How will the rising age of tenants impact the buy-to-let market?

Ask most people to present a picture of an ‘average’ private rental sector (PRS) tenant and I’m sure the vast majority might put forward at least some of the following: younger in age, perhaps a young professional, or a young family utilising the PRS as a stop-gap while they save enough to be able to buy a home.

Or perhaps they are students, or young people just out of college or University in their 20s and 30s, wanting to live in areas which do not require significant amounts of travel into work, for example.

What we can probably say is that the industry ‘standard’ of a private tenant is likely to be defined as between 18 and possibly late 30s, whether those are individuals or in families.

However, what is also fair I think to acknowledge is the rising age of tenants in this country, particularly as house prices have continued to grow, as wages have failed to keep pace with those prices, as the number of properties available to buy has not increased dramatically. All these things contribute to people staying in the PRS for longer and later into their lives.

According to research from Hamptons though, what we all need to prepare for, is not just a growth in the number of younger people renting, but also those in later life. The research suggests 5.7% of households over-65 currently rent in the UK, but that within a decade that is likely to double to 11.5%.

The reasons behind this are varied, but again there will be those older members of the public who have not been able to purchase (or have not wanted to), and the increased cost of being an owner-occupier will continue to play a part in those over-65 tenant numbers rising in the years ahead.

In purely numerical terms, that’s a rise from around 400,000 older households renting to over 1 million by 2033, which might well beg the question where this extra supply of properties is going to come from, and how might that increase in tenant demand flow into rental payments.

We’ve already seen the difference that fewer homes on the market, coupled with an increased competition for those properties, has had moving the dial in terms of rent in the last couple of years. Add in over 600,000 new older households looking for a rental property to live in, and supply within the PRS becomes an even more acute issue to overcome.

There is a lot of speculation about the direction of travel for many landlords in today’s market, but what seems to be clear here is that if you can continue to afford to offer a property to the PRS, you can meet the affordability challenge, you can pay the mortgage each month, then your ability to secure a greater rental income/yield in the future is looking much healthier, by sheer dint of the demand for these properties.

And, what you might want to do, if Hamptons are correct here, is reassess the weighting of the portfolio, and the types of properties you might want to offer. For example, are older tenants likely to want to live in an HMO? Who knows, but it seems less likely than them living in a two-up/two-down.

Perhaps you are active in the multi-unit block market; if so, might you wish to turn those blocks into more older tenant-friendly spaces, perhaps with more focus on communal areas. Something more like a retirement village feel, rather than a property focused on younger professionals/families where a communal approach might not be so relevant.

Or you might simply want to ensure you have a healthy number of properties which come with the amenities favoured by older people – gardens and outside space, for example, might be more popular, as might bungalows - if you’re able to find any for sale and you can afford to add them to the portfolio.

Much like inner-city/town properties are more likely to appeal to those who work in those areas, landlords might want to consider properties further out into the country or near the coast, given that commuting into work is likely to be less of a concern, the older the tenant is.

Let’s be frank here, 600,000 extra over-65 households will be a considerable addition to the PRS, and it may well be that landlords have properties right now that they are considering selling. But utimately if they hang onto them, they might appeal directly to this demographic, and are therefore worth hanging onto, refinancing and ensuring they meet the needs and demands of these tenants.

Again, it’s a long-term play for landlords that starts right now, and advisers have an opportunity to support those players who want to appeal to the older renter – it certainly looks like there are going to be many more of them in the future.