Landlords to see rental income skyrocket and increase their portfolios

Savills have predicted that the total rental income to UK private sector landlords will rise to £70 billion over the next five years. The corollary of this shift from home ownership to renting is the necessity of significant investment.

Lucian Cook, director of residential research at Savills, said, “We estimate that over the same period, £200bn needs to be invested in the private rented sector to keep pace with demand. We only expect £50bn of that to come from buy-to-let finance.

“Institutional investment backed by new sources of finance is critical to filling the gap.”
Savills commented further that larger investors buying in bulk should see good returns for their money.

Paragon Mortgages have already observed increased investment in the buy-to-let market, revealing that the average portfolio size of a landlord has increased from 12.9 properties at the start of the year to 14.1 today. The average portfolio has grown by 1.6 properties since this time last year.

Of the landlords who participated in Paragon’s quarterly Private Rented Sectors Trends Survey, 21% plan to add to their portfolios in the third quarter of this year, up 3% from last year. Nearly half (49%) of these intend to invest in terraced houses. Just over a quarter of them (26%) intend to invest in flats or maisonettes, while just under a quarter (23%) intend to invest in semi-detached properties.

John Heron, managing director of Paragon Mortgages, said: “The fact that landlords are planning to make further investments in their property portfolios is positive news. Whilst this will not solve the problems around supply, it will make a valuable contribution.”

There’s no doubt that more investment in buy-to-let property is needed. Already letting agents are struggling to supply enough to meet the demand. But it has been recently reported that an additional 1.5 million 18 to 30 year olds will be going into private rented accommodation over the next 8 years.

If the demand cannot be met, this could be dangerous for many young families. The Joseph Rowntree Foundation has said that the pressures on private rented accommodation could force young families out of the sector, leaving them homeless. They forecast that around 310,000 more young families will be looking for private rented housing in 2020 than are today. It warns that the young families finding it hardest to compete for tenancies will be the poorest and most vulnerable. The report describes how the search for private rented accommodation could become a three-tier race, with those who can afford to pay rents at the top, a squeezed middle who barely scrape by, and 400,000 left scrabbling at the bottom who are under the threat of being excluded altogether.

Kathleen Kelly, programme manager at the Foundation commented, “With 400,000 vulnerable young people, including families, on the bottom rung of a three-tier private renting system, we need to avoid turning a housing crisis into a homelessness disaster.”

What they’d like to see is more houses being built, longer tenancies at affordable rents (with incentive tax breaks for landlords), and the expansion of local letting agencies to house vulnerable young people.

The massive developments in the private rental sector have not gone unnoticed by the taxman; HMRC has launched a special taskforce to investigate and recover up £17 million in unpaid taxes from private landlords.

For now the taskforce is targeting private landlords with houses to rent in Leeds, London, East Anglia, Leicester, York, Nottingham, Lincoln, Durham, and Sunderland, although James Cowper, an accounts and business advice firm, has warned that it could easily be extended over the whole country.

Stephen Barratt, private client director at James Cowper, said, “Landlords can reasonably expect HMRC to gather information from across government departments, and many other sources including press and internet advertisements, universities and colleges.

“HMRC is also using increasingly sophisticated techniques to identify those who are not paying sufficient tax, and the chances of going undetected are rapidly vanishing.”

Landlords who provide temporary accommodation may not be aware that VAT is chargeable; HMRC treats it the same way as hotel or guest house accommodation.

Some landlords may not be registered for VAT when they should be, and could therefore be facing a back-dated VAT claim.

The experts at James Cowper advise that landlords who believe they may have an outstanding tax liability do not approach HMRC directly without seeking council with your accountant or tax advisor first, as without a great understanding of the tax system, you could find HMRC bullying you into coughing up a heftier tax bill and penalty than you otherwise might. They also advise that you take this clampdown seriously and hold your hands up rather than hope for it to blow over, as the penalties could be more severe further down the road.

Back to news