As a result the economy is continuing to recover and a sense of “normality” returning to the business world, albeit commercial property landlords and small traders who rely on footfall from city centre commuters for their living might not agree.
As this trend continues there is a sense of business projects which were, perhaps, put on the back burner because of lockdown now being dusted down again and plans put in place for their launch.
And some of these projects will inevitably point to a change in how certain sections of the economy have previously operated.
Take, for example, the announcement that Lloyds Banking Group is planning to become one of the UK’s biggest residential landlords, its stated intention being to buy 50,000 individual properties within the next ten years and charge tenants rent as a private landlord. This will take place under the brand of “Citra Living”.
Lloyds says this is part of the group’s commitment to “Helping Britain Recover” by expanding the availability of quality and affordable homes within the private rental sector, which accounts for one-fifth of all households across the UK. It also seems likely to be an opportunity to boost returns given that Lloyds, as the country’s biggest mortgage lender, will have been affected by the historically-low rates of interest that have been the norm for the past ten years or so. Since 2018, Lloyds has provided £40 billion in mortgages to first- time buyers alone. The Group also provides significant support to the social housing sector, having committed £9 billion of funding to social housing associations since 2018.
Citra Living, says Lloyds, will initially “start small”, with a focus on buying and renting out good-quality, newly-built properties. This is beginning with a 45-apartment development in Peterborough but it intends to acquire around 400 properties by the end of the year, and to double this target next year. Going forward, the aim is to work with leading housebuilders through strategic partnerships to identify sites and support the building of additional housing, with Citra Living buying the rental element of these new developments.
This announcement is another example of the financial institutions – at last – realising the potential of the private rental market, which up to now has mainly been dominated by small private companies, family trusts and individuals or married couples. Of the latter, some – unfortunately – not only had no previous experience of property letting and investment but declined to do any homework and got their financial fingers badly burned as a result.
Apart from the current demand for rental accommodation among the public, Lloyds also foresees a need to fill an anticipated gap in supply as traditional, one- or two-property landlords exit the sector due to tax increases and increased regulation related to tenant safety and well-being.
My prediction is that there will be a massive increase in the proportion of privately-rented homes owned by financial institutions over the next decade. By “bulk buying” properties for rent in stand-alone locations, they will be able to offer economies of scale both in rental and management costs. This could make long-term renting more competitive, financially, with buying – perhaps not at the present time with mortgage rates being so low but some years further down the line when, inevitably, these begin to rise.
Despite this, existing private landlords should not fear being “squeezed” out, given the predicted growth in overall demand for privately-rented accommodation. Also with the institutions focussing on new-build or commercial-to-residential conversions, private landlords will still dominate the “boutique” market of individual properties which will still be the first choice of many tenants. So there should still be enough business for everyone.
David Alexander is managing director of DJ Alexander.