Property market remains very bullish

Property market remains very bullish

Despite the prospect of a phasing out of the Stamp Duty holiday next month, the UK property market continues to perform exceptionally well for investors.

The well-established gulf between demand and supply remains a very potent force in the market. It’s expected to sustain price growth over the coming months, even if an end to the SDLT holiday reduces transaction rates, as most believe it will. There is good historical evidence to suggest that demand will fall back later in the year when the tax is reintroduced but, for now, buyers are keen to take advantage of the window of opportunity, and business is booming.

Currently, rental values are rising at their fastest rates in years, and capital growth is also breaking records. We’ve previously commented on several industry reports that demonstrate the fast pace of house price growth, and it’s clear that property investors are faring well. Around a quarter are reportedly planning to buy more properties next year and, with BTL mortgage costs now falling, more might well follow suit.

Demand Versus Supply; a Continuing Imbalance

Recent data from NAEA Propertymark (May 2021) has found that the number of properties selling for above the asking price has hit an all-time high. Underscoring the continuing strength of the market, the company’s latest Housing Market Report shows that 32% of transactions were completed above the asking price – the highest proportion ever reported. (The previous record, of 19%, was set in May 2014.)

Numerous publications seized upon the figures, particularly the statistic that prospective buyers now outnumber properties by a ratio of 16 to 1. That is a product of two factors: very low supply and exceedingly high demand. The high demand has been well documented but the supply side is also worthy of note. NAEA states: “our report showed that the supply of properties reached the lowest number recorded since December 2002.” In other words, on both sides of the equation, upward pressure on prices is still mounting.

Findings & Extracts:

    • “The average number of house hunters registered per estate agent branch is 427, which is an increase from 409 in March and is the highest April figure since 2004.”
    • “The number of properties available per member branch fell from 31 in March to 27. This figure is the lowest recorded since December 2002.”
    • Mark Haywood, NAEA’s chief policy advisor said: “It is phenomenal to see demand for housing breaking records, as house buyers continue to fuel the post-COVID-19 economy. The continued imbalance of supply and demand … has led to a strong sellers’ market with properties being snapped up quickly at high prices.”

The Falling Cost of BTL Mortgages

Numerous UK media published articles this week focus on the falling cost of BTL mortgages. On 25th May, The Telegraph noted “Landlords have been urged to take advantage of low interest rates after the cost of buy-to-let mortgages dropped to the lowest level seen this year.”

According to MoneyFacts, the average interest charge on a two-year fixed-rate buy-to-let mortgage has fallen by 0.04% to 2.95%, while the cost of a 5-year equivalent is down from 3.35% to 3.3%. These represent the lowest levels since the start of the year.

Findings & Extracts:

    • The Telegraph writes that “many landlords are preparing to buy more properties against a backdrop of rising rents across most of the country. More than a quarter plan to expand their portfolio over the next year.”
    • Moneyfacts writes: “we have seen rate reductions of as much as 0.90% from TSB, while Virgin Money made cuts of up to 1.06% on a selection of its products this month.”
    • “Falling BTL mortgage rates will not only benefit landlords looking to re-mortgage, but will also be welcomed news to investors considering investing in a BTL property, especially as average rents have risen since April.”
    • “The rise in rental growth may well be linked to the fact that there were 45% fewer homes available for rent in April 2021 compared to April 2019.”
Investing in property post COVID

Investing in property post COVID

The COVID-19 pandemic may have hit the economy hard, but the buy to let market continues to boom. In 2021, more property investors than ever have formed companies to purchase buy to let homes and rents are primed to rise beyond expectations.

Companies House figures reveal that almost 42,000 companies were incorporated by landlords last year – a 23 per cent increase compared to 2019.

That takes the number of buy to let companies to a record total of 228,743, with almost half of these based in London and the South East (our area of expertise).

Meanwhile, letting agent trade body, Association of Residential Letting Agents (ARLA) says 60 per cent of landlords increased their rent prices in March 2021. This is due to the fact that there are fewer properties available to rent but a growing number of tenants looking for a place to live.

So, with demand for rental properties outstripping supply and buy to let continuing to boom, is becoming a property investor easier and more attractive post-COVID?

As the nation emerges from lockdown and prepares for life after the pandemic, Total Landlord Mortgages Principal, Daniel Lee, answered the frequently asked property investment questions.

Will buy to let mortgage interest rates rise?
Bank of England interest rates have stayed at a historic low of 0.1 per cent since March 2020 and are likely to stay at this rate for some time. The low interest rates were introduced during COVID-19 to encourage the economy to grow and are expected to remain as we come out of the impact of the coronavirus pandemic.

Will there be a property crash?
“This reminds me of a talk I went to around seven years ago with the leaders of the banking industry; one of them said that if there is an economic crash or the stock markets crash you will not see the Government stepping in to stimulate or prop up the economy.

However, if there is a chance the housing market will crash the Government will always make moves to strengthen and support this sector, which is exactly what happened in 2020 when the Stamp Duty Land Tax holiday was introduced for first-time buyers and movers.”

Has COVID-19 changed the rental market?
Bricks and mortar have never been more important. For the majority, the house you live in has also now become the place you work and socialise from.

Because of the lockdowns and social distancing restrictions enforced by COVID-19, more people are working remotely from home than ever before and space for a home office has become a priority to tenants.

The need for this extra space is something potential landlords are looking for in their new rental properties as they look to make them more attractive to prospective tenants.

As well as office space, the pandemic has also made tenants appreciate outside areas and private gardens. Tenants are now increasingly looking for homes with a garden or outside area to relax and socialise in, whereas this may not have been a priority previously. A KFH study showed that 58 per cent of tenants say access to private outdoor space is paramount, and Ome’s rental market predictions highlights the shift out of cities to meet tenants’ increased requirement for outdoor space.

Are rents likely to continue to rise?
The latest official data from the Office for National Statistics shows that rents have increased on average 1.4 per cent year-on-year each month since January 2020 and a staggering 10.2 percent in the last six years (since 2015). Meanwhile, letting agents report that the supply of rental property has fallen for four months in a row, yet tenant demand is rising, which supports the reason for the increase in rent costs.

The Royal Institution of Chartered Surveyors (RICS) echoes this analysis, forecasting a three per cent rise in rents across the country excluding London, where they are expected to fall flat. This is likely to be because with more people working from home, the need to live in London has decreased.

The balance of supply and demand is tilting towards landlords and is likely to result in rents rising until the market adjusts again.