The Forecast Issue
The Smaller Investor
Landlords play a supporting role in the supply of new homes.
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While the UK’s burgeoning build to rent sector will undoubtedly grow in size and importance, small landlords are the backbone of the private rented sector in the UK. A government survey in 2010 showed 95% owned fewer than 5 properties, and although it seems likely that this figure will have fallen slightly, it remains a sector dominated by small players.
The homes owned by small landlords come from a mixture of sales of new developments, resales after four or five years and older housing stock. New homes have proved to be an attraction for small landlords due to their advantages such as the lower maintenance required than older properties. Over a quarter of homes bought by landlords in the UK came directly from new developments, in many cases off plan before the completion of the development.
Landlords actually make an important contribution to making new housebuilding viable. For every £1 spent by landlords buying homes in 2014, 23p went into the new homes market. Given many investors put down deposits 12-18 months before a new home is completed, and in some cases prior to construction, they allow developers to reduce their sales risk.
While a premium is attached to the price of new homes, this premium isn’t always reflected in the rent a landlord can achieve. This means that in parts of the country where yields are highest it is more viable for investors to buy new homes. In more expensive areas, the premium could compress yields to unviable levels. However, this hasn’t stopped investors buying into schemes in the more expensive London and South East markets. 19% and 22% of small landlords in London & the South East respectively bought new build homes in 2014; not far off from the proportions of landlord purchases in the less expensive Northern markets.
Additionally, lower priced areas are often the recipient of outside investment, a product of investors diversifying their portfolio. Half of homes owned by London landlords are outside the Capital. With the gap between the house prices in the South East and the North of the country at record levels, new developments in Northern England will continue to look attractive to landlords from right across the country seeking a better return.
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