Resilience and efficiency pretty much summed up 2020 for Home-Share, which proved to be a strong business in face of the obstacles faced. We compounded on trends instigated since the start of the company in 2015, for example, I had long advocated for virtual tours and, alongside quick and decisive action in the weeks precipitating the first lockdown (e.g. purchasing a company-owned virtual camera) we were able to carry on operating with minimal disruption – providing accommodation for vital key workers who kept our healthcare system going and powered our economy.
Since the announcement of a new national lockdown over the past week I have been anticipating likely outcomes and I’ve been taking time to adapt the business to the new lockdown measures in order that we can continue operating whilst keeping everyone safe.
One lesson I have learnt from the past 12 months, however, is that it’s pretty much impossible to gaze into a crystal ball, so it will certainly be interesting to look back on this article towards the end of 2021!
A Housing Market Crash?
I anticipate that the first months of 2021 will be an uncertain time for not only property investors, but the property market as a whole.
Medway’s unemployment has hit 6.7% (up from 3.9% for 2018 which was before the pandemic hit), which could have an impact on tenants having the capacity to pay their rents as well as potentially leading to a slowing of the housing market and a potential drop in prices.
If we compare to the 2008 economic crash, the unemployment rate rose from 5.4% in 2007 to 9.4% in 2009 and we saw a 22% drop in house prices which did not recover until 2014. Whilst I don’t think you can draw a direct comparison, it is possible that a similar drop could wipe around £50k off the average Medway house price!
To give my personal opinion, I think there will be a degree of settling where prices will either level off or dip a little bit, but not to the same magnitude as 2008. But, we will see!
Stamp Duty Holiday
2020 Saw some eye-watering house price increases, with Medway prices rising by 5.5% between January and October 2020 (an average of £13k per property!).
I speculate that the cause of this would largely be the demand driven by the stamp duty holiday which led to a surge of sales and I fully anticipate that there will be a drop in demand in the first months of the year leading up to March 31st and possibly beyond. A drop in demand will probably lead to a drop in prices, so this will be interesting to see.
It will also be interesting to see if there are any extensions to the stamp duty holiday as conveyancing delays may mean tens of thousands will miss out!
Don’t Forget Brexit
Did you forget the ‘B’ word? Brexit has happened and the impact of this will largely be masked by the effects of COVID-19, however, the biggest impact for HMO landlords will certainly be to tenant demand.
This is because a number of tenants are EU workers who may be requiring lower priced accommodation. I anticipate that we will see any impact from this during the second part of the year. We could also see a reduction of rents in those blue-collar tenant areas which would have been significantly populated by the Eastern European demographic, who may now have left the UK.
Changing Tenant Demographics
A drop in tenant demand could lead to reduced demand for HMOs in the city centres. For example, I read that recent research from SpareRoom indicated how 49% of London renters intend to move out of the capital post-pandemic!
I anticipate, however, that coupled with the increase in home-working caused by the COVID-19 pandemic then demand should increase in the commuter belt areas (something we have already begin to notice at Home-Share). Also, an increase in unemployment could increase the number of professionals choosing to rent rooms to downsize and save costs in a period of economic uncertainty.
This change in tenant could, on the whole, be positive for the HMO market as it would drive an increase in the standard of accommodation.
There are a couple of regulatory changes that landlords will need to be prepared for in 2021. This includes an end to the extended eviction notice period to six months in March 2021 (unless it gets extended as the media will undoubtedly predict an erroneous ‘mass eviction’ of privately rented tenants!) and a requirement for all privately rented properties to have a valid electrical certificate (EICR) by April 1st 2021.
A few other things for landlords to be aware of include the requirement for all non-UK residents being liable for an additional 2% stamp duty surcharge from 1st April and with the recent changes to Right to Rent, landlords can use ID cards along with passports as an interim measure until 30th June but there is no word whether that will be extended (however, with the digital system in place I think it is better to use that!).
This hotpot of uncertainly leads to an interesting position for investors as whilst there is a grey cloud over us, it could just as easily break into bright sunshine as much as it could pour with golf-sized hailstones!
An article I recently read indicates that there is a predicted 5% drop in UK house prices which would, in effect, simply undo the rises caused by the stamp duty holiday. We will just have to see as predictions have been incorrect throughout 2020…
My advice is that 2021 will bring opportunities, however, investors will need to be savvy and make sure they do not over-leverage, leaving them exposed to loss through a dip in prices, tenant demand, or needing to refurbish due to a change in tenant.
If you are looking to invest in the Medway area, I am more than happy to give advice where you need it. You can either connect with me through LinkedIn or book a 15-minute consultation directly in my diary.