The Squeeze Is On
Few people shed a tear when bank stress test results are announced. Indeed, one professional colleague recently speculated that the introduction of thumb screws might improve the process. But while bank stress test results hit the headlines, the results from banks own stress tests on private landlords fails to make the news.
On a mortgage or finance application for landlords, banks will apply higher ‘pass’ criteria to a single landlord than to a limited company and lower criteria still to corporate investors. This is a reflection of banks analysis of current and impending legislation making it tougher for the single landlord to operate. I recently spent seventeen months arranging and seeing through to completion a mortgage for an established single landlord.
The net result of increasing legislation coupled with a tightening of bank lending criteria can only mean one thing. A large number of smaller private landlords without professional management will drop out of the market to be replaced with corporate investors putting their money into purpose built rental developments for young professionals and families. A good analogy would be the decline of the corner shop and the rise of the supermarkets.
The edging out of smaller private landlords plays to the Government narrative of freeing up the market for first time buyers. So does this imminent squeeze mean the end for the smaller private landlord? I believe not. As managing agents and members of the Association of Residential Lettings Agencies we are fighting the landlords corner but the market is undoubtedly undergoing major change.
With change comes opportunity and there have been interesting developments in the crowd-sourced property finance sector. We are also seeing a marked increase in instructions for our block management division. The advantage here is, landlords have a single point of contact while maintenance, legal and administration fees are spread between all tenants in the block.
The private rental sector is not alone in facing challenge with all manner of pundits predicting general economic uncertainty over the coming years. But I believe the key message for small private landlords’ intent upon prospering in uncertain times is relatively simple. Have in place a sound business plan backed by a team of professionals who thoroughly understand current and proposed legislation.
That and adequate swimwear to face the choppy waters ahead. Because to quote American financier Warren Buffett, “Only when the tide goes out do you discover who’s been swimming naked.”