We are half way through lockdown, hopefully! How are you all finding it – is it tougher than previously? This week I am talking about how Covid has changed the investment property market. I spoke about this at last week’s PIN meeting, but I wanted to go into a lot more detail on the blog as I think it’s such an important topic at the moment.
There are two aspects to this; the types of investors who are now coming to the market, as well as the types of property and tenancy.
Who could be the new investors on the block?
There are plenty of reasons why people may be looking to get into property at the moment. We have had such a massive change of lifestyle and direction this year; many people have spent more time with their family and have realised that they want a career that is more flexible around that. We have all had time to stop and reassess what is really important to us – stepping off the hamster wheel can make you reluctant to get back on it!
Property can offer so much more flexibility in your life, it can be YOUR career on YOUR terms. It will be full of challenges, but also comes with autonomy… and, of course, the potential for growth.
Grabbing an opportunity…
With plenty of working people having been furloughed for possibly a lot of months, then being made redundant, this may give some the push to use the money and put down a deposit on a property.
A lot of you will also have gained some extra time with less social activities, therefore allowing time to spend dedicated to researching potential areas to invest in and work on strategies. Netflix or new career research…..????
Also, I think that having gone through this year and the uncertainty it has brought, it has increased the importance of having a diversified income stream. Property can be something to add to your income pot, adding an asset to any savings and/or pension, but importantly it gives an income to take the pressure off in a changing jobs market.
There are also a number of ways in which Covid has changed the way we view particular tenant profiles.
This is a far more resilient market than I think anyone was expecting! Back in March lenders were worried that this academic year would be completely online learning from home; yet we have seen students return or go to university. They are craving any kind of normality it seems! There are also benefits to house sharing in HMOs over student accommodation at this time. It’s generally smaller bubbles and you have got more communal space if you are limited with your external social life. There’s also the option to encourage a two year letting period taking away the need to find and view somewhere new to live. This gives you the option of somewhere to stay during the summer if you’re not able to go home.
In this uncertain market, lenders and landlord are crying out for some guarantees, and that’s what this can offer. For a long time any lease over 12 months was a big problem, but now we have at least three lenders who are looking at this, and at competitive rates, on a 75% loan to value, interest only product as we discussed previously. The yield may work out slightly lower, but when you take out voids and repairs you aren’t far off what you would get for a professional tenant. This is definitely a growing market and something I’m sure we will see more of.
UK holidays are going to be the way forward for the next few years. I’m sure many of us (myself included!) enjoyed a fantastic UK holiday this year, and it’s made us all realise how many places there are for us to explore in the future. It’s a cheaper option, and for many that will be a big consideration next year. It’s also far more flexible with bookings and pets – abs is far more environmentally friendly!
As an investor, your self contained unit is going to be far more attractive than a hotel or B&B in these covid times. Lenders are becoming more open to these options too. We have a lender who will now allow you to purchase on a bridge to carry out some works and then move to a term mortgage in 9 months so you don’t need to worry about initial rental voids. This gives you some time to get it all ready to hopefully open once the weather improves and restrictions are over (big fingers crossed on that one!). Also, there is a market for working away from home – which gives potential for the times of the year not traditionally busy.
We are again seeing lenders more open to holiday let’s, using both the market rent as a 12 month tenancy or the passing holiday let income if we have a proven track record.
Cities vs Suburbs
Priorities are changing for tenants. It’s no longer so important to have access to cities and towns and tenants are now favouring larger spaces both inside and out. Outdoor space has become far more desirable, and a home office or space to work is now a massive selling point. Other, more rural locations are becoming more attractive, which may open up new opportunities as investors – perhaps your local area, or something which is affordable that wouldn’t have worked previously for an investment property.
With change comes opportunity, and as a resilient group of investors I really feel that over the next few years we will see so much of both.
As always, call if you have any questions. Look after yourselves, only two more weekends to go – fingers crossed!