Demand For Rental Property In The UK Increases

Where To Invest

For property investors currently looking at the UK housing market, the current high rental demand is something to consider. When demand is high, void periods tend to be lower. Reducing the risk of an investment property sitting empty and untenanted has a major impact on return on investment, as well as lowering risk levels for the investor.

Rightmove has revealed where tenant demand is currently the highest, on a regional basis. The south-west leads the way, where demand for lettings is now 34% higher than it was at the end of May 2019. This is closely followed by the East Midlands (33%) and the West Midlands (31%), both of which are already extremely popular areas for rental property investment.

After this, the south-east is now seeing demand levels at 28% higher than they were a year ago. Yorkshire and the Humber (26%), the east of England (25%), London (23%) and the North-West (21%) finish the list. Interestingly, the north-west region has seen the highest year-on-year increase in demand for sales.

Market Gap

Right now, according to the data, the supply of rental homes is lagging behind demand. Rightmove says that the number of new rental listings is currently 4% lower than this time last year. In the week of 6th April, it fell to a massive 64% below 2019’s levels.

Miles Shipside believes the lack of available rental properties could push up rent prices. It also leaves more scope for landlords to be more selective with their tenants.

“They [landlords] are going to pick those with the best references and who can move in immediately. Those whose credit record is not the best tend to lose out,” he added.

The UK’s rental market has been a growing sector for the past 20 years. As people’s attitudes towards renting have changed, coupled with affordability issues, it has begun to become more of a lifestyle choice for thousands. The advent of the build-to-rent sector is a good example of how tenants now expect a higher standard of living from their rental homes, and are willing to put home buying plans on hold while they prioritise living in their chosen location for longer.

Buy-To-Let – When You Live Abroad

Almost five million Britons live or work outside the UK and many of them don’t want to give up property ownership in their homeland. But it has got a lot harder to get a mortgage in the UK if you don’t live here – even if you’re a British expatriate. It’s doable, but the number of lenders that offer expat mortgages and buy-to-let loans is limited.

Buy-to-let from abroad

If you want to buy a property to generate  rental income while you live abroad, you’ll need a “buy-to-let expat” mortgage. But property you purchase to be your primary residence will require a “residential expat” mortgage.

To apply for either, you’ll need a substantial deposit (ideally held in a UK bank account) and evidence of the deposit’s source. You’ll also need proof of residency (for the past three years) and proof of income for a residential mortgage. For a buy-to-let mortgage, borrowers will be assessed on their expected rental income.

You should also take the repayment currency into account. MCD means that lenders must monitor exchange rates to ensure foreign currency loans remain affordable for the borrower. Some specialist lenders also have an “approved currency” list.

International buyers

The fall in sterling means that it’s currently cheaper for international buyers to buy property in the UK. Expats looking to invest in the UK have to save less for a deposit because they’re getting more Sterling for their foreign currency. Plus, as the mortgage repayments will be made in Sterling, they work out cheaper too when they revert back to their earning currency.

Expats seeking to buy a rental property will find that they can take advantage of specific mortgage products. They can also join HMRC’s non-resident landlord which exempts them from UK income tax. In addition, having a buy-to-let property is a great way of maintaining a UK credit rating. This means securing UK borrowing in the future will be easier.

Landlords In Lockdown

Much of the country has been shut down in an attempt to quell the Coronavirus onslaught. Only ‘essential’ occupations, businesses and services are functioning. And landlords are not included on the list.This means many, if not most, landlords will face a drop in rental receipts, with no effective remedy to hand. New rentals will be on hold – or at the least extremely difficult.  Plans for increases to property portfolios will almost certainly have to wait, as will sales of rental properties.

Meanwhile, there has been no significant relaxations in landlord legal responsibilities either towards their tenants or their properties – although there have been some modifications in the way these responsibilities may be fulfilled.

There is some financial assistance available, but this is limited. There is also financial assistance available to most, but not all, tenants.

Meanwhile, landlords will have much to do – not least to promote a dialogue with their tenants so that both parties to the rental contract can limit the damage of the current crisis. Needless to say, such dialogues will be best conducted at long range – by email, phone or video link.

This need for communication between landlords and their tenants is emphasised in ‘non-statutory guidance for landlords and tenants‘ issued by the Government.

