A British obsession with property is one reason why buy-to-let housing is a popular side hustle among the better-off. The noughties were the heyday for buy to let, thanks to rising prices and generous tax breaks. The business is now motoring again, judging from record annual profits at specialist lender Paragon.
Rental yields of 5-6 per cent are highly attractive when coupled with capital appreciation. But the biggest underpinning is the most basic: more demand than supply. Rental inflation is running at a 13-year high.
It is hardly surprising that asset management giant Blackstone is getting into UK buy to let. At Paragon, a UK tiddler to that US whale, yearly pre-tax profits jumped 80 per cent to £214m. Aggregate new lending of £2.6bn exceeded the pre-pandemic comparative of £2.5bn.
Amateur landlords have amassed savings to use as deposits while working at day jobs during lockdown. About a quarter of a million quit the market after they lost tax deductions and were clobbered with a 3 per cent stamp duty surcharge in 2016.
The clampdown reflected popular anger at a business some would-be homebuyers saw as pricing them out of the market. Buying a first home in England, much like an American teenager’s first car, was regarded by many as a rite (and right) of passage.
Lockdowns dealt another blow, as tenants quit city pads in favour of parents’ larger homes or other spacious retreats. Transactions across the market evaporated. Paragon, which has about 4 per cent of the UK’s £278bn buy-to-let mortgage market, suffered a drop in advances as the housing sector seized up.
Paragon mostly sells mortgages to larger so-called professional landlords. Bears see little sign of lasting momentum. Many landlords now prefer to own their properties outright. Only a third of homes in the private rented sector have mortgages attached.
However, Paragon and Blackstone are not alone in seeing rental housing as a money spinner. UK insurer Legal & General has pioneered “build-to-rent”, an activity Lloyds Banking Group plans to pursue.
To avoid triggering further backlashes, professional landlords will have to expand the supply of property, keeping a lid on prices.