Landlord Exodus? What Landlord Exodus?

Landlord Exodus? What Landlord Exodus?

The three-minute read by Richard Rowntree

I have read a great deal in the media recently about a mass landlord ‘exodus’.

The story goes along the lines of landlords heading for the exit door in their droves because it is too difficult or not financially rewarding enough to stay in the market. The recently launched Renters Reform Bill will only serve to amplify this narrative.

As ever with the private rented sector (PRS), cut-and-dry data is hard to find, but from our experience at Paragon, we certainly aren’t seeing any evidence of an exodus, particularly amongst our core customer base of portfolio landlords.

For me, the argument of whether landlords are selling or not is masking the broader – and irrefutable issue – of demand significantly exceeding supply. Even if supply is maintained at current levels, there is not enough rental property.

The latest Zoopla report showed that tenant demand sits 51% above the five-year average, whilst supply is 33% below the same average. Our own landlord research highlights that tenant demand keeps reaching record highs each quarter.

There are a number of factors at play here and it’s a complex issue. Tenants are staying in their existing homes for longer, so stock is not being recycled back into the sector, the house price inflation seen since the start of the pandemic has made it even harder for people to get on the ladder, as has increased mortgage pricing since the disastrous mini-budget.

There are also broad macro societal changes at play. The population is growing and we aren’t building houses at a quick enough rate to keep pace, new household formation is being driven by older single person households who have a greater propensity to rent, plus people are renting for longer, with those aged between 45 and 64 in rented homes doubling over the past year.

I’ve no doubt that landlord sales are contributing to the issue, but I don’t buy into the argument of a significant exodus.

We have experienced a transition from smaller-scale landlords to larger operators over the past decade and I certainly think those one or two property landlords are more likely to be considering an exit, particularly in a higher interest rate environment and with additional regulation under the Renters Reform Bill. Older landlords looking to retire are also growing in number.

However, portfolio landlords who own the majority of PRS stock are in effect SMEs, they are run as limited companies and operate as a business. They often employ staff and have clear, long-term strategies for their business. They simply aren’t going to sell up because market conditions are more challenging.

Whilst I don’t believe there is a landlord exodus, I do believe that Government needs to take action to ensure those that are currently active remain committed to the sector, whilst at the same time attracting new investment in the form of the next generation of landlords.

There is little doubt that being a landlord is more challenging today than at the start of the buy-to-let market nearly 30 years ago. George Osborne’s introduction of the 3% Stamp Duty surcharge and removal of mortgage interest relief achieved its desired effect of slowing the market.

Layered regulation has made operating a rental property complex. The Renters Reform Bill and energy-efficiency changes coming down the line will only add to that complexity.

Additionally, landlords unfairly suffer from a terrible reputation, fuelled by media coverage and politician statements that focus on the poor periphery of the sector rather than the good work carried out by the vast majority of those who provide a good home at a fair price.

There is competition for capital and, for those with money to invest, other options may currently seem more attractive – a savings account won’t call you at 2 in the complaining about a broken boiler.

There are positive signs that new money is coming into the PRS. The average age of a landlord buying a buy-to-let mortgaged property last year was 43, and there were over 100,000 purchases according to UK Finance numbers.

However, the PRS is already under huge strain and cannot afford to shrink in size. That requires a Government fiscal policy that doesn’t penalise property investment, but instead encourages it.

It calls for a stable and proportionate regulatory environment and the recognition of the role of landlords in supplying the properties one in five of the population calls home. We will continue to make these points to the Government.

* Richard Rowntree is Managing Director for Mortgages, Paragon Bank *

I have read a great deal in the media recently about a mass landlord ‘exodus’.

The story goes along the lines of landlords heading for the exit door in their droves because it is too difficult or not financially rewarding enough to stay in the market. The recently launched Renters Reform Bill will only serve to amplify this narrative.

As ever with the private rented sector (PRS), cut-and-dry data is hard to find, but from our experience at Paragon, we certainly aren’t seeing any evidence of an exodus, particularly amongst our core customer base of portfolio landlords.

For me, the argument of whether landlords are selling or not is masking the broader – and irrefutable issue – of demand significantly exceeding supply. Even if supply is maintained at current levels, there is not enough rental property.

The latest Zoopla report showed that tenant demand sits 51% above the five-year average, whilst supply is 33% below the same average. Our own landlord research highlights that tenant demand keeps reaching record highs each quarter.

There are a number of factors at play here and it’s a complex issue. Tenants are staying in their existing homes for longer, so stock is not being recycled back into the sector, the house price inflation seen since the start of the pandemic has made it even harder for people to get on the ladder, as has increased mortgage pricing since the disastrous mini-budget.

There are also broad macro societal changes at play. The population is growing and we aren’t building houses at a quick enough rate to keep pace, new household formation is being driven by older single person households who have a greater propensity to rent, plus people are renting for longer, with those aged between 45 and 64 in rented homes doubling over the past year.

I’ve no doubt that landlord sales are contributing to the issue, but I don’t buy into the argument of a significant exodus.

We have experienced a transition from smaller-scale landlords to larger operators over the past decade and I certainly think those one or two property landlords are more likely to be considering an exit, particularly in a higher interest rate environment and with additional regulation under the Renters Reform Bill. Older landlords looking to retire are also growing in number.

However, portfolio landlords who own the majority of PRS stock are in effect SMEs, they are run as limited companies and operate as a business. They often employ staff and have clear, long-term strategies for their business. They simply aren’t going to sell up because market conditions are more challenging.

Whilst I don’t believe there is a landlord exodus, I do believe that Government needs to take action to ensure those that are currently active remain committed to the sector, whilst at the same time attracting new investment in the form of the next generation of landlords.

There is little doubt that being a landlord is more challenging today than at the start of the buy-to-let market nearly 30 years ago. George Osborne’s introduction of the 3% Stamp Duty surcharge and removal of mortgage interest relief achieved its desired effect of slowing the market.

Layered regulation has made operating a rental property complex. The Renters Reform Bill and energy-efficiency changes coming down the line will only add to that complexity.

Additionally, landlords unfairly suffer from a terrible reputation, fuelled by media coverage and politician statements that focus on the poor periphery of the sector rather than the good work carried out by the vast majority of those who provide a good home at a fair price.

There is competition for capital and, for those with money to invest, other options may currently seem more attractive – a savings account won’t call you at 2 in the complaining about a broken boiler.

There are positive signs that new money is coming into the PRS. The average age of a landlord buying a buy-to-let mortgaged property last year was 43, and there were over 100,000 purchases according to UK Finance numbers.

However, the PRS is already under huge strain and cannot afford to shrink in size. That requires a Government fiscal policy that doesn’t penalise property investment, but instead encourages it.

It calls for a stable and proportionate regulatory environment and the recognition of the role of landlords in supplying the properties one in five of the population calls home. We will continue to make these points to the Government.

* Richard Rowntree is Managing Director for Mortgages, Paragon Bank *

If you have any questions, please get in touch with us here at Wright Residential.