A tightening of lending criteria – coupled with increased stamp duty for buyers – could benefit institutions looking to enter the UK private-rented sector (PRS).

The Bank of England this week said it would monitor mortgages taken by buy-to-let landlords.

The bank said the UK’s buy-to-let mortgage market had continued to “grow rapidly since the end of 2013”, with the outstanding stock of buy-to-let mortgage lending increasing by almost 6% a year on average since 2008.

The results of its 2014 stress test, which featured a 35% fall in house prices and an increase in interest rates, indicate that, under such a scenario, UK banks would face significant increases in buy-to-let impairment charges.

The announcement by the UK’s central bank comes after UK chancellor of the Exchequer George Osborne last month unveiled plans to increase stamp duty for landlords. 

From April next year, a 3% surcharge on each stamp duty band will apply.

Speaking at a recent event in London organised by LaSalle Investment Management, Mark Prisk MP, former housing minister, said it was now widely accepted that buy-to-let activity “cannibalises rather than adds to the private-rented sector”.

The non-institutional buy-to-let investment market, he said, could be “squeezed” by the government’s move, announced in its Autumn Statement last month.

Prisk, who advises Essential Living on strategy, said a credible alternative to becoming a landlord was needed for those looking for an investment opportunity with one eye on their retirement.

LaSalle’s UK residential fund manager Andrew Stanford said the company was aiming to have invested £500m (€709m) in the sector by the end of next year and now had a visible pipeline of build-to-rent schemes.

The company, which this year invested £60m in a 292-unit build-to-rent scheme in Aberdeen, has hired Savills as property manager for its UK portfolio.

PRS was identified as a sector by the UK government as early as 2010.

In a report at the time, the UK Treasury said a strong “supply-side response” was needed to support the UK’s economic recovery.

PRS was judged to have a key role to play in how well the wider residential sector responded to changing demand.

While few deals have transacted, Stanford said there was now more evidence of engagement by institutional investors as other real estate sectors became over-priced and impenetrable.

Stanford – who, before joining LaSalle in April this year, was head of the UK government’s now disbanded PRS taskforce, added: “Yes, we’d like to have seen more schemes coming out of the ground, and there was frustration with the planning process.

“The industry is supportive of the sector, but the biggest challenge now is winning the hearts and minds of council officials and the electorate.”

Ian Fletcher, director of policy for real estate at the British Property Federation, agreed prospective investors, local council authorities and tenants were still in need of educating.

A “lack of familiarity” is, he said, the sub-sector’s biggest challenge.

Demographic trends are increasing demand for private-rented housing, according to Alan Tripp, UK managing director at LaSalle, with the sector becoming an increasingly significant part of institutional investors’ portfolios.