Britain's rental crisis: Extra 1.8 million homes to rent are needed by 2025 but buy-to-let landlords are in retreat
- UK households renting doubled from 2.3m in 2001 to 5.4m in 2014
- A balance of 58% of estate agents saw a drop in buy-to-let sales since May
- 86% of landlords have no plans to increase their rental portfolio this year
Almost two million more households will need a property to rent within the next decade, new figures suggest, as they are squeezed out of buying by high house prices.
But a warning has been sounded that this could trigger a further crisis in the property market, as landlords are retreating after being hit with new taxes.
The Royal Institution of Chartered Surveyors said the rise would occur as a result of home ownership becoming 'increasingly unaffordable', but warned that supply of rental homes is falling and that the situation will only worsen as demand increases.
In demand: But RICS said that 86%of landlords have no plans to increase their rental portfolio
It said that the number of households renting property had already doubled from 2.3 million in 2001 to 5.4 million in 2014.
RICS warned that within 10 years, there could be 'rental supply crisis' following changes to the buy-to-let sector that made it less attractive for landlords to invest.
These have included a reduction in tax relief that landlords can claim and higher stamp duty payable on buy-to-let properties.
RICS is urging the Government to back a new 'build-to-rent' sector where properties are built specifically for letting.
A balance of almost three in five estate agents have reported a drop in buy-to-let sales since May, according to the research, which follows the arrival of a new 3 per cent stamp duty surcharge for buy-to-lets and second properties.
RICS also found that 86 per cent of landlords have no plans to increase their rental portfolio this year nor over the next five years.
Jeremy Blackburn, RICS' head of policy, said: 'We are facing a critical rental shortage and need to get Britain building in a way that benefits a cross section of society, not just the fortunate few.
'With increasingly unaffordable house prices, the majority of British households will be relying on the rental sector in the future. We must ensure that it is fit for purpose, and the Government must put in place the measures that will allow the rental sector to thrive.
'Any restrictions on supply will push up rents, marginalising those members of society who are already struggling.'
In addition to tax rises, landlords are also finding that lenders are tightening borrowing criteria for mortgages, looking for bigger deposits, more rent to mortgage payment cover and checking landlords' own earnings not just rental income.
Landlords face a further test after watchdog the FCA announced tougher rules to ensure they can survive a rise in interest rates. They will be stress tested against mortgage interest rates rising to a higher level than previously.
The measures mean investors will be forced to find larger deposits – or increase rents charged to tenants – if they want to take out a mortgage.
In some cases, landlords will have to put down an extra £15,000 deposit before they can get a home loan.
Thousands of borrowers could be prevented from buying rental properties when the changes come in next year.
It could also affect existing landlords who want to borrow more money by cashing in equity on properties they already own.
David Hollingworth, of mortgage broker London & Country, said: 'These rules could prove fatal for small landlords hoping to invest in buy-to-let properties to boost their incomes. Many are not going to be able to find the extra money they need for a deposit or increase rents by enough to cover the shortfall.'
RICS is calling on the Government to address the current rental shortage by reversing the rise in stamp duty and pioneering a new build-to-rent sector for the long-term, where the private sector is encouraged to build properties specifically for residential letting.
The number of households renting property has doubled from 2.3m in 2001 to 5.4m in 2014
Helen Gordon, chief executive of residential property owner Grainger, said build-to-rent would increase housing supply at a quicker pace than traditional house-building and offer tenants more stability.
Grainger said they planned to invest over £1billion by 2020 in ‘high quality, long term rental housing’.
‘In order to support us in this ambition and many others with similar plans, the Government should recognise the important role we have to play and explicitly support build-to-rent in its policies.’
The RICS findings echo those of a separate survey by the Residential Landlords Association, which said that two thirds of landlords plan to increase rents to cope with recent tax increases.
The survey of almost 3,000 private sector landlords carried also found that the same proportion do not plan on purchasing any additional properties for their portfolio.
More than half surveyed landlords said they planned to increase rents in the next 12 months to offset the impact of changes to mortgage interest relief.
And almost two in five said they would cut back on improvements to their rental properties because of the new taxes.