How quickly will build-to-rent replace buy-to-let in the UK?

How quickly will build-to-rent replace buy-to-let in the UK?

Buy-to-let lending has fallen by 39% in July – is this seasonal volatility or the start of a more significant change to build-to-rent?

Summary

  • Buy-to-let lending fell 39% in July
  • Figures are seasonal, but the government and a new long-term rental generation are demanding purpose-built property
  • Build-to-rent is expected to accommodate an increasing amount of the UK’s almost 6 million rental households

As more people rely on rental accommodation, it is becoming clear that buy-to-let is no longer able to solely support the demand for new properties.

New research from referencing company Equifax Touchstone reveals total buy-to-let mortgage lending in July was 39% down on a year-on-year basis.

It was also found that the average value of an individual buy-to-let mortgage has fallen from £160,203 to £157,195 during the same period.

Iain Hill, Relationship Manager at Equifax Touchstone, explained that the rental market can be very seasonal and the summer period traditionally brings a dip in mortgage sale volumes during July and August.

“We’re confident that the market will bounce-back longer-term, with negativity likely to be offset by the recent interest rate cut, leading to lower and more competitive rates from lenders,” he added.

Demand for rental accommodation continues to grow. Figures released earlier this year from property consultancy Savills show that 17,500 households move into rental accommodation every month and the private rented sector is at record size.

As more people become reliant on rental accommodation, the government is keen to ensure tenants get the quality of accommodation that they require. The introduction of a stamp duty surcharge and a cut in mortgage tax relief has made buy-to-let returns fall and appears to be reducing the amount of amateur landlords.

Build-to-rent is the preferred solution. It offers tenants purpose-built and well regulated rental accommodation. Investors are drawn to it as it offers huge long-term growth prospects. Knight Frank suggests the new sector could be worth £50 billion in just four years, but as buy-to-let continues to decline, build-to-rent could shape much of the £1 trillion private rented sector in the future.

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