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Rental arithmetic

The private rented sector will account for 20 per cent of the UK housing market by 2020 if current trends continue, according to independent research. We all know that would-be first-time buyers are struggling to afford hefty deposits and the easiest alternative is to rent, which is not necessarily bad news for brokers.

The phenomenon we now face is that demand for rental properties is far outstripping supply. Seventy-four per cent of the Association of Residential Letting Agents’ 6,000 members across the UK believe prospective tenants are struggling to find suitable accommodation because the competition is so high, and this has been the case for over a year. They claim they are increasingly spotting a trend for tenants to stay in properties for longer, an average of 19 months, as they are wary of trying to find a new property in such a competitive market.

Royal Institution of Chartered Surveyors members also report they have seen a significant rise in new instructions from landlords, which indicates the mismatch between supply and demand could worsen. Growing numbers of tenants are finding themselves priced out of the market as strong demand and a shortage of supply continue to push up rents.

Nigel Terrington at Paragon recently gave his view that tenant demand has been growing for a number of years but has accelerated considerably in recent months. He suggested that a third of landlords are benefiting from increases in rental income without making their properties unaffordable for tenants, which must surely drive even greater appeal for buy-to-let purchasers.

The challenge is to supply suitably priced housing for more people – sounds simple. It is crucial that investment continues in the private rental sector, ensuring that it remains fit for purpose and continues to provide quality and affordable housing to millions of tenants. We in the mortgage market can influence this by encouraging landlords to invest, thereby delivering wider tenant choice.

The recent reductions in buy-to-let interest rates have hit the headlines, which is a great help. Defaqto figures suggest that the average two-year fixed rates have fallen from 5.78 per cent to 4.86 per cent in the past 12 months. Fees have also fallen on all loans apart from two-year fixes, which rose from an average £2,492 to £2,603 last month. Defaqto comments that for those looking to get into the buy-to-let market, the last year has seen some positive developments in that interest rates and fees have reduced and lenders have entered the market or expanded their product ranges.

The reality is there is a finite rental stock and our future as mortgage intermediaries is not predicated on buy-to-let alone. In spite of the challenges on property prices and lending criteria, people still aspire to buy their own home. When insurer Endsleigh asked renters on its books if getting a mortgage was on the to-do list, it found 62 per cent hope to buy a property within five years. As property pricing and mortgage deals become more compelling for first-time buyers, providing much needed advice and reassurance remains the mortgage intermediary’s golden opportunity.

Rob Clifford is chief executive at If I Were You


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