New Year looking tough for private rented sector

While 2009 was a difficult year for the entire property market, 2010 looks likely to present an even greater challenge for the private rented sector (PRS), according to the Association of Residential Letting Agents (ARLA).

Yet there are also opportunities, in particular as availability of lending begins to increase while house prices are still historically low, enabling timely investors to purchase properties for the buy-to-let market.

Supply & Demand

The residential rental market will continue to stabilise in 2010, with property oversupply decreasing due to reluctant landlords leaving the market. Evidence of increasing sales in certain areas seems to indicate this trend.

"As demand rises, in particular due to a lack of social housing, there will also be mounting pressure on the sector to provide good quality rental properties," says Ian Potter, operations manager at ARLA. "There has been little commitment from the Government thus far on economic measures to help the wider industry meet property demand, but increasing demand should have a positive effect on the PRS, creating opportunities for new and existing investors and driving standards up.

"In a recent debate the Housing Minister displayed a lack of empathy with those living in the PRS when he argued that it consists of three million households - when it in fact consists of eight million people. Perhaps we should question why he seems to have depersonalised the PRS, as the Government continues to evade implementing measures to help the sector."

Rental arrears and mortgage defaulting

Should unemployment continue to rise, putting pressure on tenants' financial stability, many will not be able to pay their rent - often because of deficiencies in the system with the Local Housing Allowance (LHA). While ARLA research has shown that the number of tenants struggling to meet rental payments dropped towards the end of 2009, other research shows it is still a problem that has a knock-on effect across the sector.

At the other end of the supply chain, landlords who default on their mortgage put their tenants at risk. The Government has already indicated a move to support tenants' rights in this situation and may pass a Private Members Bill for reform in the first half of 2010.

"Mortgage defaulting is a problem that will not go away in a hurry, and we have long emphasised the importance of careful selection of both tenants and landlords to ARLA members, as well as the implementation of contracts and agreements," continues Mr Potter.

"The Government's proposed changes to improve standards should go a long way in increasing the desirability of the PRS to tenants as a choice of tenure. However, when the Government implements these changes it needs to ensure that they are fair on all parties in the transaction; landlord, tenant, agent and lender."

Licensing of agents

Mr Potter says: "The Government has still not made good its proposal to introduce a regulatory scheme for letting agents, or a national register of landlords. Yet with increasing numbers of new landlords and new properties coming onto the market, as investors take advantage of the downturn in property prices, it will be crucial to ensure best practice and high standards across the sector."

ARLA launched its own licensing scheme in May 2009, making it mandatory that any principle of a letting agency wishing to become a member of ARLA now has to apply to become an ARLA Licensed agent, and abide by ARLA's rules and stipulations.

"Our scheme has been an overwhelming success, with support for ARLA membership up post-launch, showing just how keen ethical agents are to oust bad practice and promote high standards," says Mr Potter.

Fuel poverty and energy efficiency

ARLA predicts that throughout 2010 standards will become an even greater issue, as homeowners and landlords alike are encouraged to make their homes energy efficient. Yet without incentives like tax relief, it will be difficult for an already struggling sector to make the necessary improvements.

"The Pre-Budget Report was a missed opportunity for the Government to show its commitment to the PRS - the boiler scrappage scheme, for example, should include rental properties and be part of Landlords Energy Saving Allowance (LESA)."