As well as many other things, Covid-19 has turned the lettings business upside down, making it very hard for buy to let investors, landlords and agents to plan ahead.
Factors which have and are affecting the market include restrictions on moving, the evictions ban and tenants on furlough or having been made redundant and who may have financial problems. However one of the most important things investors, landlords and agents want to know is what is and what might happen with rents. In this post we’ll look at rent trends, and what those in the lettings market might need to do about it.
First what has happened with rent levels of late?
Analysis by rental platform Howsy reports some quite significant falls in average rents from the start of lockdown in March up until September. It says that average rents in England fell by 3.4% over this period. The largest falls were London where rents fell by 7.9%, and in the south east by 7.7%, with 3.1% falls in the East of England and 2.5% in Yorkshire and the Humber. The rest of England saw rents either rise or fall by around 1% on average with the North West seeing the highest rise in rents at 1.3%.
Looking at the all-important London market more closely, consultants Knight Frank say that in prime central London rents fell one per cent last month, taking the annual decline to 6.9% which was the largest decrease since 2009. In prime outer London rents fell 0.4% last month which represented an annual fall of 5.9%.
Now to look at some forecasts for rents going forward:
Consultants JLL, in their Rental Market Forecast, say that rents across the UK will fall by 2% overall in 2020. They say that they will rise across the board by 1% in 2021, with prime central London rents rising slightly more. JLL say that in 2022 rents will rise by 2.5% in the wider UK but 3.5% in London with further rises around 3-4% annually expected across the country in both 2023 and 2024.
It’s worth bearing in mind that rents have been rising regularly year on year for several years in most cases, so a 2% fall only pushes rental incomes back a year or so. At the start of the year Zoopla said rents had risen 2.6% over the year to reach a three year high, or 2.8% in London.
So what might investors, landlords and agents do in these times of uncertain prospects for rents?
Don’t panic, when reading any future reports that rents are declining. The market is volatile right now, so the next report you read could be forecasting rising rents.
In the scheme of things, 2% changes aren’t that much. It means that a property which would have rented for £1,000 pcm at the start of 2019 might have been renting for a shade over £1,000 pcm at start of 2020, but might be worth a shade under £1,000 pcm at the end of this year.
Although a recession and unemployment could be significant factors in future there’s still generally a shortage of rented accommodation and this will help to support rents.
Look at retaining good tenants where you can. It’s almost always cheaper to keep an existing tenant rather than try to relet and/or have voids. That’s especially the case when rents are falling and you might have to relet at a lower rent.
Be aware of the possibility that some tenants might look to negotiate the rent downwards. That’s something that’s been pretty rare of late in most letting markets. Decide in advice whether you’ll be willing to do this, and if you can afford it.
Consider diversifying. Look at different ways of letting your property that could earn you more rent than you’re getting now even if rents fall. For example, short terms lets or holiday lets.
Consider new investments carefully. If you’re looking to invest in new rental property then keep an eye on the statistics and forecasts and aim to invest in areas where rents are rising or at the least holding up.
Not every area will be affected the same. It’s noticeable that London seems to have suffered the largest falls in rent over lockdown. Some experts put this down to the fall in demand due to many City offices being closed. It’s often the case in property that where London leads the rest of the country follows later. But Covid-19 is a completely new situation so that rule of thumb might not apply in this case.
Bear in mind that supply and demand is a big factor that affects rent levels and this varies across the country. During and after Covid-19 it’s possible that London and the big cities might suffer from a greater fall in demand, while the regions might be much less affected.
Stay informed. Keep an eye on what the latest statistics and forecasts for rents and also property prices are. In the rental market, just like any other market, it never hurts to have an idea of what might happen before it actually happens.
