Predictions for the Private Rented Sector in 2014

Increased landlord investment predicted for 2014 as rental market continues to grow

The UK continues to edge ever closer to its European neighbours by becoming a nation of ‘renters’.

As home ownership follows a downward trend^[1], there has been rapid growth in residential lettings, with over 15 per cent of all UK homes (3.2m) now in the private rented sector.

Some Government estimates expect a further rise of 33 per cent in the residential rental market over the next eight years – taking private rented property to 20 per cent of all UK homes by 2021.

Over the past year the private rented sector has remained on a firm footing and despite Government ‘pump priming’ initiatives such as the ‘Help To Buy’ scheme there has been no real impact on the continued demand for rental property.

All of our predictions are that in 2014, the number of people choosing to rent will continue to drive up demand. There are real indications of a recovery in the housing market with property prices predicted to rise, along with a projected 25 per cent increase in buy to let mortgage lending.^[2] With this we expect to see the re-emergence of more and more investment minded landlords looking to capitalise on this trend.

A considerable number of landlords entering the sector over the last five years have been ‘accidental landlords’ – people who, for one reason or another, couldn’t sell, so decided to rent out their properties instead. In 2014 some of these are expected to take advantage of rising prices in order to make modest gains and exit the market.

What we now anticipate is that over the next few years, new rented housing stock will come from different directions, partially from institutional investors returning to the market to provide much needed funding.

It is pre-2008 since landlords sought out an increase in capital growth, on top of rental returns and this strategy is likely to be adopted again next year as more landlords look for real capital gains over the next 3 to 5 years, or even longer.

With bank and building society interest rates still currently at a very low level we are also dealing with more and more enquiries from first time ‘novice’ investors looking for a better return on cash.

We predict that buy to let will become increasingly attractive and accessible for these smaller investors wanting to add another asset class alongside their existing savings and pension portfolios.

The extra housing supply coming on stream via new investment sources should also provide a further boost for landlords.

Despite headlines to the contrary, UK-wide residential rental incomes have not kept pace with inflation, year on year and in 2013 they only increased by around 1 and 2 per cent in different parts of the country. Whilst being unable to raise rents due to tough economic conditions and relatively high unemployment, landlords did, however, benefit from tenants who stayed in their properties for longer.

We are seeing a growing number of people who take the conscious decision to rent because it offers very good value. They are secure in the knowledge that they can live in well managed and maintained property that is both flexible and easy to budget for.

Whilst landlords always need to ensure they invest in the right property and be aware of local market rents, they must also remember that a good tenant who looks after a property well will actually be worth more to them, by taking out longer tenancies and reducing potential ‘void’ periods. It’s a win, win situation.

Although increasing property prices will be good news for existing landlords, for those new to buy to let investment, or looking to expand their current portfolio, it could be tough to find the right deals in 2014.

Most areas across the UK are reporting a lack of property for sale, making it increasingly difficult to find a property that ‘stacks up’ financially.

If anyone is looking at buy to let next year it is essential to seek independent advice, not just from lettings professionals such as Belvoir, but also from financial advisors and tax experts who can assess the impact of adding property investment to individuals’ investment plans.

We expect to see modest rent rises in 2014, as the needs of tenants continue to push up demand for quality accommodation. But landlord investors still need to do all the correct ‘checks and balances’ to ensure they realise the best, trouble free, returns from their properties.

In 2014 the private rented sector will also see the introduction of a key development that will provide much higher levels of consumer protection for those looking to rent a property through UK lettings agents.

From next year all lettings agents in England and Wales will be required to belong to a ‘consumer redress’ scheme such as the one run by The Property Ombudsman, to which I joined the Board Directors in 2013. It provides a free, fair and independent service for dealing with unresolved disputes.

This new, obligatory, measure will help drive up professional standards in our industry and all tenants who let property through an agent (not directly through private landlords) will be afforded higher levels of protection and direct access to the Ombudsman service.

Belvoir has been a voluntary member of this scheme for many years and I very much welcome this new initiative, since it points to a much tighter regulated private rented sector in the future, for the benefit of both landlords and tenants alike.

2014 promises to be another year of growth in our sector and all of these anticipated moves and changes are good news for the local rental market. If anyone is considering buy to let we are more than happy to provide free, impartial advice on a potential investment.

Not only does Belvoir focus all of its expertise in lettings management, but our team knows the local area inside out and we can help compare deals and offer expert guidance to landlord clients without sale or introduction fees.