State of the PRS - 2016, Quarter 4

Introduction

The private rented sector has grown considerably over the past twenty years, with the proportion of those in social housing or owning their own home decreasing. In the last 2 years alone there have been significant announcements regarding changes to the sector, from taxation (Mortgage Interest Relief, Stamp Duty Land Tax, Capital Gains Tax for example) to energy (Minimum EPC regulations).

The research presented in this report is part of a longitudinal research project that is firstly taking stock of the sector across a number of issues, but also establishing base-line data in order to compare future trends. This report follows on from the Landlord Investment, Finance and Tax Report and from a survey of 2,440 landlords this explores the safety and energy issues affecting the sector.

Research findings

On the whole, we can be optimistic regarding the safety and energy efficiency conditions of the private sector, our key findings are:

• 76% of properties have an EPC rating of a C or D
• 5% of properties have an EPC rating of an F or G
• 1 in 4 landlords have already made improvements to bring properties to an E rating, with an average spend of £6,780.80
• 99% of landlords have smoke alarms fitted on each floor of their properties
• 91% of landlords reported they made repairs in the past 12 months, at an average cost of £1,702.78 per property

These findings clearly indicate that landlords are taking steps to keep their properties in good condition and to protect their investment. Moreover, landlords are keen to ensure their properties are safe and secure for their tenants, with support among landlords for changes to some policies in the sector. For instance, 60% of landlords support a mandatory introduction of Residual Current Devices and 56% support the introduction of a mandatory 10-year electrical safety check. While, the support for these policy ideas need to be considered and further evaluation of the impact of each need to be now conducted.

The research has also identified several areas of concern. 9% of landlords reported that they could not afford to bring their properties up to at least an E rating. This will be an issue going forward for the sector, especially with the legislative changes coming into force in 2018 and changes to the tax regime. However, it will also be a concern for future regulative changes, for instance would landlords be able to afford to bring all PRS properties up to at least a C rating by 2030?

In addition, while landlords are spending on average £1,702.78 per property on repairs currently and this equates to just below 20% of average rental income, the changes to Mortgage Interest Relief could place a significant financial pressure on landlords to maintain this level of investment in their properties. If we extrapolate this figure to all landlords in England, this is an estimated £2.7billion spent annually on repairs. These changes could be a potential detriment to local economies and the wide spread impact needs to be considered and researched further.

Over a quarter of landlords have experienced tenants going into rent arrears in the past 12 months, with landlords currently owed an average of £1,582.85. When extrapolated to the wider sector, this equates to approximately £775,596,500 owed. This is a serious concern and future volatility in the sector could exacerbate this issue. Landlords who have funded their portfolio through finance such as buy-to-let loans may be less financially resilient due to changes in mortgage interest relief. With rent arrears putting significant pressure on the landlord’s ability to meet finance payments.

This may mean landlords could change their strategy to lettings, with a shift away from tenants more likely to go into rent arrears and this could mean vulnerable tenants are prevented from accessing housing.

Concluding thoughts

While the previous research report identified serious implications for the financial health of the sector, this report overall can provide a positive outlook on the safety and energy issues affecting the sector. 99% of landlords have smoke alarms, ensuring tenants are kept safe from the risk of fire, the majority of properties in the PRS are above a D rating, and landlords are spending on average £1,702.78 annually per property to keep it in good repair.

We can conclude that on average the majority of landlords are providing good quality homes to tenants across the country. However, as the previous finance and tax research report identified, there are significant financial changes coming into the sector over the next 4 years. These changes propose a direct risk to enabling the sector to continue providing high quality homes and be the sector of choice for families across the country.

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