Private Rented Sector How Things Have Changed in Recent Times
For a presentation I am doing at a conference next week, I thought I would jot down some interesting features of the private rented residential sector five to ten years ago and compare it with how it looks today.
Back then, the private rented sector had the following features.
1. Credit for buy to let mortgages was being advanced too easily to too many weak borrowers. Mortgage fraud was unacceptably high.
2. Lenders lent money to landlords to buy too many “me-too” identikit new build flats for which there was not enough demand. These were often built to poor standards and sold off to gullible newbie “investors” by gurus promising high returns. The returns usually failed to materialise, primarily due to a combination of lack of tenant demand and poor block and tenancy management.
3. Hapless indebted home owners were busy getting into Sale and Rent Back arrangements, often with novice “investors” who, having already been burnt on new build, were again seeking the dream of getting rich quick in property, but this time by buying existing stock from “distressed” sellers.
4. Government policies and practices in the private rented sector kept changing – there was a plethora of new laws and regulations for landlords to deal with. Local authorities had a tough job of keeping on top of the changes and making them work.
5. Many private landlords and letting agents “muddled through” often with little knowledge.
6. Institutional investors were showing an interest in the sector but most were reluctant to jump in.
So what’s changed? How are things different today?
Well, buy to let lenders have now become better at appraising risk. For example, today, they are not at all keen to lend against new build flats. Procedures to cut mortgage fraud have been improved too.
But whilst the Sale and Rent Back (and No Money Down) phenomenon was eventually more or less stopped in its tracks, we continue to see many new strange financing techniques being promoted under the radar of the lenders. Some of these appear to us, at least, to still involve mortgage fraud.
Mortgage lenders policies can still appear a little odd with one major bank preferring inexperienced landlords over high net worth and highly experienced ones.
What’s not changed? What’s still the same?
Whilst the coalition government is less inclined to intervene, it continues to change things in the sector at a breathtaking speed and at least as fast as under New Labour. In particular, the way that Local Housing Allowance will be administered in the future is being fiddled with on an almost weekly basis.
Local authorities, with more housing shortages than ever, are still trying to work with private landlords and are throwing ever more effort and cash at engaging with the private rented sector to try to get private landlords to let to people who are homeless or in danger of becoming so.
But whilst some local authorities have good ideas, at most town halls a substantial part of this effort is misdirected and effectively wasted because of a failure to fully appreciate the structure, attitudes and culture of the private rented sector or how to reach landlords.
Meanwhile institutional investors continue to eye the sector but for the most part, continue to keep their wallets in their pockets, leaving the growth in the private rented sector to continue to be driven by the “Mom and Pop” investor, who on the whole continue to derive good profits from it (just as long as they continue to ignore the “Get Rich Quick in Property” gurus and invest in the right property and the right tenants.)
MORE ABOUT LETTINGFOCUS AND WHAT WE DO
LettingFocus.com is the home of Private Rented Sector Information and expertise and I’m David Lawrenson, a landlord and property investor myself for over 25 years and best known as the author of “Successful Property Letting” – the UK’s top selling commercially published property book for the last 3 years. 26,000 copies sold (up to Feb 2011).
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