Everybody involved in the lettings market would like to have a crystal ball to help them predict the future of buy to let and spot new opportunities. We don’t have a crystal ball unfortunately but in this article we will look at some of the different ways the Covid-19 pandemic might affect the buy to let market in the future.
There could be more demand for rented homes. Factors that could boost the demand for rentals include a recession, job insecurity and tighter personal finances. Fewer people might opt to take on the commitment of buying a home, or even be able to qualify for a mortgage.
Prospective first time buyers in particular could decide to rent instead. That could actually make the buy to let business more buoyant.
According to Rightmove demand for lettings has risen by 22% post-lockdown compared to last year.
There could be less demand for rented homes. On the other hand, factors that could boost demand could also suppress it. Demand could fall if young people stay living with parents, decide not to move for university, or if people don’t need to move so much for employment reasons.
But there’s another aspect to this too: If property prices fall this, together with the attractive mortgage rates that are available right now, could see more people buy a home and so less demand for rentals.
There could be fewer landlords .... and fewer letting properties. Covid-19 has shown that landlords can’t necessarily rely even on good tenants to pay the rent, if they have no income or even no job. That, together with other issues such as the Section 24 restrictions on mortgage interest relief and other legislation, could persuade some landlords it’s time to sell up.
Of course, that could be good news for landlords who stay in the market who could find it easier to attract tenants and have fewer void periods.
There could be more landlords .... and more letting properties. To take the opposing view the buy to let business could actually enlarge in the years to come. In particular, a fall in property prices and consistent low interest rates – meaning low savings rates and low mortgage rates – could actually make investing in property more attractive.
Global economic and political uncertainty could reinforce property as a safe haven too, compared to stocks and shares and other investments. UK property in particular has a good reputation as a safe haven.
Rents could fall. Reports during lockdown said that rents in many areas fell. Reasons included that landlords were keen to hang on to tenants whose tenancy was coming to an end rather than risk having empty property they couldn’t relet. Concerns over the economy and possible job losses also pushed rents down, especially in high rent areas in London. These same reasons could push rents down in the longer term too.
Rents could rise. It’s also possible that property rents might rise. There’s still going to be a huge demand for rented accommodation no matter what happens, with around 4.5 million households now renting in the UK. If significant numbers of landlords sell up there could be a shortage of rented homes so pushing rents up.
A report from RICS, the Royal Institution of Chartered Surveyors, forecasts that rents will fall over the next three months but could rise around 2.5% annually over the next five years.
Some types of property might be more lettable. Homeworking and home schooling during lockdown prompted people to look more closely at where they live and how they use their home. So it’s quite likely that larger properties, with space for home working and also a garden, will be in more demand in the buy to let market in future.
Location, location, location is likely to be more important than ever when choosing a buy to let too. Tenants could focus even more on locations with good local amenities and where they can walk or cycle to the shops, to schools and to work.
Some reports also say that there’s been an upsurge in interest in moving to more rural locations. In the past buy to let investors have tended to focus on urban rather than rural areas, so some rural areas could offer new opportunities for buy to let.
This report from Winkworth suggests that buyer and tenant priorities are changing as a result of Covid-19.
Some types of property might be less lettable. Again to take the opposing view, Covid-19 may mean that some types of buy to let property are difficult to let. Some student property could be tricky, especially if universities move to more online learning or if overseas student numbers fall. Corporate lets could be affected if fewer people travel for business.
Property in areas or aimed at tenants affected by unemployment or recession could also be less lettable. The impact of Brexit also shouldn’t be forgotten. Industries like aviation and business and financial services are examples here.
Landlords and investors will want to look at how demand for their property could be affected, and at different markets they could target.
Whatever happens, remote methods of letting and renting are likely to become more popular. Lockdown and social distancing guidelines made it difficult or even impossible to rent or let property during the pandemic. So remote methods of working, such as video tours and live video, have enjoyed a surge in popularity.
Face-to-face working and in-person viewings are likely to continue of course. But there’s still a lot to be said for letting and renting property using video tours and viewings – it can save both time and money – so these are trends everyone in the industry needs to follow.
Here’s a useful article on remote working methods:Working Remotely: How To Win Instructions, Sell Or Let Property Using Remote Working Methods
Lastly, bear in mind that the real impact of Covid-19 on the buy to let market probably won’t be fully known for some time, maybe months or even years. The freeze in the property market has created pent up demand for rentals. This together with Government financial support such as the Coronavirus Job Protection Scheme or furlough programme will help support the market for some time.
The truth is there’s no such thing as a crystal ball in the property market so no one really knows what will happen. The best advice is to keep well informed, keep reviewing your options, and try to plan ahead as much as possible.