But its rehabilitation hasn’t just happened since the property downturn of 2008.
The private rented sector was once notorious for its badly maintained homes and predatory landlords, famously satirised in the 1970s sitcom Rising Damp.
Over-regulation meant sitting tenants and rent controls, leaving landlords no incentive to keep properties in top condition.
The sector shrank and shrank. By 1988, there were only 1.7m private rented homes left in England, just 9% of the total.
The Housing Act of that year rebalanced the rights of tenants and landlords, creating an incentive to invest, while the eventual abolition of MIRAS created a level tax playing field that no longer artificially favoured home ownership.
However, the situation has radically changed. Fostering a healthy private rented sector has become crucial to meeting Britain’s housing needs as homeownership is in decline. Having peaked at 71% in 2003, the figure now sits at 67%, according to the latest English Housing Survey - and it will continue to fall.
Demographic changes mean, of the 200,000 new households formed every year, a very large proportion are natural renters - record numbers of immigrants, a huge expansion in the student population and rising house prices has not created new buyers, but instead created a demand for additional accommodation.
Beyond pure demographics, renting is in any case the natural preference for many young households who have not yet settled down in a particular area, or are seeking new employment opportunities.
Helped by more people opting to rent, the private rented sector reached 3.4m homes, 16% of households in 2010 in and it continues to grow.
In the private housing market, lenders are under pressure of increasing regulation to hold more capital and are busily repairing balance sheets damaged in the credit crunch, meaning mortgages remain hard to get – as they have done since 2008.
Tight lending criteria froze 100,000 first-time buyers out of the market last year alone, while longer term factors such as rising student debts mean first-time buyer finances will be constrained well into their thirties.
With public funds unlikely to ever again to provide mass housing, the private rented sector will continue to soak up all the excess demand for accommodation. However this intense demand is increasing competition per rental property and pushing up rents.
In June, rents across the UK hit a record high of £701 per month following five months of successive rises according to the latest Buy-to-Let Index from LSL Property Services.
The situation is even more acute in London, where rents have broken through the £1,000 per month barrier. Unless there is a sudden – and unlikely – boom in new house building, rents will continue to rise and landlords will continue to reap the benefits.
Admittedly, average annual returns have dipped as house price growth has spluttered to a halt in most of the country. The returns for the average UK property have fallen to 1.3%, and a new landlord investing now can expect a return of 2.3% over the next 12 months.
But with rents rising at a pace of 4.1%, and the value of rental properties falling, new landlords are seeing healthy – and increasing yields. The typical UK property investor buying a property now can expect a yield of 5.2% - the highest level in more than three years.
The improving underlying fundamentals behind long-term investment have become so attractive that an increasing number of investors are blazing a trail to their broker to help secure suitable loans.
This increased appetite has fed through into an improving picture for buy-to-let lending. In the first quarter of 2011, there were 27,600 loans advanced to buy-to-let investors – 25% more than in the same period of 2010.
While lending is still just a third of the level seen three years ago, there are strong signs that it is picking up.
Since April alone, another three lenders have entered the market and competition is heating up. This has boosted the variety of products on offer for buy-to-let investors. Mortgages for Business’s latest research shows that there are now more than 400 products available – 35% more than in April.
An improved buy-to-let lending market is not only opening the doors to more investment for the sector, it is creating increasing opportunities for mortgage brokers. Buy-to-let is now dominated by professional landlords who invest for the long-term, rather than fly-by-night speculators who got their fingers burnt in 2008.
Professional landlords often require more complicated mortgage deals to suit their portfolios and individual needs, and brokers’ expertise will be even more vital to sift through the increasing number of products on the market to best suit investors.
The professional private rental sector of today bears very little resemblance to the one satirised in Rising Damp in the 1970s. But with demographic pressures and the steady supply of frustrated first-time buyers, it will continue to change and expand.
With signs of mortgage finance conditions easing for landlords, brokers must not fail to recognise the opportunity and miss the boat.
