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Hiten Ganatra is Managing Director of Visionary Finance.

The recent rental and mortgage payment holiday measures announced by Rishi Sunak have come as a great respite for those who have seen their incomes fall or even disappear because of the Coronavirus pandemic.

The swift and unprecedented action taken by the Chancellor has helped to ease the financial strain, particularly for renters, who are spending anywhere between 34 per cent and up to 65 per cent of their monthly income on rent.

Extending mortgage payment holidays to buy-to-let landlords has really helped to ease the pressure on landlords, who are finding it increasingly challenging to continue with their rental investments – because of previous government actions over the last five years.

There are now approximately 183 pieces of legislation which landlords and the rental sector, in general, need to contend with.

With the Covid-19 outbreak, the level of unease among landlords is increasing even further, and many are now beginning to question whether they should exit the market permanently.

As the owner of a financial services business and a real estate business, I am seeing first-hand the challenges that are being faced by tenants, the negative sentiment among landlords and the pressure on the housing market that could have long-term unintended consequences which will last way beyond this outbreak.

The policies and legislation introduced by former chancellors are starting to shape into an impossible situation for the very people they set out to help – hopeful first-time buyers and generation renters – especially now in light of the Covid-19 outbreak.

According to the latest Hamptons International Lettings Index, rents in the UK are rising twice as fast as they did in 2018. It showed that average rents rose by 2.1 per cent in November 2019 – nearly double the rate recorded in 2018, which equates to the average UK rent now being £989 per calendar month, £20 more than compared to this time last year.

Rent increases only serve to reduce the amount that would-be first-time buyers can save towards their deposit – pushing their dream of homeownership further into the future.

The average household now spends 42 per cent of their monthly income on rent. Although tenants have been given a lifeline by Sunak by allowing them to defer their rental payments by up to three months, tenants will still have the obligation to clear their arrears and bring their rental account up to date.

While many of our buy-to-let mortgage clients, who are classified as small non-professional landlords, are being sympathetic to tenant circumstances, the impact of these measures on the sustainability of the private rented sector could be long lasting.

The National Residential Landlords Association (NRLA) recently pointed out that 94 per cent of private landlords let their property out as individuals and 39 per cent have a reported gross income of less than £20,000.

As the likelihood of rental arrears and voids start to rise, could this be a final nail in the coffin for the smaller landlords who decide to sell up, creating even more of a shortage of rental properties available for those who want to rent?

We already know that there is a distinct shortage of rental properties available in the marketplace and, as the rule of supply and demand dictates, the result is higher rental costs.

The number of homes available for rent fell by 7.8 per cent in the first 11 months of 2019. The fall is mainly down to the measures put in place over the last few years, designed to stem the (previously) growing number of landlords in the UK.

A recent report by ARLA found that landlords are changing the rental model from long-term lets to short-term lets. The strategy has resulted in circa 46,000 properties being removed from the long-term rental market.

Figures show smaller landlords are already exiting the market, which is resulting in new rental stock falling causing a limited supply of rental properties and so driving up rents.

Research conducted by Paragon found that the number of landlords with just one property has fallen drastically since 2010, from 78 per cent to 45 per cent.

Currently, 52 per cent of the private rented sector is occupied by non-professional landlords who own between one to four rental properties.

Given that there are approximately 4.5 million households in the private residential sector, which is expected to grow to six million households by 2025 (according to ARLA’s report), the amount of slack that will need to be picked up by corporate and professional landlords just to keep to current stock levels is vast.

Analysts are therefore expecting that rents will continue to rise this year as the shortage of properties pushes prices up even more. In its most recent survey, the Royal Institution of Chartered Surveyors said that rents would increase by 2.5 per cent in 2020.

RICS highlighted that the number of new landlord instructions has been stuck in negative territory for 14 successive quarters as the government measures on landlords takes its toll.

The quick solution is to explore areas which have a direct impact on landlord desire to want to hold onto their properties, as this will help to hold up the supply and keep rents at affordable levels.

This needs to be done in the short-term to help suppress the desire of landlords looking to raise rents to cover the increased costs.

In addition to this the Government needs pick up national house building agenda and streamline the planning process so homes can be delivered without lengthy local authority bureaucracy.

It is also important for the Government to maintain oversight of the types of properties being delivered by the build-to-rent sector remains both appropriate for the demographic and affordable.

Lastly, it needs continue with initiatives to promote home ownership like help-to-buy and shared equity schemes.

It is perfectly reasonable for the Government to continue with their three per cent SDLT levy for landlords, thereby prioritising owner occupiers.

However, penalising landlords annually (through their tax return) for maintaining a portfolio will quickly strip away supply as landlords look to offload, which is what the market can ill afford to do.

Tenants will ultimately feel the brunt of this particularly due to a contraction in the availability of good rental properties.

Our Chancellor has shown great courage and decisiveness when it has been needed the most.

Once we do come out the other side of the Coronavirus, it is vital that a detailed impact assessment is carried out to establish what will be the long-term effect on tenants, landlords and the housing market if we continue with the existing agenda.

20 comments for: Hiten Ganatra: The Covid-19 mortgage and rental payment holiday could exacerbate problems for tenants and landlords

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