Private Rented Sector Analysis 1st Aug 2016

New research has revealed that the Private Rented Sector (PRS) is now the biggest form of tenure after home ownership. Furthermore, it is predicted that growth is going to treble over the next 5 years (Knight Frank). Currently in the UK around 5.4 million, or 20% of households are being let out to private tenants.

Recent Legal & General research found that brokers in Scotland are the most positive about the future of buy to let, with 63% believing it will remain the same size as last year despite the introduction of the Land & Buildings Transaction Tax (LBTT) and forthcoming changes to tax relief.

The Knight Frank report also states that 53% of tenants favour a six month or one year tenancy on their rental property. Whilst there are many benefits to a longer tenancy, landlords are paying out around £5 billion because of damage to property and unpaid rent (Access Legal Survey 2015). Landlords need to bear in mind that when they get their property back at the end of a long tenancy, there will likely be significant wear and tear which will cost money to put right. This is of course different to malicious damage. See accompanying newsletter article on wear and tear.

The same Knight Frank survey found that for 52% of tenants the key priority in choosing their rental property is finding somewhere close to work or their place of study. 30% of tenants stated that their main reason for moving was to upgrade to a nicer or bigger property. 38% of tenants have lived in 5 or more rental properties; most have relocated within a mile or so of their previous property, however 19% have moved more than 60 miles to relocate for work or study. This highlights the flexibility people are finding in renting properties. Overall, a very large percentage of those staying in the PRS are choosing to stay there as renting suits their lifestyle.

Interestingly a quarter of those who are renting think they are not likely to buy a home in the future. Less than half of those who have expressed a desire to be a home owner are actually saving towards a deposit.

A quarter of those living in the PRS live alone, 34% are a couple (no children); 43% of 18 to 24 year olds live in a flat share with other young adults. Looking at age groups within the PRS, in the last 10 years the number of under 45s living in rented accommodation has more than doubled. The 25 to 34 year age group make up 37% of the PRS.

Looking at the supply of rented properties, the PRS is still made up largely of private landlords, many of whom have more than 1 rental property. The PRS increased dramatically in the 1990’s along with the increased availability of buy to let mortgages. Current buy to let mortgage products are very attractive, drawing new investors into the market and allowing existing landlords to expand their portfolios. Predictions are that the market is set to continue growing. It is likely that we will also see an increase in large-scale institutional investors within the PRS, building purpose built rental properties. This is common in other countries, where rented accommodation is a specific asset class.

All of the above confirms the seismic shift there has been over recent years in the PRS. More people are renting and this is set to grow. Tenants are choosing to make rental properties their long term homes. Fewer people are considering buying their own home. And there is a great deal of confidence that buy to let will remain strong in 2016 and beyond.

For information and advice on buy to let contact The Key Place now.