Housing supply slumps as Bank of Mum and Dad funds kids’ rent payments

Good news for property investors, combined with advice on rent collection

Three items of investment news have caught our attention over the last week. The first two point to continued house price growth and the underpinning of rental prices by the Bank of Mum and Dad (BoMaD). The third underlines the importance of reviewing rent collection procedures.

NAEA reports a slump in housing supply to record lows

The National Association of Estate Agents has reported a further fall in the number of properties on estate agents’ books. In July, estate agents had an average of just 35 homes per branch for sale. That’s the lowest number since records began in 2002.

First-time buyers appear to have pulled away from the market, too. The proportion of sales made to this sector fell by almost a third, to just 23% of all completions. The last time it was lower was in November 2015.

The total number of house hunters also fell, from 384 in June to 347 in July – though this is up from 298 in July 2016.

What does this tell us about the future for property prices?

Supply and demand dictate market prices and values. It is no different in the property market. Several factors generate demand. While population growth and demographics are among these, property investors should buy in areas where people want to live. Locations where there are ample shops and schools, where transport links are good, where there are plentiful jobs, and investment in infrastructure and the local economy.

It appears that political uncertainty is taking its toll on both buyers and sellers. However, it is clear that sellers have been more spooked by talk of a housing slowdown and fall in prices – and may expect the market to recover somewhat quickly. Hence, they are delaying putting their homes on the market. The effect on buyers has not been so acute. Over the past year, the number of sellers has slumped, and the number of buyers has increased – that’s evidence that confidence is returning to the market.

The net effect is that there are still around 10 buyers for every home on sale. We would expect selling prices to become more robust in the coming months, and buyers become less able to negotiate discounts from asking prices.

The Bank of Mum and Dad will fund £2.3 billion of rental payments in 2017

According to Legal & General, BoMaD will make a colossal rental payment of £2.3 billion for their kids this year. The data shows that almost 10% of renters in the UK are helped by BoMaD, with payments to landlords subsidised to the tune of an average of £415 per month. It is in addition to the £6.5 billion of BoMaD lending to first-time buyers.

Legal & General said that this is worrying, and is proof that youngsters are finding it increasingly difficult to make ends meet. They cite the lack of affordable housing, low wage growth, and burdens of student debt as contributory factors to the need for BoMaD to step in.

What can we learn from this research?

First-time buyers are often those who have been in rental accommodation. If their numbers are falling, could it be that BoMaD is reticent to see their youngsters buy in the current market, and so are happier to fund their rents? Or is it that young professionals are now happier to rent because it suits their lifestyle? The growth in the size of the private rental market indicates it is the latter. So, why are the rental payments by parents on behalf of their kids so high?

What the Legal & General research doesn’t explain is who the renters are, apart from telling us that they are the children of those parents who are forking out rental payments for them. There are approximately 530,000 new students in the UK looking for accommodation every year. We suspect a great proportion of the rental payments being made by BoMaD is for student accommodation.

Landlords should automate their rent payments

Traditional rent collection and reconciliation methods are failing buy-to-let landlords, and therefore worsening the problems caused by late payments and rent arrears.

Research by the Residential Landlords Association showed that more than a quarter of landlords had experienced late payments and rent arrears in the last 12 months. A study by Your Move showed that 9% of tenants are in arrears.

Now PayProp, an automated rental payments platform, has said that reviewing procedures for rental collection and reconciliation could be the answer to buy-to-let landlords’ rental arrears issues.

You may find it surprising, but many letting agents still reconcile rents on a printed spreadsheet using a highlighter. The human error becomes a sizeable issue. Automation removes this room for error, streamlines the process, and automates rental reminders.

What do we say?

We believe that whatever can be automated, should be automated. Your investment property manager should use all the equipment and software available today. It will make your tenant’s life easier, and provide you with a stream of benefits – rents paid on time and arrears reduced are just two of them. If you haven’t done so already, ask your letting agent what systems they use, and then investigate PropTech to make your life as a UK property landlord easier.

To stay abreast of all the property investment news that matters, contact one of our team today on +44 (0)207 923 6100. Ask about our newsletter. We give it to you straight. No BS. No hype.

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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