The value of a healthy rental market to the UK economy

Ross Turrell is commercial director of CHL Mortgages

It’s somewhat of an understatement to say that certain individuals, businesses and sectors have faced a torrid time over the course of the pandemic.

Thankfully, the housing and mortgage markets have remained resilient during this period and we are now experiencing a rise in confidence and business levels across the economy as lockdown restrictions are being lifted.

To help illustrate this, the latest Business Trends report from accountancy and business advisory firm BDO LLP outlined that UK business confidence jumped in June to its highest point since 2005.

In addition, a poll of 1,400 businesses by Accenture and IHS Markit UK suggested that two-thirds of UK private sector firms expect an increase in business activity over the coming year. Just 9% predicted a fall, giving the highest business expectations reading in six years.

A major factor in the largely positive trajectory of the UK’s economic recovery and ongoing confidence has been the role played by the housing market throughout this period.

The strength it has demonstrated, backed by a range of government initiatives, has certainly formed the bedrock of this upturn and helped suppress any lulls in consumer spending. And this has been ably supported by a growing reliance on the private rented sector.

The value attached to a healthy UK rental market remains vital but it can sometimes be difficult to quantify. However, I did find some interesting data from pre-pandemic times which might just offer some kind of context.

Research commissioned by PropTech firm Bunk back in August 2019 showed that the value of the UK’s growing private rental sector was larger than the gross domestic product of 30 countries and several FTSE-100 companies.

At the time of the research, there was a reported 5.2 million private tenants in the UK. When multiplying the number of tenants in each county of the UK by the average annual rental cost, the estimated annual value of rental payments in the private sector was highlighted as being a whopping £51.9bn.

Meaning that tenants financial contributions to the UK economy was larger than the GDP of Myanmar (£51.8bn) and even affluent Luxembourg (£48.1 billion) as well as countries as varied as Panama, Uruguay, Costa Rica, Bulgaria and Croatia.

The UK rental sector’s contribution to the national economy was also suggested to surpass the commercial might of a number of FTSE 100 companies.

Vodafone, Lloyds, National Grid and Barclays were all said to have market capitalisations well below the rental sector’s annual contribution to the UK at that time.

When it comes to the lending arena, competition remains fierce and product choice is growing for a range of landlords, which represents yet more positive news.

The latest data from Moneyfacts outlined that early July saw the highest number of options on offer in the buy to let sector since March 2020, with 2,709 products available at the time of the report. In the past year alone, some 971 products have been added, making up ground after availability was limited when swathes of products were withdrawn following the onset of the pandemic.

There has been a historic misconception around the BTL sector and its value within the housing market, the mortgage sector, the UK economy and in people’s lives.

Without a healthy private rented sector, the Government would be facing a shortfall of around five million homes and with the supply of affordable housing continually falling short of the levels required this would cause huge issues.

The past few years have not been too kind to landlords from a tax and regulatory standpoint. However, it’s evident that confidence is now on the up and many landlords have, and will continue to, successfully add to their portfolios and diversify their investments accordingly to overcome these challenges.

The lending and intermediary communities have also played their part and we can all look forward with renewed optimism for H2 2021.