The institutional private rented sector

The institutional private rented sector

The rental market in the UK has been strong now for the last couple of years, with various financial and social factors coming into play to keep demand high and make sure that landlords are in a better position than ever before.

However, while the private rented sector has been evolving and morphing into something very different to what we have been used to in the UK, one thing has never really changed - the investment model.

While there are now far more people renting than in the past - the average person will rent for three years before buying, and rented homes account for ten per cent of all UK properties - the majority of landlords are still operating on a relatively small scale.

According to a recent study released by Countrywide, 94 per cent of all landlords across the UK have only one rental home in their portfolios, which means that all their focus is on making a strong return from one property.

While this can allow them to make sure they run their operation efficiently and tightly, it can have one negative for the market - ever increasing prices. 

Across the UK last year, rental charges rose by an average of 3.1 per cent, according to a report from BDRC Continental, and for many tenants, their monthly payments can really start to push the boundaries of affordability. 

Such rental increases are caused by the imbalance wherein demand for rented properties is higher than the level of supply - Countrywide reported that at the end of 2013, there were more than ten potential tenants after every property that came to market. It means landlords can charge more for their properties as tenants compete for occupancy.

But is there a new dawn afoot for the rental sector? It could soon be the case, with the government answering calls from many experts to introduce a system of institutional investment to the private sector.

This model involves a property fund or large company buying new buildings from developers with the express intention of letting out every unit through a letting agent.

The government's £1 billion Build to Rent scheme, which is now in its second phase - expected to deliver 6,500 homes nationwide, a quarter of which are in London - is the main channel for institutional investment, allowing developers the financial backing to build properties for the express reason of selling them on to institutions to rent out.

Benefits that could come from this new model are plentiful, and although only time will tell how the evolution of the rental market will actually play out, we could soon see a much stronger future-proofed sector. A supply and demand balance will lead to more affordable prices, while institutional investment will help to offer wider choice and higher quality brand-new homes for tenants in the UK.