The private rental sector of the future will be dominated by larger institutional landlords as the number of hobbyist landlords decreases.
This prediction is from Roma Finance, the specialist bridging finance and development lender, who reports that more and more landlords are using limited companies to maximise tax efficiencies on their investments – and this is set to continue.
Those landlords with fewer than five properties will disappear as the cost of managing their properties and keeping up with ever-changing legislation will prove to be prohibitive.
However, with the number of landlords reducing this won’t affect the number of buy-to-let properties available for rent, but extra administration costs could ultimately increase the rents charged to tenants.
Roma says that landlords are evolving in many different ways, from the legal structure of their holdings, the make-up of their portfolios, the quality requirements they will have to adhere to and the way they will finance properties going forward.
New HMO rules
An area of concern is the impact of the new Houses in Multiple Occupation (HMO) regulations coming into force on 1 October. The number of storeys will be removed from the definition of HMO and minimum room sizes will be set.
Those landlords with one or two storey HMOs will be subject to mandatory licencing requirements by their local council. The Residential Landlords Association estimates that in the UK this will affect an extra 177,000 properties.
The new EPC ratings which came into force on 1 April mean that rental properties need to be rated as E or above, those rated F and G can’t be let to new tenants or have tenancies extended.
Roma says this provides bridging lenders with a new opportunity to back professional landlords to acquire ‘un-rentable’ properties with a view to improving their EPC rating, which in turn will make them eligible for longer term buy-to-let mortgages.
Opportunities for lenders
From a lending perspective, Roma predicts that more lenders will opt for unique or tailored rates and criteria for each transaction. There are big opportunities for innovative lenders willing to look at how they can provide funding for more complex cases and update their underwriting requirements to take the new legislation requirements into account.
Scott Marshall, managing director of Roma Finance, commented: “Clearly a barrage of regulation and legislation is moulding a new breed of landlords. The days of the hobbyist landlord are numbered as the upkeep and management of rental properties becomes more onerous.
“The private rental sector is due for another shake up in 2018, and beyond, and only the larger players will be able to cope, as they can benefit from their scale of operation. With the HMO rules coming into force in October, maybe more affordable housing is needed more than ever as an alternative.
“However, as a lender we’re still experiencing a high level of finance demand for rental property, and in the wider market there are many product updates being introduced as lenders seek to adjust criteria to keep pace with a changing market. But it seems clear that the future will be driven by professional landlords rather than the armchair investors of the past.”