When is a Budget not a Budget? When it’s a Spring Statement of course, which will be outlined to the House of Commons by the Chancellor, Rachel Reeves, on 26 March.
Now, I’m being slightly flippant here, because this Spring Statement is not a ‘fiscal event’ – the government has committed to only holding one of these per year and many might say that last Autumn’s Budget was enough fiscal event for at least a 12-month period.
However, while the Chancellor won’t be announcing any big tax and spending announcements at the event itself, as any number of commentators have pointed out, this does not stop her from announcing them in the lead-up to it.
We already know the welfare budget is going to be slashed, and specific other changes such as reducing the £20,000 tax-free annual limit for cash ISAs are on the table.
But, what of the housing sector, and specifically the rental market? Again, we are not anticipating any announcements – we might argue the decision to increase the stamp duty surcharge for additional property sales for landlords was enough from last year – but there may well be enough in the forecast to give us a view of what the future might bring.
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The potential impact on the PRS
I read the Institute for Fiscal Studies (IFS) preview of the Spring Statement recently – you can read it here – and one statistic jumped out that I believe will be impactful for all private rental sector (PRS) stakeholders.
It came from the Office for National Statistics (ONS), and it focused on population growth, which it believes will now be higher than its previous estimate. It suggests net immigration will now have a higher annual rate of 340,000 people. That’s a 25,000 increase on its previous projection.
I probably don’t need to tell you what impact population growth has already had on the housing market over the last decade – it’s risen by about three million – and, as the above shows, is anticipated to rise further in the future. This over a period when, as we know, the number of houses required to keep up with owner-occupation demand has not been hit, let alone what this has meant for those needing a place to live and having to rely upon the PRS to provide it.
Clearly, the government is trying to address this with its ongoing attempts to build one-and-a-half million new homes over the next five years, but A) will this even be enough, and B) will this even be achieved? It looks challenging, to say the least.
The role of landlords in housing
In that context, what can we say about the PRS and particularly buy-to-let (BTL) landlords’ place within it? Well, it seems quite obvious that tenant demand is going to stay strong – perhaps it will get even stronger as we see the population rise.
Landlords are unlikely to be short of tenants to let to, and this bodes well for those able to add to portfolios, to diversify their portfolios to perhaps secure multi-tenanted properties, and benefit from – at least currently – a lower interest rate environment.
These circumstances are not just conducive for existing landlord activity – although this is likely to be a huge majority of purchase business – but for those eyeing up the sector as first-time landlords.
We are already seeing a very professional approach from certain ‘newbies’ who have identified the opportunity, are often clubbing together in limited companies, and are looking to make their mark quickly with higher-yielding property purchases such as houses in multiple occupation (HMOs) and multi-unit freehold blocks (MUFBs), but also mixed-use residential/commercial properties as well.
There is a clear recognition that we still have a major shortage of PRS properties to offer tenants. Our recent survey, via Pegasus Insight, revealed 77% of landlords polled reported strong demand from prospective tenants. Just this month, Zoopla reported there are 12 prospective tenants for every single PRS property coming to market.
In this context, it’s likely those landlords who are able to who are going to be – at the very least – looking to add to portfolios.
They will also benefit from a slightly lower interest rate environment than over the past couple of years, and while the Renters’ Rights Bill will impact the level of rental increases that can be charged, and will set market rental rates, that supply/demand imbalance remains a point in favour of landlords securing stronger rents, which of course they need to meet mortgage affordability levels and to run profitable property enterprises.
The PRS is not immune to wider political decisions
So, while we are not anticipating any significant ground-breaking, or, indeed, sector-breaking announcements to come out of the Spring Statement, we should acknowledge the underlying factors that are always shaping what landlord borrowers are wanting to do, the advice they need, and the products they require.
The facts of the matter remain that tenant demand far outstrips property supply. The economics of that will be lost on no one, least of all landlords.
As advisers, you should continue to put yourself in the shop window for these borrowers – they require your help in a more complex market where the opportunities are plentiful, and the product choice is just as high. Be there for them, because I suspect, as time moves on, they are going to want to be increasingly active.
