By Duncan Hooper and Adam Lawrence
Public debate often paints a bleak picture of the UK economy. Headlines highlight falling productivity, weak confidence and a manufacturing sector that appears to be disappearing. Consumers are struggling with inflation, energy costs remain high and political uncertainty creates constant noise. Despite this, the underlying performance of the economy is far stronger than the commentary suggests.
Why they are wrong on the economy
The UK has exceeded most forecasts that were made at the beginning of the year. Growth has been stronger than predicted and has already passed one percent. Unemployment has risen, but the nature of the jobs being lost matters more than the headline figure. Productivity can improve when low quality roles leave the market. Too often the discussion assumes that low unemployment is always positive and higher unemployment is always negative, but the picture is more nuanced.
Inflation has also been affected by temporary factors. Some of the price shocks created by fiscal changes are expected to fall out of the data early next year, which will help bring inflation much closer to the Bank of England’s target. As these pressures fade, the central bank will find more space to reduce interest rates, easing pressure on businesses and consumers.
We’re more than a nation of shopkeepers
While it is common to claim that British manufacturing has collapsed, the UK only recently fell out of the top ten manufacturing nations in the world. The sector has already absorbed the worst inflation shocks and many large firms now expect growth over the next twelve months. This is partly due to the UK’s strength in high skill, high value manufacturing, which remains globally competitive. Recent Purchasing Managers’ Index data suggests that activity is recovering, and future expectations are improving.
This is why it matters
A stronger economy and lower inflation both impact interest rate expectations. The Bank of England pays close attention to unemployment, and if unemployment rises slightly above its forecast, early rate cuts become more likely. Inflation is expected to fall naturally by between half a percent and one percent as earlier shocks drop out of the calculations. This should take inflation back toward the three percent range, creating conditions in which the Bank can start bringing borrowing costs down.
Property investors often benefit when inflation is moderately high. Rents tend to rise with inflation while debt remains fixed, which improves the real value of long term investments. Expectations of modest capital growth over the next few years, combined with falling interest rates, create a favourable outlook for investors who manage their portfolios carefully.
However, the landscape is shifting. The introduction of the Renters Rights Act represents one of the most significant regulatory changes for landlords in decades. Investors will need to understand how these new rules affect both risks and opportunities.
So, about that Renters Rights Act
The Renters Rights Act introduces several major changes that landlords must adapt to.
- End of fixed term tenancies
Tenants will now begin on periodic agreements rather than six or twelve month contracts. Although this is intended to provide greater stability, either party can still end the tenancy with notice, which may reduce predictability for landlords.
- Greater exposure to rent arrears
Because of changes to the possession process, arrears may be able to build up for longer. Many landlords previously relied on no fault routes to regain possession when tenants stopped paying. Larger corporate landlords will pursue debts through the courts, but smaller landlords often lack the resources to do so, which increases their risk.
- Acceleration of corporate ownership
The new regulatory environment is expected to favour larger organisations that can absorb void periods, legal costs and compliance obligations. Smaller landlords are more exposed and may choose to exit the sector.
- Higher regulatory burdens
The new national landlord register and broader compliance requirements will increase the administrative workload. Government analysis estimates that the cost of implementing these measures will be around four hundred million pounds for landlords, while the measurable benefits are unclear. These costs are likely to contribute to higher rents.
The overall effect is likely to be a long transitional period in which small landlords leave the sector and institutional landlords take a larger share of the market. Tenants may face more aggressive debt enforcement from corporate owners and local authorities may struggle with housing shortages.
How it started
The UK’s current housing issues can be traced back to the introduction of Right to Buy in the 1980s. Large numbers of social homes were sold and not replaced. While this created significant opportunities for social mobility, it left a long term structural gap in the housing system. Social housing waiting lists have remained above one million households for many years.
Government contributions to social housing remain far below the level required to make a meaningful difference. As a result, the private rental sector has been used to fill the gap. However, regulatory changes over the past decade have constrained growth in this sector, keeping supply tight and driving up rents as demand remains strong.
How it’s going
Landlords with one to three properties face a different environment than in the past. The sector now requires more effort, planning and risk management. Those who wish to continue should consider:
- Using letting agents to meet growing regulatory demands
- Conducting more rigorous tenant checks
- Incorporating rent guarantee insurance into their financial planning
- Developing a clear long term strategy, whether to hold, expand or exit
This is no longer a passive activity. Successful landlords will need a professional approach supported by strong financial discipline.
The good news
Over the past decade, tax and regulatory decisions have gradually shifted the rental market toward larger corporate ownership. This began with changes introduced in 2015 and has continued through further reforms, including the latest Renters Rights Act. While this may be unwelcome for many existing landlords, it has created more space for first time buyers, who have become a major force in the market during the past two years.
The housing system is undergoing a significant transformation. Landlords who understand the direction of travel and adapt to the new rules will be in the strongest position as the sector continues to evolve.
Mortar & Margins is produced in Solihull by Propenomix. Its editors are Duncan Hooper and Adam Lawrence