There’s a shortage of rental property in Yorkshire, so why aren’t investors rushing to the rescue? Sharon Dale reports.
A shock statistic emerged from the software at lettings agency Linley and Simpson this week. Number crunching revealed that there are 10 tenants chasing every one of its rental properties.
This is the highest level since the company launched in Yorkshire 15 years ago, says director Will Linley. “It’s across all nine of our offices but demand is especially high in Leeds, York, Harrogate and Wakefield .
“The Roundhay office in Leeds has reported a near 70 per cent increase in tenants over the past year and this situation isn’t common just to us. It is reflected across the sector as a whole.”
The need for rental property is acute but there is a desperate shortage of three bedroom, family-sized homes with gardens and there are few of them around.
Investors traditionally buy two bedroom properties, which are cheaper and generate greater profit.
“There are more young families needing to rent but there are very few suitable properties. The numbers don’t stack up as they are more expensive for an investor to buy and the rental yield is lower than on a two bedroom house,” says Will.
While this supply and demand issue may be good news for existing landlords, it looks set to add to the stack of problems facing new housing minister Mark Prisk
There is a chronic shortage of homes in Britain and funding for new development is hard to find, as are mortgages for first time buyers and second-steppers. Lack of finance coupled with the recession has left the market in the doldrums.
The refuge for those unable to access the property ladder is a rented home, and forecasters are predicting even greater pressure on the lettings sector. At the moment 15 per cent of the population rent, but that figure is expected to swell to 20 per cent in the next two years.
Meanwhile, landlords are cherry-picking the best tenants and closing the door to those who look like a risk. Those shut out face a difficult time as social housing, also in short supply, isn’t an option for most of them. The result could be overcrowding and homelessness.
“Applicants who were borderline but could get a guarantor could find a property. Now landlords can choose the perfect tenant. They naturally go for those who are professionals and in employment with a good credit rating, “ says Linley. “What happens to the rest is that they stay with parents or they will share a property.
“Families who can’t find a three bedroom home will stay in a two bedroom so overcrowding is a problem and I can see homelessness becoming an issue.”
The Joseph Rowntree Foundation research shows that by 2020 the number of home owners under the age of 30 will fall from 2.4 million to 1.3 million – a drop of 46 per cent. It also predicts that by then 400,000 vulnerable young people could be excluded completely, unable to afford either to rent or buy and turning “a housing crisis into a homelessness disaster”.
Rents are already starting to rise in many areas. LSL’s latest Buy-to-Let Index shows the average is £725, a record high in England and Wales, with one in ten landlords expecting to increase rents over the next year. There are also are fears that quality will begin to slip. When tenants are queuing up to live in your property why bother wasting time and money redecorating and freshening it up?
The solution, according to the Government, could be building to let but while low land values and high demand for homes should be a clarion call to investors, they haven’t yet materialised.
“There is talk nationally about institutional investors building to let but there is no sign of them. If they do build I suspect it will be apartments rather than the larger family homes we really need,” says Linley.
“We haven’t seen many more buy to let investors either though it would help if the banks free up money for them but I can’t see that happening any time soon.”
LSL reported this week that existing landlords were having difficulty raising mortgages. The cost of finance also remains an issue, with 45 per cent of investors who have recently taken out a mortgage reporting that monthly payments are more expensive than 12 months ago.
“It’s difficult to see an easy or quick to solution to the problems we are facing,” admits Linley. “What I find strange is that more people with money in the bank aren’t buying to let. Rental yields are at least six per cent, which is a lot higher than savings rates.”