Private landlords in Britain are set to own £1tn worth of homes by late spring 2015, it was predicted on Thursday, as rising house prices and growing appetite from investors drives up the value of the booming buy-to-let sector. The private rented sector has expanded rapidly in recent years, as would-be first-time buyers have struggled to get a toehold in the housing ladder.
According to the Guardian:
Official figures show that since 2001, nearly 2 million households have been added to the sector and a report by mortgage lender Kent Reliance forecasts that by 2016 the total will have grown to 5 million, representing just under one in five households.
Buy to let landlords now own properties worth a total of £930.7bn, three-and-a-half times the £262.1bn the sector was worth in 2001, according to the lender’s analysis of figures from the Office for National Statistics and Land Registry.
Rising house prices are behind much of the growth, with the markets in London and the south-east driving up the total value. Kent Reliance said that since 2007, 61% of the increase in the sector’s value had been driven by London, and that over that period landlords in the capital had seen their assets increase by £166bn.
London currently accounts for 41% of the sector’s value (£377.3bn) while the south-east comes next with a value of £137bn (15%).
There has also been an increase in the amount of money flowing into rented property in recent years, with buy to let lending going to 34% in the last year alone.
Although there are signs that house price growth may be slowing, Kent Reliance said that on current trends, the total value of the PRS would break through the £1tn barrier in the second quarter of 2015.
The report said rising house prices had meant falling yields for landlords, but driven up annual returns. The average landlord has seen a return of 15% over the past 12 months, equal to £27,475 per property, and across the sector returns totalled £124bn.
Since the housing market peaked in 2007, the average landlord has made £83,000, while in London gross returns have totalled £224,257 per property, the report claimed.
In total, landlords across Britain receive £3.8bn a month in rent, it said.
Andy Golding, the chief executive of OneSavings Bank, which owns Kent Reliance, said: “Landlords have benefited from the recovery in house prices since 2009, which has pushed their wealth to within touching distance of £1tn. But as the sector’s value marches upwards, the main impetus has come from the growth in the number of households as demand from tenants continues to climb.”
He added: “Private renting isn’t a flash in the pan, and 80% of new households since 2001 have been accounted for in rental properties. While for many it is a lifestyle choice, the ongoing squeeze on wages, rising house prices, not to mention difficulty in obtaining sufficient mortgage finance is accentuating this shift in tenure from owner occupation to long term renting. In many ways, Britain is becoming a more normal nation, much more like its continental neighbours as a result.”
After the credit crunch banks and building societies restricted buy to let lending, but more recently they have relaxed their criteria and many are now competing to win custom from investors, with some lowering the amounts required as a deposit as well as cutting interest rates.
New rules on pensions, which are set to come into force in April 2015, are likely to see more money come into the sector, as some savers decide to buy property in the hope of providing themselves with an income in retirement.