Generation Rent will underpin buy-to-let investment in the UK

A cultural shift is good news for investors

Investment news from last week was positive. In this article, we highlight two items of interest to buy-to-let investors. The first is a survey that indicates rental demand will remain strong for the foreseeable future. The second will serve as a warning to be prepared for higher costs where local authorities may require landlords to be licenced.

‘Generation Rent’ mostly don’t plan to buy

It’s long been accepted that Generation Rent is a phenomenon caused by affordability issues. A recent survey pours cold water on this idea. More than half of tenants who completed the survey are lifestyle tenants and don’t plan to buy. Also, almost half of the survey’s respondents said they would pay no more than 30% of their monthly income on housing costs, and a quarter of these said they would pay no more than 20%.

The survey, conducted on behalf of Benham & Reeves Lettings, a London agent, shed further light on the changing attitudes to housing, which will support the private rented sector as the UK population grows.

It is forecast that the number of people living in the UK will total around 74 million by 2050. With a chronic shortage of housing already, it has been assumed that UK property prices are unaffordable for many. In some parts of London, for example, prices have increased to as much as 20 times salary. Most property experts have accepted the perceived wisdom that it is this affordability issue that is exploding the number of households in the private rented sector. PwC forecasts that this number will grow from around 5.3 million today to 7.4 million in 2025.

The survey findings should be good news for buy-to-let investors. Many of the respondents in the survey indicated that they could afford to buy, but deliberately choose not to. Renting either suit their lifestyle, or they don’t want to be burdened with a mortgage, or it allows them to live in a nicer area than they could otherwise afford.

Benham and Reeves Lettings Director, Marc von Grundherr, told propertyreporter.co.uk:

“…Baby Boomers or Generation X craved the stability and financial security of home ownership, today’s young professionals see things differently.

 

“Many dream of living and working abroad and don’t want the burden of a home. Others would rather have extra spending power rather than sacrifice for a deposit. What is very clear from this survey is that a significant number of tenants are in rented accommodation not because they can’t afford to buy, but because they are choosing to rent.”

Selective Licensing: private landlords in Nottingham hit by licensing fee

Ashfield District Council in Nottingham has slapped a licensing requirement on landlords in Stanton Hill and Sutton Central. Under the Housing Act 2004, local housing authorities can designate areas experiencing low housing demand and significant and persistent anti-social behaviour. A designation can be in force for a maximum of five years, and the council can enforce licensing on landlords with properties in the designated area.

Several conditions will be applied to the licence in Ashfield. These include:

  • Licences are applied per property
  • Rental homes must be kept to an appropriate standard
  • Landlords will have to ‘react to anti-social behaviour’
  • Landlords will need to be accredited by a recognised body

Licences will cost £350 per property, though this cost is discounted by £100 if the landlord belongs to the East Midlands Landlords Accreditation Scheme. The average rent in Sutton-in-Ashfield is £451 per month – the licence fee is going to be a big chunk out of the cash flow of many landlords. And if a landlord doesn’t pay the licence fee? That would incur a fine up to £20,000.

What you can learn from last week’s investment news:

The UK is moving towards a population that is happier to rent rather than buy. This shift in culture will help to underpin the potential of the buy-to-let market. It’s also clear that people want to rent in better areas.

The experience of landlords in Ashfield should not be ignored. The local authority is using the law in its favour, in an area where there is a high proportion of homes in the private rented sector. A few rogue landlords have given it the opportunity to slap a licensing requirement on all private landlords. It smacks of revenue raising rather than tenant caring. If the scheme is successful, it could prove to be a new source of revenue for other local authorities.

Our conclusion is that investors should invest in the best areas they can afford, avoiding areas where there is a high or growing level of anti-social behaviour. With this strategy, the property investor should benefit from higher tenant demand and a lower likelihood of being hit with a per-property licensing fee.

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Live with passion

Brett Alegre-Wood

About the Author

Brett has over 20 years experience in all facets of property, he owns various companies centred around property and is the driving force behind the education and training at Gladfish. His companies have sold over £850 million in UK and London property and he manages over 1200 properties through his estate agency chain. Today he shares his time between UK, Australia and Singapore. He is married to Arlene and together they have 4 kids.

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