Due to the COVID-19 health pandemic, the UK is in a recession and many industries have been heavily impacted by lockdown restrictions and other factors that have prevented them from being able to operate as usual. The UK property market has seen some strange results, with house prices rising to an all-time high.
With Government initiatives such as the stamp duty holiday in place to help keep the property industry going, in September 2020, mortgage applications reached the highest rate they had been in 12 years.
However, property experts are predicting an imminent crash, particularly when more job redundancies take place, with an already rapidly increasing unemployment rate in the UK.
How is Coronavirus affecting the Buy to Let market?
It has been an unusual time for BTL Landlords and property owners. After facing big changes to tax relief changes over the last few years and also the requirement for capital gains tax bills to be paid within 30 days, they had already seen a lot of change.
However, the impact of COVID-19 has shaken up the UK property market even more. As part of the initial lockdown restrictions, property viewings were unable to take place and house moves not allowed. This naturally had a big impact on Landlords that were in the process of finding tenants.
In addition to this, the Government protected existing tenants by introducing an eviction ban which lasted for six months. This ban put many landlords into a very difficult situation where they were unable to take legal action against tenants that were unable to pay their rent, or who had broken the terms in their rental agreement in another way.
The ban was lifted on 20 September 2020 but landlords were told they must give tenants six months’ notice for any eviction. This has led to significant financial losses for many landlords who are losing out on rental income.
The Government also protected tenants by introducing rental payment holidays for tenants that were financially affected by the health pandemic.
Support for Buy to Let Landlords
While the Government prioritised the protection of tenants in these moves, they did also provide some measures to assist landlords. To help to deal with the financial impact of the tenant rent holiday, landlords were able to request mortgage payment holidays. However, this did not help landlords who owned the property outright and did not have a mortgage on the property.
A YouGov poll recently revealed that 22% of private landlord in England have lost rental income as a result of the COVID-19 pandemic. The average loss was between £751 and £1,000 and there could still be a longer-term financial impact as the UK faces prolonged knock-on effects from COVID-19.
The current challenges Buy to Let Landlords face
The furlough scheme helped many tenants to keep up with their rent payments but with the scheme ending at the end of October and support packages only expected for businesses that are forced to close, many tenants will no longer be able to afford rented accommodation if their employer is forced to make them redundant.
The pandemic is affecting different areas of the country and different types of landlords in a variety of ways. For example, landlords who are renting to students are already seeing the impact of universities moving over to online learning or students choosing not to live in rented property while the pandemic continues.
There has also been a reduction in overseas students, who have been restricted by travel rules that would normally be looking to live in rented accommodation, so the current situation with university students is having a big impact on existing landlords who rent to students.
Many of these Buy to Let Landlords who have multiple properties in student areas that have been unable to fill their properties have had to adapt and change their tenant type. However, this itself can be costly, as the accommodation expectations of a young professional is usually going to be a bit higher than the expectations of students, so BTL Landlords are facing costs to give properties a refurb to raise the standards.
In areas where there have been stricter local lockdown restrictions, there is a bigger impact on jobs, so Buy to Let Landlords with properties in these hard-hit areas will face more challenges than those with properties in areas less affected.
Some BTL Landlords have made the decision to sell their property while the house prices are so high but this has not been possible for those landlords with tenants that they are unable to get to move out of the property.
What will happen to the Buy to Let market over the next 12-18 months?
While the current situation can feel very negative as a BTL Landlord or property investor, this situation will change and there will be brighter times ahead. With house prices being so high right now, it is not necessarily a good time to buy properties on the open market.
What we are likely to see however, is that there will be an increase in repossessions at some point in the future, with some properties going to auction and being available at good values. This of course represents a good opportunity for investors looking for a Buy to Let property without paying the current high property prices.
Buy to Let Opportunities when the housing crash happens
Property experts are anticipating a housing crash in the next 12- 18 months, and while there are differing predictions for the date this will happen, most predictions are falling within the 12-18 month time period.
What this means is that property investors looking to buy cheap properties and rent them out will be able to buy at a time when prices are much lower than usual. So, in the time leading up to this, these prospective landlords should be using their time wisely, to work out the best areas to buy property in and to factor into account the changes that COVID-19 has brought to the Buy to Let market. For example, the reduced demand for student accommodation and higher unemployment rates in the areas worst impacted by the pandemic.
What is happening to Buy to Let Mortgage rates?
In April, just after the first lockdown was imposed, the number of Buy to Let mortgage products fell considerably. The UK base rate now sits at 0.10%, meaning that interest rates for loans including mortgages are very attractive right now. However, after a very low dip in rates in July, mortgage rates have been increasing.
Research shows that rates have fallen for borrowers with existing investment properties, with the average two-year fixed rate at 75% reducing from 2.34% to 2.17% over the last 12 months.
These lower rates also present an opportunity for BTL Landlords to release some equity from their property or to benefit from re-mortgaging to secure a lower interest rate and therefore reduce their monthly mortgage repayment. There are definitely some good Buy to Let mortgage rates available and a broker can help you to find them.
Is Buy to Let still worth investing in?
Landlords are still able to make a good profit on renting properties and according to the Office of National Statistics private rental prices paid by tenants has increased by 1.5% in the 12 months up to August 2020. So, for those landlords who have not encountered the problems with tenants not paying rent, or not being able to fill student accommodation, this year is fairly positive from a rental price point of view.
Some property rental experts are predicting that there will be high demand for rental properties for the foreseeable future, due to the fact that many people will not be able to buy their own property. Therefore, BTL Landlords will be able to continue to make enough money to make it worthwhile doing.
For people who are considering getting into the Buy to Let industry for the first time, waiting for house prices to reduce and then taking advantage of favourable interest rates will provide a really good business opportunity.
When you are looking for the best Buy to Let interest rates, it is a good idea to use a specialist Buy to Let mortgage broker to help you to find the best deals available. When you take out a Buy to Let mortgage, the offer you receive will take into account how much rental income it is expected that the property will generate for you. So, if rental prices do continue to rise, this should enable you to get a Buy to Let mortgage offer that allows you to buy a property in an area where there should be high tenant demand.
Using a whole-of-market Buy to Let mortgage broker will give you access to some of the best Buy to Let mortgage deals available, many of which will not be available direct to borrower. Many brokers, such as UK Mortgage Broker have exclusive deals that will help you to keep mortgage payments to a minimum and therefore enable you to make more profit through renting a property out.
Another benefit of using a specialist BTL broker is that they can find you the maximum loan-to-value deals, which are ideal if you do not have a large amount of deposit to put down against the property. Find out more about the benefits using of a Buy to Let mortgage broker.
Contact us today to see how UK Mortgage Broker can assist you with your Buy to Let Mortgage needs.