Rental Income

Government restrictions and advice do not change the legal relationship between landlords and tenants. Tenancy agreements continue to apply and rent remains payable in full. The big difference is that landlords have no way of enforcing this – repossessions have been halted and small claims court proceedings have little hope of going ahead for the time being, at least.

The Government suggests: ‘An early conversation between landlord and tenant can help both parties to agree a plan if tenants are struggling to pay their rent. This can include reaching a temporary agreement not to seek possession action for a period of time and instead accept a lower level of rent, or agree a plan to pay off arrears at a later date.

Where a landlord does choose to serve notice seeking possession for rent arrears or has done so already, the notice period and any further action will be affected by legislation lengthening the notice period (to three months) and/or the suspension of possession claims. If a landlord and tenant agree a plan to pay off arrears at a later date, it is important they both stick to this plan, and that tenants talk to their landlord immediately if they are unable to do so.’

History Shows The Housing Market Can Be Surprisingly Resilient

House price growthCoronavirus has already infected more than 340,000 people across the world, with the figures jumping daily. Most accept that the situation is going to get worse before it gets better. Meanwhile, millions of people who aren’t directly affected by the illness are going feel the impact in other ways.

The pandemic has loomed in the immediate aftermath of the Brexit debacle. However, since the EU referendum, the good news is that the housing market, though it was affected, remained largely resilient. Places like London felt the effects most keenly, but housing markets in the north and Midlands have performed strongly throughout. In the north-west in particular, investors, buyers and sellers have remained unfazed, with house prices soaring in some areas.

While coronavirus is currently the overarching concern for many, that doesn’t stop UK house prices being a big worry. Whether you own your home, were hoping to get onto the property ladder, are looking at downsizing or even rent, it will affect you.

The verdict right now is that, as you would expect, no one knows how this will affect house prices. The future of the virus’s spread is uncertain, and uncertainty is never good for the market.

However, until very recently, the country’s housing market was at its strongest since before the EU referendum. While it is likely that transactions will slow down, because buying and selling may be difficult to do on a practical level if nothing else, they won’t stop. A short-term house price wobble is expected, but according to Stephen Maunder of Which, this will hopefully be short-lived.

“A rise in the number of people self-isolating could mean fewer properties becoming available, and thus fewer buyers viewing and bidding on homes. In short, more people will be staying put for longer.

Fewer transactions could see house price growth slow right down, but it’s highly unlikely we’ll see any major crash in prices, and – as with Brexit – the market will eventually pick up pace again after a period of uncertainty.”

Last week, the government announced measures to protect the rental market. Landlords can no longer evict tenants from social and private accommodation. Further to this, the government is urging landlords to allow rent breaks if needed. Landlords with buy-to-let mortgages will also be able to apply for payment holidays if necessary.

The UK Interest Rates Are At An All-Time Low What Does This Mean For Investors Overseas

The property market in the UK is one of the most popular in the world among foreign investors. The country is one of the world’s top economic powers and financial centres, with London at its heart. Housing is under continually high demand, and in recent years this has spread to the country’s further regions. This is particularly prominent in parts of the north and Midlands, which have become hubs for foreign investmentNow, with the ongoing health crisis, the global economy is coming under pressure. In the UK, interest rates are at an all-time low, making  mortgage borrowing extremely cheap. Further to this, the pound is low against the dollar, which has been exacerbated by recent events

Outside of London

In the UK, London is just one of many property investment hotspots. In recent years, investors who have diversified into areas such as Manchester, Liverpool, Birmingham and Leeds have achieved very high yields.

Wealth that was once centred in the capital is now moving further afield. A number of major businesses now operate in cities in the north and Midlands, with more set to follow. This means employment prospects and talent pools in these areas are growing.

With cheaper starting prices than London, these areas can offer greater opportunity for growth if you make the right investment choice. For foreign investors in particular, these areas hold excellent prospects right now.

Changes to taxes

In the most recent UK Budget statement, new Chancellor Rishi Sunak announced some big tax changes. The most important one for foreign investors involves stamp duty.

From 1 April 2021, all overseas investors in UK property will be eligible to pay a 2% stamp duty surcharge on residential property investments. That’s assuming we don’t see any major changes as a result of the ongoing effects of coronavirus on the economy.

