Over the past 10 to 15 years landlords have made tangible improvements to the private rented sector (PRS) that millions of tenants call home.

The standard of property in the PRS has increased significantly over that period. Homes in the sector are newer, larger, warmer and more energy efficient than they were 10 years ago, plus tenants have more choice.

This improvement has coincided with significant investment in the sector through the form of buy-to-let finance, whilst tighter and more stringent regulations have hopefully seen the more ‘rogue’ elements at the periphery of the landlord community diminish.

Paragon’s new report, Driving Standards in the Private Rented Sector, highlights how the portion of homes in the sector classed as ‘decent’ under government standards has increased from 53.2% to 76.7% since 2006.

Overall, 3.6 million homes are now classed as decent, compared to 1.4 million in 2006. Over that same period, 1.4 million buy-to-let mortgages for house purchase have been approved. Conversely, the number of homes classed as non-decent in the PRS has not reduced significantly, with one million homes categorised as non-decent today compared to 1.21 million in 2006.

This suggests that the growth in new properties coming into the PRS over that period is driving up standards for the sector overall and diluting the stubborn proportion that remains non-decent.

Buy-to-let improvements

Unlike the owner-occupied sector, where homeowners have a financial and emotional incentive to improve their homes, owners of legacy properties in the PRS may have less motivation to carry out property improvements, leading to this stagnation of stock.

However, proactive, engaged landlords who have driven the growth of stock typically will invest in their property. Data from insurance firm LV shows that landlords spend a combined £4.7 billion a year on maintaining and improving their property, whilst Paragon research shows that landlords spend an average of £8,720 on upgrading a buy-to-let property after purchase.

Other notable upgrades in the sector include:

• The energy performance of the sector has improved, with a 272% increase in PRS homes with an energy rating of C or above since 2009 to 1.8 million
• The proportion of PRS stock built since 1991 has grown from 14% in 2009 to 22% in 2019, with the number of homes in this category doubling over the period – 509,000 to one million
• Homes are larger. Compared to 2009, there is a greater proportion of homes in the sector of at least 70m2 – 50.6% today vs 48% in 2009. In terms of absolute numbers, that equates to a 38% increase in the number of properties to 2.4 million
• There is a greater choice of homes, with the number of semi-detached, terraced and purpose-built flats increasing
• Over three quarters of landlords (77%) invest in upgrading newly purchased property before letting it out to a tenant.

Lenders’ standards

Lenders also deserve credit here. More stringent underwriting standards and property assessment have helped to ensure that better quality homes are coming into the PRS.

At Paragon, we strive to help improve standards in the sector for the benefit of our customers, their tenants and our business. We do not lend on poor quality homes and employ our own team of in-house surveyors to ensure our standards are met. Many others in the industry follow suit.

However, clearly more needs to be done to improve standards further and a key focus in the coming years will be the energy performance of PRS property.

Energy performance ratings

The government has an overall target of making the UK’s housing stock carbon neutral by 2050, but private rented homes are first in line of sight. Overall, greenhouse emissions from homes has reduced by 16% compared to 1990 levels, but they are still responsible for 15% of UK greenhouse gas emissions, which increases to 22% if electricity consumption is included.

Under government proposals, all new property being let for new tenancies in the PRS must have an energy performance rating of at least C by 1 April 2025. By 2028, that applies to all let property. Such short timelines could create too much pressure on landlords and these timescales may shift, but the direction of travel is clear.

The proportion of PRS homes with an EPC rating of E or below currently stands at 14.8%, against 50.1% in 2009. Nearly four out of 10 homes (38.3%) in the PRS now have an EPC of C or above, equating to 1.8 million properties, compared to just 13.5% in 2009. Although that is higher than the owner-occupied sector, which sits at 35.6%, it means six in 10 homes are below the government’s planned target.

The focus of the sector will be on closing that gap in the next few years, so whilst landlords deserve praise for the good work of the past decade, the sector cannot rest as it seeks to drive further improvements in rented homes.

Richard Rowntree is managing director of mortgages at Paragon Bank