of private sector landlords would sell properties if rent controls were introduced, research from research consultancy Pegasus Insight has revealed.
Scotland has previously capped rent increases at 3% per year, while The Housing (Scotland) Bill going through parliament will enable ministers to introduce rent controls in some areas. Despite calls from London Mayor Sadiq Khan, the Labour leadership seem reluctant to introduce rent controls.
Ben Beadle, chief executive of the National Residential Landlords Association, said “ultimately rent controls would be a disaster for tenants. All they would do is choke off supply further, undermining what little choice tenants currently have when looking for somewhere to live. Housing is expensive because we don’t have enough of every type of property, be it for owner occupation, social rent or private rent. The only way to solve this crisis is to boost supply right across the board.”
As it stands rental demand is strongest in the South West, followed by the South East, the East of England and the East Midlands.
The North East has the lowest levels of demand, with 68% of landlords describing it as strong.
There are signs supply will continue to be squeezed, as landlords look to sell amidst higher mortgage rates, the upcoming loss of Section 21, and a flawed eviction process. Despite strong demand, landlords were two times more likely to have sold properties over the previous year than have purchased rental homes.
Some 8% had bought properties to rent out, compared with 17% who had sold.
Looking to the year ahead, whilst 10% said they planned to purchase new homes to rent out, one-third planned to sell over the same period.
Landlords flee rental sector after “attacks and excessive taxation”
New figures seen by Landlord Today show the scale of landlords fleeing the private rental sector in one part of the UK.
Estate agency chief David Todd, who runs KW Property Sales & Management in the Haddington part of Edinburgh, recently submitted a Freedom of Information request to the Scottish Government relating to landlords with only one property.
In May 2019 - under an earlier Freedom of Information request - it was found that there were 228,212 Landlords in Scotland registered with only one property.
Todd submitted a similar request and discovered that as of June this year there were only 179,516 landlords with one property - this is a startling drop of nearly 50,000 individual landlords. He says “this is due to continued attacks on the sector with excessive taxation, ongoing costly legislation changes and a political system that is anti-landlord. Unfortunately this means in a housing crisis that there are now 50,000 less properties available for rent in the Private Rented Sector putting additional pressure on a crumbling Social sector.”
Todd explains that the most recent figures he could find suggested that the social housing sector north of the border had not increased - and possibly decreased - over the past 20 years.
Todd continued to say “with a rising population and tinkering for political soundbites against landlords is now proving to have a negative effect in the housing market. In East Lothian, where my office is based, you can probably count on one hand the amount of available rental properties on the portals and most of these will already be let.”
Scotland has been at the forefront of activists’ campaigns for rent controls and stricter measures over all kinds of letting, including short term Airbnb-style lets.
It has seen effectively a zero per cent rent cap and an eviction ban, followed by looser restrictions but still tighter than anywhere else in the UK. Since April this year landlords can propose an increase of any amount for tenants on private residential tenancy agreements, but if the tenant wishes to challenge the increase they can refer it to a rent officer who must apply a tapering formula to the increase.
If the increase proposed by the landlord is higher than that allowed through the tapering formula then the rent officer will set the rent at the lower level.
The tapering formula will only apply if the tenant challenges the increase. If they don’t then the amount proposed by the landlord will take effect from the end of the notice period.
Recently the prominent Scottish agent David Alexander, chief executive of agency DJ Alexander, has calculated that back in 1993 the social housing sector in Scotland made up 37.5% of the total housing stock. By 2020, the latest year for which there is data, this had dropped to 23%, suggesting a loss of 214,000 homes over the 27-year period.