Article Summary

Rumblings and rumours

Over the past few months there have been rumblings of big banks toying with the idea of becoming private landlords. Those rumblings have turned into concrete plans by a few of the biggest banks in the UK. Lloyds banking group, which also operates the UK’s biggest mortgage lender, is set to buy it’s first property under radical plans to become a private landlord. Sources state that the bank is in talks to secure a block of around 50 flats in Peterborough. 

This is a significant move by Britain’s largest high street lender and is a major turning point. This is because it’s the first time a major UK retail bank is moving into the private rental market. The reasons for this move are obvious, they are clearly searching for another source of income. Banks are feeling the pressure from record-low interest rates resulting in profits from lending being severely diminished.  This is a direct result of mortgage rates continuing to be pushed down. Lloyds profits crashing by 72% last year to £1.2bn is reason enough for them to start exploring alternative income sources . 

Obviously record low interest rates are beneficial for private investors allowing them to invest using leverage, cheaper than ever before. This is great for those looking to substantially increase their ROI while spreading their cash over multiple investments. Whether banks making this move is beneficial or detrimental to private investors is yet to be determined. However, we can explore the potential implications and outcomes. 

Is it the same as Build to Rent?

Some are arguing that it is not dissimilar to what is already occurring with large institutional investors buying large blocks to let out. This is a popular model for big pensions funds and other institutions in the USA . The PRS sector is flourishing in the UK, a few years ago it did not exist. At the back end of last year there were about 47,000 PRS units. If we look at the units in the pipeline that number jumps up to about 160k units. If we look at the number about half of those are in London (where it started) and the other half are split across other major cities like Manchester, Leeds, and Birmingham. 157,000 may seem like a lot but it is actually a very small number when compared to the number of buy to let properties in the UK. 

Obviously, it’s worth bearing in mind just a few years ago that number was zero, it is a sector that is growing fast. 

Why is it growing fast? 

Rental income is steady and reliable, therefore it is a profitable long-term investment. As a result, the fact that so many big players are rushing to snap up as many blocks as possible, should give you an indication that they see it as both a profitable and secure investment. Always wise to follow the money, it is a big vote of confidence in property investment. It is also on the rise because the type of accommodation they are providing is highly desirable to tenants. Developments with amenities such as communal workspaces, gyms and concierge are now amenities tenants expect, therefore there is high demand.

What does this mean for buy to let and private landlords?

As a result of the high standards, Landlords are having to keep up. Therefore, finding some of the high end developments that are available to private buy to let landlords is well advised. This is why schemes like the Phoenix, Leeds, are in extremely high demand. The PRS level amenities that tenants expect are present which is a rare thing for developments that you or I could buy in to, hence why the aforementioned Phoenix is almost sold out.  

Again, it is Vote of confidence in property investment, but it also means you should think about accelerating your property investment journey if possible. 

You must remember that business is about giving customers what they want, which is exactly what the build to rent sector is doing well. It’s no coincidence that our main projects in Leeds both have amenities that were not present in developments 5 years ago. Even now they are only available in build to rent schemes that individual investors cannot buy into. The fact we have two schemes that mimic PRS schemes should tell you that we are ahead of the curve. 

What can you do to compete ?

The fact rental income is steady and reliable is the reason property is such an appealing investment. However, you do have to be more specific on the projects you consider to make sure you are in a good position to compete with the large institutional investors. Choose the right projects in the right cities that are secure for the long term. This is something we do as a company as standard before we take anything on however always carry out your own due diligence.

To conclude, the news that banks are set to become private landlords is not detrimental. It’s just a continuation of what has been happening over the past few years, consider it a vote of confidence in the long-term case for property. If you are pondering buying in city centres you want to buy the most central options that have a high standard of living. This is becoming the standard now. One thing we would recommend is getting involved in property sooner rather than later, time is your most powerful asset in property.

What is property investment?

Put simply, property investment is property purchased with the intention of generating financial returns for its buyer. These returns could be in the form of rental income through buy-to-let properties, house price growth through the future sale of the property or both. Property investments can be owned by individuals or organisations and can be short, long or medium term.

Find out more

To learn more about buy to lets in Manchester or about property investments anywhere else in the lucrative north west, contact North Property Group now.