With home ownership in decline, especially amongst the younger population, the private rented sector has become the fastest growing housing market. According to research from Savills, the number of private rented households in England and Wales is set to reach a total of six million by 2020, or 24% of all homes in England and Wales. In comparison, owner-occupied household numbers are set to fall to 14.67 million, or 59% of households, down from 63% in 2014.
The private rented sector is undeniably playing a vital role in the provision of the UK’s housing needs. However, the Chancellor’s proposal to remove mortgage interest tax relief for rental income was the first sign that change was coming. The likelihood that buy-to-let purchases are to be exempt from the stamp duty land tax surcharge, if made by a corporate entity, is a clearer signal that George Osborne wants to encourage more corporate landlords and institutional investors rather than smaller, ‘part-time’ landlords.
Despite the changes, opportunities presented by growth in the private rented sector remain attractive to those who can acquire housing stock cost effectively and have the right corporate structures in place. Developers on multi-unit projects sometimes decide to retain a small number of the units to create or add to their own buy-to-let portfolios and retaining one or two of the last units as deferred profit can be a cost-effective option.
However, more recently we’ve seen some developers taking this approach to the next level and creating entire ‘build-to-let’ projects where the developer has no intention of selling any of the units. Instead, they are literally building their own rental property portfolio at a much lower cost than acquiring existing housing stock. They not only get a property portfolio at wholesale prices, but they avoid all of the other associated costs one encounters when buying properties through traditional channels, including valuation and legal fees. They also have just one financial solution for the whole of that group of properties rather than a number of different loans or mortgages if the properties are acquired piecemeal.
United Trust Bank (UTB) has recently developed a new product aimed at providing a one stop funding service for ‘build-to-let’ developers. For qualifying developments, UTB’s Build-to-Let facility will provide the funds to complete projects on our usual terms and give an agreement in principle to provide an investment facility at the end of the build which will allow the developer to reduce their funding cost, recover some equity and move on to their next project without having to identify a new long-term lender and incur more fees and costs.
We are always happy to discuss potential projects with experienced ‘build-to-let’ developers or those developers considering for the first time, the opportunities the growth of the private rented sector can provide.
Attributed to Noel Meredith, Executive Director, United Trust Bank
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