The importance of the PRS

Posted: 9th Sep 2016

Let Property InsuranceWhat is it?

The initials might not be recognised by everyone, but for those in the know, PRS simply means the Private Rental Sector – populated by private sector landlords and the growing number of private tenants they accommodate.

Why is it important?

The importance of the PRS may be measured in terms of its sheer size and the proportion of the nation’s population that it houses – a population that is currently growing significantly

A report in the Guardian newspaper on the 2nd of August 2016, for instance, reveals that home ownership has fallen to its lowest level since 1986, whilst the number of private sector tenants has almost doubled from around 11% in 2003 to 19% by the end of 2016.

In some cities, the flight from home ownership into the private rented sector has been even more marked, with the Guardian making specific mention of Greater Manchester, where home owners now represent only 58% of households (down from 72% in 2003), with a similar turnaround in Outer London and reductions in more than 10% of homeowners in cities such as Leeds and Sheffield.

Faced with further difficulties in the state of health of the housing market generally, still more people are likely to turn to the private rented sector for their homes.

Supply and demand

Inevitably, the surge in demand for private rented accommodation is putting its supply under increasing pressure. The inevitable consequence of the relative shortage of let property in the private sector is likely to be an increase in rents.

This may make investment in buy to let property more attractive than ever, as landlords respond to changes in a market where many people are chasing relatively few properties to rent.

Market analysts Fitch Ratings reported on the 5th April 2016, that this balance between supply and demand is likely to continue to support buying to let as a sound investment and one which might help to compensate landlords for the increased running costs caused by the Treasury’s decision to remove tax relief from interest payments on buy to let mortgages (a change which is being phased in from 2017 and is expected to be fully implemented by 2020).

The economics of buying to let

The private sector landlord of buy to let property is in the business of generating an income stream from the rents received. The fact that it represents a business proposition is reflected in the way in which applications for buy to let mortgages are assessed and granted and also the special category of landlord insurance (which we arrange here at Cover4LetProperty) necessary for protecting that business investment.

The financial objective of the landlord, of course, is to ensure that income from rents exceed the costs of owning the let property – operating expenses which may take many forms, but are principally the costs of servicing a buy to let mortgage, ongoing repairs and maintenance of the property, letting agency fees and the need for adequate landlord insurance to safeguard both the structure and fabric of the property and in defence of possible liability claims against the business itself.