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COVID-19 has cast a big shadow over the UK property market in 2020, and the picture is still emerging about what the long term impact will be. Whilst there was a significant pause in the volume of transactions during the lockdown period (March-July), listings and sales are starting to rise rapidly in July and August. Indeed, Rightmove suggests that average UK asking prices are up by 1.9%, and many others are still optimistic about price growth in the coming years. Some anticipate that house prices may fall in 2020 but rise as much as 5% next year.
In the midst of all of this are UK landlords, many of whom have struggled to gather rents from tenants and perhaps have felt forced to lower their rents – eroding their yields. On top of this, many have struggled to get rid of troublesome or non-paying tenants due to the ban on evictions in England up until August 2020. Looking ahead, what is the outlook for landlords as the UK limps through the pandemic? Is Buy To Let still worth it, and are profits still realistic in 2021?
Here at Cedar House, our financial advisers offer their reflections on these critical issues. We hope you find this content helpful, and invite you to contact our team here at Cedar House for more information or to access personalised financial advice:
020 8366 4400 or firstname.lastname@example.org
Supply and demand
One of the particularly painful aspects of the lockdown for landlords earlier in 2020 was that supply started to outstrip demand for rental properties. This was particularly due to a surge in short-term rental properties flooding the market (e.g. Airbnb) as holidaymakers cancelled their trips across the UK. In London, for instance, Airbnb listings fell by 45% in March and many were re-listed as long-term rental offers at lower prices. Renters across the country, moreover, felt compelled to stay put as social distancing was enforced and jobs furloughed. Others went back to live with parents as contracts expired, leaving landlords with vacancies they could not fill.
Fortunately, with the lockdown lifted and optimistic signs of a possible vaccine on the horizon, economic activity is returning to the UK and the housing market is showing more momentum. Of course, the wider economic recovery will have a big impact on property. GDP fell by about 20% in the three months preceding June 2020, but is expected to rise again in 2021. Interest rates will also be influential, and these are currently set at historical lows of 0.10%. Many pundits expect the Bank of England to hold this rate steady far in 2021, thus potentially leaving more doors open for landlords to buy more properties to let in the months ahead.
Government support & Brexit
Of course, one of the big events looming later in 2020 is the deadline for the end of the Brexit transition period. At present, chances seem slim that the UK and EU will be able to arrive at a satisfactory free trade agreement beforehand, and the former has expressed repeatedly that it will not negotiate an extension. If so, a “no-deal” outcome will have unknown effects upon the UK housing market in 2021 as we will be in largely uncharted territory.
Landlords can take some comfort that many pundits believe that whilst this could temporarily reduce business appetite, activity is likely to bounce back in 2021. The base rate cut and a host of UK government support measures – such as the Stamp Duty Holiday (which is set to run until March 2021) – should play an important role in retaining at least a degree of confidence and momentum in the housing market into next year.
One option which landlords might wish to consider in the present and approaching environment is remortgaging their Buy To Lets. Given that the base rate is currently very low, it could be that this opens up opportunities for reduced mortgage expenses. This could help free up more profit in 2021 should rents fall due to economic and/or market conditions. If you’re considering this option, however, we suggest seeking independent financial advice to help you navigate the best course for your property portfolio. Choices may dwindle and their interest rates may rise in the months ahead, so do not delay investigating this option if it is a possibility for you.
Conclusion & invitation
2020 has certainly been a year like no other – and it’s not over yet. A lot could still happen in the markets, economy and wider world which impact the UK housing market. COVID-19 still roams the world, the U.S. presidential election looms in November, China and the U.S. remain tense over tariffs and the UK’s future relationship with the EU remains uncertain. Despite these great unknowns, there are still strong reasons to be positive about property as a UK landlord. Here at Cedar House, we are here to assist you in plotting a strong course for future wealth growth.
If you would like to discuss your financial plan with a member of our team, then get in touch today to arrange a free consultation:
020 8366 4400 or email@example.com.