Paragon Disagrees With Government Thinking On Buy to Let Sector

14 May 2009

Paragon Group has cautiously welcomed government proposals for the private rented sector, but says more needs to be done to help landlords that form the backbone of the sector to access finance to help grow their businesses and expand the stock of private rented property to meet rising tenant demand.

In its response to the Rugg Review, a government commissioned independent review of the private rented sector, the Department for Communities and Local Government recognises that housing supply needs to grow in the private rented sector and has targeted institutional investment as the vehicle to achieve this.

Nigel Terrington, Paragon Group chief executive, said: “Institutional investment is not the answer. The private rented sector is dominated by individual landlords who have the knowledge and expertise to meet the demands of their local community. Local tenant demand drives their investment decisions.

“The foundations for the growth of the market are already in place but those foundations can’t be built on until finance is made available to landlords through buy-to-let lenders. More needs to be done to give those landlords access to the finance needed to help grow their business.”

Paragon says the growth of the private rented sector over the past decade has been driven by professional buy-to-let investors that understand the housing demands of local communities and have played a key role in driving up both choice and standards in the sector. They have suffered from the complete lack of finance options since the onset of the credit crunch.

The buy-to-let lender notes there has been a 95% reduction in buy-to-let products since 2007 as the closure of the wholesale funding markets has inhibited lenders’ ability to meet landlord demand. Of the top 10 buy-to-let lenders from 2007, only two continue to offer new buy-to-let products.

Terrington added: “The Government has acknowledged the importance of the private rented sector, but has offered little support to the lenders that will stimulate the growth of this market. A lack of product availability will not only hinder the recovery in the buy-to-let sector, but also the wider housing market. Landlords are ready and willing to purchase property, which will help underpin UK house prices, but are finding it difficult to secure suitable finance in the current market.

“There is a contradiction in government thinking: it is acknowledged that the sector needs to grow and wants to encourage good existing landlords to grow but the individuals and lenders that have stimulated the growth of the market so successfully over the past decade are being ignored.”

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