Buy-to-let is a divisive subject. Mention the term round the dinner party table and it will provoke a myriad of views, both good and bad. As buy-to-let celebrates its 25th anniversary, many myths have built up around the sector, some with justification, others that verge on the ludicrous.
One undeniable fact, however, is that buy-to-let has driven improvements in the standards of private rented sector (PRS) property.
Over the past 25 years, landlords have made tangible improvements to the sector that millions of tenants call home. Homes in the sector are newer, larger, warmer and more energy efficient than they were 25 years ago, plus tenants have more choice, as well as greater protections.
This improvement has coincided with significant investment in the sector through buy-to-let finance, whilst tighter and more stringent regulations have hopefully seen the more ‘rogue’ elements at the periphery of the landlord community diminish.
Comparing today’s metrics with those in 1996 is difficult because of what was measured and what was deemed as acceptable decades ago. Analysing more recent data paints a clear picture, however.
Our recent report, Driving Standards in the Private Rented Sector, highlighted how the portion of homes in the sector classed as ‘decent’ under Government standards increased from 53.2% in 2006 to 76.7% last year.
Overall, 3.6 million homes are now classed as decent, compared to 1.4 million in 2006. Over that same period, 1.4 million buy-to-let mortgages for house purchase have been approved. Conversely, the number of homes classed as non-decent in the PRS has not reduced significantly, with 1 million homes categorised as non-decent today compared to 1.21 million in 2006.
This suggests that the growth in new properties coming into the PRS over that period is driving up standards for the sector overall and diluting the stubborn proportion that remains non-decent.
Unlike the owner-occupied sector, where homeowners have a financial and emotional incentive to improve their homes, owners of legacy properties in the PRS may have less motivation to carry out property improvements, leading to this stagnation of stock.
However, proactive, engaged landlords who have driven the growth of stock typically will invest in their property. Data from insurance firm LV shows that landlords spend a combined £4.7 billion a year on maintaining and improving their property, whilst Paragon research shows that landlords spend an average of £8,720 on upgrading a buy-to-let property after purchase.
Other notable upgrades in the sector include:
- The energy performance of the sector has improved, with a 272% increase in PRS homes with an energy rating of C or above since 2009 to 1.8 million
- The proportion of PRS stock built since 1991 has grown from 14% in 2009 to 22% in 2019, with the number of homes in this category doubling over the period – 509,000 to 1 million
- Homes are larger. Compared to 2009, there is a greater proportion of homes in the sector of at least 70m2 – 50.6% today vs 48% in 2009. In terms of absolute numbers, that equates to a 38% increase in the number of properties to 2.4 million
- There is a greater choice of homes, with the number of semi-detached, terraced and purpose-built flats increasing
- Over three quarters of landlords (77%) invest in upgrading newly purchased property before letting it out to a tenant.
Lenders also deserve credit here. More stringent underwriting standards and property assessment have helped to ensure that better quality homes are coming into the PRS. At Paragon, we strive to help improve standards in the sector for the benefit of our customers, their tenants and our business. We do not lend on poor quality homes and employ our own team of in-house surveyors to ensure our standards are met.
However, clearly more needs to be done to improve standards further and the sector cannot and must not rest on its laurels. Upgrading the energy performance of PRS stock will be a key focus in the coming years to help drive standards further.
Richard Rowntree is managing director of mortgages at Paragon Bank
