It is predicted by recent statistics that 500,000 landlords will be leaving the buy-to-let market over the next 5 years. Thanks to increased red tape and tax penalties. This will be a continuation of recent trends but some of the unforeseen consequences appear quite interesting.
It has felt like HMRC has seen landlords as an easy touch in recent years with an increased tax burden on those wishing to enter the buy-to-let market. However, the increase in stamp duty on the purchase of a second property should make current landlords think twice about leaving the market. If you get it wrong, it will cost more to get back in.
It is also suggested that Baby Boomers & Generation X are now getting to an age when they are looking to realise their investments. It is our age groups who have seen great returns on property, not just with monthly returns but capital increases. I personally prefer an investment in which I can touch and see a lot of digits on a screen. Maybe our generation is a little cynical of modern alternatives to property investment. But it does beg the question as to what younger investors will turn to as an alternative. While the stock market boasts greater capital returns it typically fails to take into account rental income returns. Let’s face it dividend returns from stocks are typically woeful in comparison. Other alternatives such as Crypto seem way too volatile for me and appear to be too easily influenced by wealthy individuals.
And yet, at the same time, Lloyds Banking Group has announced plans to be the biggest private landlord in the UK. They are currently the largest mortgage lender. Why would they do such a thing? Because renting property is more profitable than supplying loans for others to purchase them. And they get to keep the asset.
Imagine what the effect on the supply of rental properties would be if so many landlords were to leave the market. Now I apologies for the next section because I’m a bit of a nerd when it comes to the private rental market. I also love figures, which my poor old long-suffering maths teacher will probably never believe.
So according to the English Private Landlord Survey (EPLS) 2021, there were 4.4 million properties rented out which represented 19% of the overall housing market and second only to owner-occupiers. Private Landlords provide 3% more housing than social housing. I have often felt that this statistic is overlooked and the role of the private landlord in the housing sector is underestimated. Where would we be without Private landlords? Well if 500,000 leave in the next 5 years we will start to get a bit of an idea. On average a landlord owns 1.48 properties so this represents 739,800 households and 16.8% of the market gone. Can you imagine what that would do to an already under-supplied market in terms of rental prices?
It is currently suggested that the property sales market is supported by an increase in First Time Buyers as would-be renters are finding it far more cost-effective to buy than to rent. Even with the current increase in interest rates. So, for landlords, if demand for rentals goes down then capital values increase. But demand for rentals would have to decrease over the 5 years by 16.8%. Well, I suppose there is a first time for everything but unlikely. The reality is that the end user, in this case, the poor tenant, will suffer. It is the very people the Government aim to help who will foot the bill for their meddling.
Here's a novel idea, how about supporting the second-largest housing supplier in England? The recently publicise issues of poor quality housing are not in the Private Landlord sector they have been in Social Housing. Although if you read the press or listen to Government spokespeople you could be forgiven for not appreciating this. Most Private Landlords have worked out that a better-quality home attracts a better tenant and protects what is typically a very large asset for an individual. The irony is not lost on me that issues in social housing can be used to justify the purposed white paper affecting the Private landlord sector. The two are completely unrelated. I fail to see how further red tape will possibly help his situation.