With the Renters’ Rights Bill (RRB) due to be introduced in the near future, along with new regulatory requirements being placed on landlords, how will smaller portfolio and individual landlords fare in an ever-tougher market?
Both the proposed EPC changes are proposed and the probable scrapping of Section 21 in the RRB look set to increase pressure on landlords in the future.
According to the NRLA, landlord confidence has edged up quarter on quarter but still remains firmly negative, with the RRB, government policy and compliance burdens being the top talking points. Currently, 63% of all landlords report having at least one property with an EPC rating below D.
“The Renters’ Rights Bill is seen by many landlords as an attack on the PRS, while Minimum Energy Efficiency Standards and a potential introduction of National Insurance on rental income add further challenges,” said Paul Huxter, head of intermediary sales and distribution at West One.
For those without large portfolios, Paul said he expects difficulties ahead. “It’s difficult to see the light at the end of the tunnel for many smaller landlords whose margins are being eroded. Competing in this market is no simple task.”
Although not believing that lenders are directly focusing more on larger portfolios, Paul said he does see a clear distinction between the approaches of high-street lenders and those in specialist finance.
Paul suggested that landlords buying through limited companies would previously have turned to the specialist market, but they were now being increasingly catered to by high-street banks and building societies.
“The specialist sector, meanwhile, is becoming more attuned to the higher risk requirements of portfolio landlords who need more specialised products that won’t be found on a standard product guide."
Louisa Sedgwick, managing director of mortgages at Paragon Bank, also noted that landlords are finding ways to adapt to current market conditions.
“One way they are doing this is utilising limited companies to hold their BTL properties for more efficient tax treatment.
“Research of our landlord customers highlights how younger and newer landlords, who in most cases start out with smaller portfolios, are adopting this approach earlier on in their landlord careers compared to those with more experience.”
Another expert that has seen a shift to landlords running their portfolios as structured businesses is Alex Upton, managing director of specialist mortgages and bridging finance at HTB. In her eyes, this approach reflects rising standards and a need for efficiency where margins are tighter, and does not diminish the importance of smaller landlords.
“For lenders and brokers, the challenge is not about choosing one group over another, but about providing funding structures that suit different business models,” said Alex.
“Larger landlords tend to need more complex portfolio or limited-company solutions, while smaller landlords benefit from simpler term facilities that still allow for flexibility and future planning.
“Consolidation and professionalisation will continue as regulation and energy-efficiency standards evolve. The sector is changing shape, but it should remain open to landlords of every size who are committed to providing quality homes.”
A recent NRLA report revealed that the happiest tenants were those renting from individual landlords, with 81% of tenants of those doing so expressing satisfaction at the service received, compared with 73% of those renting from BTR companies and 68% of those renting through a letting agent.
Howard Levy, sales director at SPF Private Clients, believes that tenants’ methods of showing their satisfaction can have an impact on landlords.
"With the higher usage of Trustpilot and other marks of excellence, the need for landlords to have a good star rating when renters are searching for properties becomes more important.
“Countering this, however, is the fact that there isn’t enough rental stock in many parts of the country, which means many tenants find they have to move quickly to secure a property, even where the landlord's reviews aren't always A1.”
Louisa predicted that larger landlords could soon begin consolidating or completely selling off their large portfolios as they look to exit the market after a long period.
“This could exacerbate the imbalance between supply and demand within the PRS, fuelling rent inflation and reducing choice for renters.
“To minimise this, it is vital that the conditions exist for the next generation of landlords to invest in much-needed homes for renters.”
Likewise, Paul noted the potential for hiked rental prices in the face of fewer options, leaving landlords with greater potential to control rents.
“If portfolio landlords own a higher concentration of properties within regions, conditions could worsen further for renters, the very group the government aims to protect.”
“Entrepreneurially minded landlords (many of whom are portfolio landlords) will go where opportunities arise. That’s why the specialist lending market is increasingly catering to short-term lets and holiday lets, which, in light of the RRB, are becoming an alternative to traditional Assured Shorthold Tenancies.”
Commenting on the market’s outlook, Paul said: “The harder it becomes to rent out and manage properties, the more both landlords and lenders will need to adapt to a PRS that is doing little to close the UK’s housing crisis and rental demand gap.
“Happier landlords are more responsible landlords, and that can only benefit the PRS.”
