May 2021 | Buy-to-Let

Lenders a force for raising PRS standards

Richard Rowntree is managing director of mortgages at Paragon

Over the past two decades, significant progress has been made in improving the standard of the UK’s housing stock.

Of course, efforts to further improve need to continue, and we support calls for an accountable private rented sector (PRS) through policies such as the creation of a National Landlord Register, which housing charity Shelter says would force landlords to prove that properties meet essential safety standards.

In the interest of balance, I feel we should also acknowledge the commitment and progress that many landlords have made in providing tenants with a good quality home.

Around three quarters of homes in the sector are now classed as decent, compared to less than half in 2006, the year when the government’s Decent Homes Standard was updated. 

Despite this endeavour, though, the PRS has been outperformed by the owner-occupied and social sectors when we look at non-decent properties by absolute numbers.

Since 2006, the number of non-decent PRS homes has fallen from 1.21 million to 1.01 million at the latest count. During the same period, the owner-occupied sector has seen the number of non-decent homes decrease from 5.31 million to 2.54 million, while social sector non-decent homes now number just over half a million after a reduction from 1.13 million. 

The reasons people make improvements to their properties are many, but I feel that a contributor to this stagnation of some PRS stock is the potential for owners of legacy properties to have less motivation to undertake refurbishments.

Homeowners, on the other hand, can add value to their properties while also improving their own environment.

The difference in the number and proportion of decent stock suggests that the improving standard of rented homes has been driven by a rise in property brought into the sector – a 31% increase since 2009 brought the total to 4.7 million properties by 2019 – which has helped to diminish the percentage of non-decent stock.

It should also be noted that these landlords, who are active in the market, often will invest in their existing property, too, annually spending a combined £4.7bn on maintenance and improvements, according to data from insurance firm LV=.

Whether adding new properties to the sector or enhancing existing stock, buy-to-let (BTL) lending has been a force for good, and the improvements in standards seen over the past 15 years correspond with a significant increase in lending between 2006 and 2019 – the number of outstanding buy-to-let mortgages has risen from 835,000 to 1.9 million.

Overall, 1.3 million buy-to-let loans for new house purchase have been written since 2006, but it’s important to consider overall lending. Failing to do so could discount significant numbers of landlords who remortgage existing loans or take out a further advance to raise funds for renovations to their rental properties.

In addition, as well as financing improvements made to homes already in the PRS, lenders can be at the forefront of the quality control of property being brought into the sector, identifying issues such as insufficient space, poor condition and safety concerns, through stringent underwriting and property assessment.

Landlords will be increasingly turning to lenders for support in their role in solving the sustainability puzzle, too, something I’ve discussed in Mortgage Introducer previously.

Unlike the number of decent homes, the PRS is ahead of the owner-occupied sector in terms of the energy efficiency of its stock – though both are behind the social sector – as measured by the Standard Assessment Procedure (SAP) rating.

Despite this, it seems that privately rented property is the priority in the government’s ambitious target of making the UK’s housing stock carbon neutral by 2050.

Under government proposals, all new property being let for new tenancies in the PRS must have an energy performance rating of at least C by 1 April 2025. By 2028, this will apply to all let property.

Like many sectors, financial services needs to identify its response to what is now being considered by some as a climate emergency. This will take many forms, but we can help by developing products that incentivise investment in sustainable housing, either through the purchase of homes that are built to more energy efficient specifications or retrofitting of things like insulation.

This shows that, although it may appear from the outside that the responsibility for improving standards of PRS homes sits squarely on the shoulders of landlords, lenders have played an important part so far, and will continue to do so as demand for good quality housing is matched by a need for society to minimise its negative impact on the environment.