Experts have predicted that a “rising tide of City investors” will replace small-time landlords of buy-to-let properties who are being forced out of the market due to higher interest rates.
According to property consultants JLL’s forecasts, the build-to-rent industry will double its size in the next three-year period, and account for one-fifth of all new housing built during that time.
As many landlords who buy to let are forced off the market due to rising interest rates, there is a surge in rental properties that have been purpose-built and backed by pension funds.
When a typical landlord refinances this year with an interest only mortgage, their payments will triple and they’ll lose any profits on the average rental home.
Hamptons Estate Agents has predicted that private rental will suffer an overall loss of 37480 properties in this year.
Emma Rosser is the associate director of living research for JLL. She said, “We will see a shift from small landlords to large landlords. The professionalisation of the industry.”
In the last ten years, institutions have invested £32.5bn in Britain’s built-to-rent industry. This money has been used to build student housing and inner-city housing for young professionals.
They have the cash to protect themselves from high borrowing rates and will continue to grow as smaller players exit the market.
Investors are pivoting to build suburban homes – the bread-and-butter of small-scale landlords.
By 2022, only 13pc will be single-family homes. By 2025, the share of single-family homes will increase to 42pc.
Ms Rosser stated: “This rising tide has gained momentum in the last decade.”
JLL predicts that institutional investors will build more than 88,000 private rental homes in the next three to four years.
These numbers are small in comparison to the size and scope of the UK’s existing rental market, which comprises 5.5 million properties. The growth in City investments suggests they will have a strong foothold on the market.
Buy-to-let investors who sell up now may find it difficult to compete in the future if they want to enter the market.
Ms Rosser stated: “We’ve come from a model of buy-to let where the supply was built on debt. It will now be based on equity. This is only possible with very large pension funds, many of which are multi-billion pound.
It all points to a major shift.