Property Investors Abandon London For Better Yields Elsewhere

Hello Medway Property Investors,

Given the rather tumultuous year we have all experienced, it is certainly extremely encouraging to see the vaccine rollout having gone so smoothly and numbers of COVID-19 cases remaining low. It is my hope that this continues as we move towards the final step on 21st June.

As with all businesses, the past year has been a big challenge for property investors; with things such as the evictions ban and continual changes to the issuing of notices causing havoc for landlords. Things such as the stamp duty holiday, however, do appear to have led to a significant surge in performance for the property market!

I recently read an interesting article about how the buy-to-let property market has dramatically changed since before the pandemic.

We know that there has been a significant change, but the interesting point is how the most significant change is around where people are choosing to invest. For example, how investors have begun to look elsewhere than the capital for better yields and growth.

House Price Growth

With house price growth levelling off in London over the past few years, it is fascinating to see how COVID-19 has caused such a dramatic and quick change to the market in the capital. This is something I had long suspected from my own research, but it is certainly interesting to see it laid out in the national press!

The illustration below from the Financial Times shows how London really does stand out, with either negative or extremely low growth over the past 12 months.

With Medway being in the south east corner, we have seen an 8% increase in average prices between January 2020 and February 2021 compared to 6.7% for Kent and the above annual change for London areas.

The Property Market In General

Whilst the past year has been a challenge for property investors, the overall stability of the market does not appear to have been affected. 

For example, the Financial Times recently reported that between 2015 and 2019 buy-to-let house purchases fell by about 40%, however, in the second half of 2020, around 37,000 buy-to-let mortgages were completed; similar to the same period in 2019. This is really interesting as I think it certainly shows some stability in the market. However, what is changing are the areas investors are choosing to purchase in!

It has also been reported that borrowing during March 2021 hit the highest level since the Bank of England started collecting data in 1993. I am always a bit wary of these huge trends without considering the macro environment. We need to remember the original deadline for the stamp duty holiday being in March. I would not be surprised if this contributed to this (it will be interesting to see what happens here in September when the holiday ends altogether)!

Tenant Demand

The graph below outlines tenant demand and with Medway being in the South East, it’s encouraging to see how tenant demand is in the top four regions of the UK; above the UK average and you will see how it vastly outstrips demand within London.

How Has COVID-19 Affected The Market?

I think that we all know the rise in home working is one of the largest factors which has led to a decline in demand for the London buy-to-let market, however recent announcements such as how flexible working is here to stay for many demonstrate that this trend is likely to continue for the foreseeable future.

In addition to this, things such as how empty London offices are expected the be turned into housing will most likely contribute to a further decline in prices.

Whilst probably slightly unrelated to COVID-19, we have also seen some landlords with a small number of properties looking to cash in due to the increased tax and regulatory changes. In addition, the pandemic has given cause to people wishing to sell up and enjoy their retirement. The Autumn budget could be an interesting one when it comes to this!

If we look at income, the National Residential Landlords Association has reported that 14% of landlords lost more than 20% of their income because of the pandemic. With 400,000 tenants in serious arrears and unemployment rising to 6.5%, it will also be interesting to see what impact (if any) the end of furlough will bring!

The property investor should also be prepared for changes in tax legislation as the Government will look to recoup its losses from the pandemic. Property remains a strong asset class and what is important to remember, is how it should be viewed as a long-term investment as it will generally always demonstrates a strong return over a decade or more.

I trust that you found this article helpful. If you are considering a property investment as lockdown begins easing, I will be happy to answer any questions you may have. The best way to reach me is through LinkedIn.

Hasan

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