The fact that it now plays a vital role in meeting increasing demand in the UK housing market is clearly behind the Government’s thinking as it announced an independent review into the private rented sector. The review aims to improve the Government’s understanding of the sector, predict market changes and determine what the Government can do to influence and support changes.
As the market has grown, so has the scope of stakeholders in the market. In the same way that there are more tenants than ever before, so there are more investors, lenders, intermediaries, products and bodies such as the NLA and Arla. Only with the input of each of these parties will the review accurately represent the market. With the sector seemingly providing an easy target for doom mongers, it is hoped that this will paint a true picture of a strong market.
First, the review aims to look at the composition of the private rented sector and regional characteristics. This is a crucial point to note. There are numerous regional differences across the UK’s buy-to-let market. The BM Solutions buy-to-let bi-annual review demonstrated a range of returns in 2007 from 11 per cent in the East Midlands to a staggering 44.3 per cent in Northern Ireland.
Coupled with the well publicised differences in house prices, the Government needs to be able to understand the context of the market by assessing each region.
Another point that the review seeks to address is the impact of demographic and social change. This factor has made a huge impression on the market through the increase in tenant demand.
First, there is the issue of first-time buyer afford-ability, which has seen the average age of a first-time buyer rise and means that more are renting for longer.
However, it is not just affordability that has driven this trend. The review is likely to discover that more people are choosing to rent. Many young professionals are looking to retain flexibility in the early stages of their career which cannot necessarily be fulfilled as a homeowner.
An increasing student population has also fed into the growing tenant demand, as has increasing levels of immigration. Tenant demand certainly does not show any sign of slowing at the moment so it will be interesting to see the predictions of the review.
From a supply perspective, a wide range of landlords have also become involved with the sector. Every day, investors have turned to the buy-to-let sector as they create a balanced investment portfolio. The last 10 years have also seen the advent of the so-called accidental landlord as some make an investment decision to let out their old property rather than sell. This is alongside the growth of portfolio landlords managing several properties. The review will need to understand the different approach of these sets of landlords.
Within a commercial environment, lenders have already had to identify and adapt to the market in this way. This has been evident with the evolution of product ranges and criteria, such as options of pay rate calculations.
While it is important for the Government to understand the basis of the market, it suggests that this will also feed into a regulatory evaluation of the sector. We have already seen the Tenancy Deposit Scheme and HMO licensing impact on the market. In the case of BM Solutions, making our products available only through regulated intermediaries means the market is already treated as a regulated market.
It is only right that a market with the standing of the private rented sector should be the subject of an independent review. However, it is only through use that it will prove its worth. It must not pay lip service to the sector – but establish an accurate view and determine any priorities for change in the future.