In 1987 the Private Rental Sector (PRS) was at 7%. Today it is at 13%, with the government predicting an increase to 21% by 2019. That means we have a long way to go and we are not going to meet that demand unless the government and banks start supporting Investors in meeting this growing pressure and requirement.
The average void period – a key indicator of the buoyancy of the rental market – has fallen to its lowest level for eight years as demand for rental property remains high. Compared with the previous quarter the average void period has again fallen from 3.6 weeks to 3.2 weeks.
The average number of new tenancies signed up by agencies across the country has also increased, and the rental levels received over the last 6 months have increased due to the high tenant demand. This is an indicator that the current rental market is extremely strong at the moment with the demands on the private rented sector increasing. (Source – ARLA Review)
The market is seeing unprecedented issues. The house builders are refusing to build due to both the risk of not selling and the lack of funding available. There is also a national shortage of properties for sale due to vendors not taking the risk of putting their propertyon the market, unless they absolutely have to. This results in little choice of property out there for any potential buyers.
Many people that would normally be buying property, for example “first time buyers”, are finding it incredibly difficult to find the deposits necessary to buy property and are therefore themselves turning to the rental market to solve their housing needs. Whilst at the same time Investor landlords that would normally be actively buying property are, in many cases, unable to get mortgages, or release funds for the deposits, due to the strict lending criteria. This is inevitably resulting again in a lack of the nationwide availability of rental properties, for the first time since the last recession in the mid nineties.
In the early nineties the housing crash resulted in many people being forced to rent out their property because they simply couldn’t afford to sell, due to negative equity. Many tenants renting because they couldn’t afford to buy due to the horrific interest rates. This was the kind ofPerfect Storm that created a boom for the lettings industry. When this tide eventually turned, properties started to sell once again, creating a shortage of rental property. So, in 1997, the ARLA panel of lenders created the “buy to let mortgage” and this saved the PRS. All of a sudden a new source of privately rented properties started to flood the market. Investors could, for the first time ever, buy properties without the hassle of acquiring a “business loan” which had always been the process before. Now they could obtain a mortgage on the property based on the rental income. This meant that more properties became available serving the desire for rental property.
Now, what is going to save the market this time? The overburdening restrictions on lending need to be somewhat relaxed in order to stimulate the market. Many investors are using more and more “creative” methods to acquire property, which in many cases could lead to complex confusion on the property market, and may even lead to heavier legislation, which ultimately would be restrictive to growth.
There are some great deals out there in the property market at the moment, with many vendors willing to take large discounts and, coupled with interest rates being as favourable as they have been for decades, the market could not be better set for many investors to make handsome profits.
As the changing work related skills-gaps and career requirements continues to ebb and flow, along with the possibility of regional unemployment becoming more commonplace, employers’ need more workforce flexibility, forcing people to move to where the work is. Add to this the growing trend for smaller households, creating more need for professional house share type accommodation, as well as difficulty in obtaining mortgages, can only lead to the PRS going from strength to strength. It’s now down to the financial institutions and the government to ensure the wheels are well oiled to facilitate these naturally evolving market trends.