This means many buyers from abroad will be keen to push on with their investments over the next 12 months. Chinese and Hong Kong investors in particular, because of the favourable currency exchange rates, could be particularly keen to see investments through now.

What Can Landlords Do To Stop Void Periods In Buy-To-Let Properties?

Having an empty property is not a good scenario for any landlord. No matter what you expect to reap through a future sale in capital appreciation, a major part of property investment is about rental yields.

How long do people rent for?

While the UK average was 10 months in February, again, it varied from area to area. The longest tenancies tend to be in London, where renters stay put for an average of 14 months. At the other end of the scale, those renting in the north-west only stay for eight months.

At the moment, demand is extremely high for rental accommodation. While the number of rental properties available might be dipping, according to statistics, the number of tenants searching is on the up. This is generally a good thing for buy-to-let landlords, and could explain the shrinking void periods.

Make tenants want to stay

As a landlord or property investor, it is in your best interests to keep your tenants in your property for as long as possible, in most cases. While so-called “rogue landlords” attempt to cut corners to try to maximise profits, it goes without saying that this is a very poor business model.

Clearly there is only so much influence you can have on your tenants’ behaviour. But there are steps you can take to reduce your risk of void periods.

Tips to Avoid Void Periods

  1. Void proof your property.  Make sure your property is the best it can be.  Kitchens and bathrooms sell a property so it’s worth investing in them.  Tenants’ expectations of rental properties are increasing all the time.  Your property needs to be of a high standard to attract and retain tenants
  2. Get good tenants and keep them. Invest in tenant referencing to give you reassurance about your potential tenants. If they are moving on, ask them why? You might be able to resolve their issue or have another property that suits their changing needs
  3. Every area has its ceiling rent. Make sure you set a realistic rent for the area your property is in.  It’s more cost effective to get the property rented quickly at a slightly lower rent than holding out for a higher rent and risking a void period
  4. Offer a deal. A discount for the first month’s rent or including amenities can help clinch the deal for a potential tenant or help retain an existing one
  5. Offer good customer service to your tenants. Be open and accommodating to reasonable tenants requests.  Your reputation as a landlord depends on it.  You can always include a clause in the tenancy contract to ensure property is returned to its original condition when your tenants leave
  6. Consider letting on a multiple occupancy basis. Renting by room means if one tenant leaves you still have rent coming in while you find a replacement
  7. Invest in your property. Use any void periods to invest in your property or to do essential maintenance work
  8. Budget for void period. The rule of thumb is one month per year.  If you have accounted, and planned financially for it, it won’t be an unexpected expense.

Spending Priorities Of Todays Renters

What are Generation Rent splashing their cash on?

Going on holiday

As a society, we are moving towards valuing experiences above assets, with holidays being near the top of the list of go-tos in the “experience economy”. Perhaps then its no surprise that holidays came out on top for renters’ spending goals. A third proclaimed they were saving to go on holiday, be that a lavish summer holiday in the Caribbean or a staycation in Brighton – for renters, a trip away tops the list.

Emergency funds

Second on the list, 31% of savvy savers are stashing cash away for a rainy day. This flexible-living cohort might lease their cars and stream their films, but they still know that an unexpected expense can arise out of the blue and prove problematic for your wallet. Financial gurus recommend that everyone has an easy-access account with money that will see them through three to six months’ worth of essential outgoings, and renters are abiding by this rule by saving for an ‘emergency fund’.

Buying a house

Less than a quarter of renters (23%) are saving for a house deposit, with women leading the charge at 26% to men’s 17%. Perhaps unsurprisingly, younger renters are most likely to be pocketing the pennies with an eye to getting on the property ladder – 38% of 18-34 year-olds are saving to buy, compared to 25% of 35-54 year-olds.

Other top savings goals for UK renters include saving for retirement (14%), spending money on their children (10%), buying a car (10%), and leisure activities such as going to the cinema or family days out (9%).

Disposable income is used to fund the lifestyle people want to live, and it’s clear that owning a house is no longer the main financial goal for renters. Landlords must make a concerted effort to understand they’re tenants. Those who really comprehend the wants and needs of renters in the UK will be most equipped to provide the best accommodation, the best service, and ultimately generate the best yield from buy-to-let properties.