First Major UK Retail Bank to Move into the Private Rental Sector
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The UK’s largest high street lender, Lloyds Bank, is due to become the first major UK retail bank to move into the private rental sector to create a stable source of income.
Under radical new plans, Lloyds Banking Group is set to become a private landlord, with their first acquisition of a block of 50-apartments due to complete in July.
The newly completed block is due to be managed by Citra Living, a subsidiary established earlier this year.
Lloyds Banking Group is the largest UK mortgage lender, with a 20% share in the market. The banking group owns the brands Halifax, Bank of Scotland and Scottish Widows. Lloyds commented, “As we stated in our full-year results in February, we are committed to broadening access to home ownership and exploring opportunities to increase our support to the UK rental sector.”
Private Rental Sector a Stable Source of Income
Lloyds Banking Group have given the plan the codename of Project Generation, in a move to create a stable source of income to counter the impact on record low mortgage interest rates, compressing their profits from mortgage lending.
The retail banking group will be in direct competition with institutional investors, including pension funds, who have been heavily investing into the UK real estate market in order to generate higher returns.
By entering the private rental market, it could also open up the opportunity for Lloyds Bank to offer their products to tenants, including insurances and deposit loans.
High Demand for Housing
The Office for National Statistics has forecast that by 2031 there will be 17% more new households, approximately 4 million.
As property prices continue to increase, with a 10% increase in the year to March 2021 (Land Registry), renting a home will be the only option for a significant number of households, creating pressure for good quality private rental property.
Renting a property has now become cheaper for the first time in five years. In May 2021, it was 7% (£71 per month) more expensive for a first time buyer with a 10% deposit to purchase a property, compared to renting. The average monthly mortgage repayment would be £1,125 compared to £1,054 in rent. Click here to read more.
Increasing Rental Income
It is forecast that rental values will increase by 17% over the next 5-years (Savills) as the demand for private rental increases due to affordability.
With the big banks starting to invest into the private rental sector to provide a stable income, this is a good indication that private investors should also be looking into doing the same.
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