The build-to-rent sector is expected to fill the gap
Savills research projections are that the number of new mortgaged BTL transactions will fall from 75,000 this year to just 55,000 in 2022, a27 per cent drop.
At the same time, little has changed for the first-time buyer. The average deposit for a first-time buyer in the UK is £25,600, varying from £18,800 across the north of England to £47,900 in the South East to a mind-boggling £99,800 in London. So, irrespective of the support provided by the bank of mum and dad and Help to Buy, the demand for rental stock continues to grow.
Figures from the HMRC suggest that cash investors remain far more active. Their quarterly stamp duty land tax statistics suggest that in the year to September 2017, the additional 3 per cent surcharge was paid on 245,000 purchases. While some of these will be second-home purchases, people buying for other family members and those buying their new home before selling their old one, the majority will have been investment purchases.
Since Gavin Barwell’s tenure as housing minister and the release of the Housing White Paper, we have seen a shift in government’s focus from exclusive support of home ownership to a broader approach to addressing housing need across different tenures.
While all signs point to a continued squeeze on mortgaged BTL investors, we have seen huge growth in the build-to-rent market, with institutions and professional investors such as Sigma Capital Group, Legal & General (L&G), and M&G leading the way.
At the end of the third quarter of 2017, our joint research with the British Property Federation showed that, in addition to those already delivered, there were 79,000 such units in the development pipeline, a number that has increased by 40 per cent in just six months.
Of these, some 24,000 are under construction in a rapidly evolving sector, which has embraced offsite construction and is rapidly changing the nature and range of rental options available to tenants.
While the services and facilities included withrenting the property varies substantially between different build-to-rent schemes, they all share a professional approach to management, where success is measured by their ability to retain tenants rather than signing up new ones.
If demand for rental property from tenants is high, the demand from investors is monumental. Estimates of the volume of cash aimed at the UK build-to-rent sector vary between £30bn and £50bn.
A new vehicle investing in the sector was fully subscribed shortly after launch, raising the full £250m target within hours. And as L&G progresses with its modular-home-building factory, it is clear that investors are comfortable making large capital investments to support delivery in the longer term.
Lawrence Bowles is a residential research analyst of Savills