The Property Options Buy to Let Market Overview
Our regular Bristol and UK property reports are written by economist Chris Worthington, who is a regular speaker at our PIMs.
Last year was a roller coaster ride for everyone involved with the buy to let (BTL) market. At the start of the year the political certainty provided by the general election in December boosted market confidence during January and February.
This positive trend was expected to have continued through 2020, but the arrival of Covid-19 put the recovery on hold and the first lockdown virtually closed down the housing market.
As the economy entered a prolonged downturn, it was widely expected that house prices would fall. However that did not happen for three reasons.
First the backlog of sales held up by the first lockdown, second the government’s economic aid and job support programme and third the stamp duty holiday to the end of March in 2021. By the end of 2020 the UK average annual house price growth hit a two and a half year high at 3%.
More sales than usual in the system boosted prices and created pressure on lenders, valuers and conveyancers.
As the market recovered later in the year a strong demand for outdoor space and a home office to work from home became evident, plus a willingness to move out of city centres to more distant towns and villages.
Buy to Let in 2021
The housing market is affected by the overall state of the UK economy and Covid -19 combined with Brexit is an unprecedented set of circumstances.
Covid – 19 has taken the economy into recession, but it is probably fair to assume that the economy will recover as the vaccination programme gets underway.
Covid – 19 is likely to result in slower rental growth over 2021 because of the impact of the economic downturn on average incomes. Many tenants are faced with job insecurity and this will exacerbate affordability levels that were already high especially in London.
There is little doubt that the economic recession will have an impact on house prices. But the difficult question for BTL investors is by how much will house prices fall and how soon will they recover? To mitigate that risk they might consider making a low offer on new investments.
Some buyers have been looking for discounts of 15%, usually without getting it.
According to estimates from estate agents a discount on the asking price of around 3% to 5% would be realistic.
For the time being the housing market is boosted by the backlog from the first Covid – 19 lockdown and the reduction in stamp duty. Both of these factors are time limited and the impact of that is likely to affect house prices during the first quarter of 2021.
However if house prices fall the losses are likely to be covered by gains in future years.
The pace of recovery in the housing and BTL market will depend on the state of the wider economy. Assuming long term damage to the economy is contained, the long term outlook for house prices, rents and yields for BTL investors offers reasonable and relatively stable returns on investment in uncertain times.
Our Next Property Meeting
We will all be discussing the latest position on the property market in Bristol and across the UK in the light of Covid-19 at our next PIM.
We’ll be arranging this when it is safe and practical to do so.
Meanwhile, stay safe.