Build-to-let sector? It won't happen, says Heron

Doubts have been cast upon the viability of the ‘build to let’ sector that the Government is so keen to see emerge.

The Montague Report, which made various recommendations about how institutions such as insurers and pension funds could be encouraged to invest in build-to-let schemes, was rapidly adopted by ministers.

But at the NALS conference, John Heron, of buy-to-let specialists Paragon, said: “I remain unconvinced this is the way forward. I believe that the returns, when fully costed, are not sufficient to  encourage institutional investors into the private rental market.”

Heron said that instead, “more policy thinking needs to be done about encouraging private landlords and driving up standards”.

In particular, he said, more ‘professional’ as opposed to ‘amateur’ private landlords were wanted – a professional landlord being more likely to have a larger portfolio and not have a day job.

He said yields, the critical element in motivating landlords, were currently about 6% gross and stable. Voids are typically just two weeks in a year.

Heron said that there are currently 1.2m private landlords. “They are not get-rich-quick operators,” he said, adding that they might plan to hold on to their properties for 20 years or so.

“Just 2% of landlords’ mortgages are being redeemed annually, so turnover is very low,” he said.

Another speaker, Michael Newey, president elect of the RICS and group chief executive of a housing association, forecast a wider mix of private landlords in future.

He said housing associations were under ‘exceptional pressure’ and that the UK was increasingly going to rely on private landlords. In particular, people who had traditionally looked to councils or social housing providers were now turning to the private sector.

A small percentage of housing associations, his own included, were now becoming private landlords. He added: “The reality is that we need a strong rental sector, and young people really don’t mind who their landlord is, provided they receive the right service.”