"While the current situation may be tricky, the underlying fundamentals of property investment have probably been strengthened over the course of the past few months."
For us lenders involved in the buy-to-let and specialist sectors, who do not take deposits and have therefore had no access to any Bank of England funding, it has been a difficult pathway to navigate. Despite some positive talks on securing access to that cheaper funding, nothing concrete was agreed, and the status quo has remained the same.
That is disappointing but perhaps not surprising, and we are fortunate at Fleet that we have very good relationships with our funders which have allowed us to get back into the marketplace at 70% and 75% LTV levles, albeit with a continued cautious approach which means we are still some way off our pre-lockdown lending appetites.
Even with that being the case, activity and transaction levels have clearly picked up and, with physical valuations now taking place, we have been able to work through our pipeline before moving onto new business activity.
And again, the level of the latter has been relatively strong fuelled no doubt by an understanding amongst PRS landlords that, while the current situation may be tricky, the underlying fundamentals of property investment have probably been strengthened over the course of the past few months.
I read some recent research from Goodlord which focused on demand for rental properties and similarly, research from the Office of National Statistics (ONS), which looked at monthly rental levels. Both gave an inkling into why landlords might currently be keen on adding to portfolios and are utilising existing property portfolio equity in order to do so.
Goodlord said it had seen a rapid bounce back for the rental market, suggesting property demand from tenants had grown considerably since the housing market was reopened. It said on the 2nd June its tenancy applications hit 112% of the volumes recorded on the same day in 2019, while its busiest day for completed lets was the 10th June which hit 124% of the same day last year.
The PRS does of course have a number of advantages over the housing market in terms of its ability to sort out tenancies amidst social distancing rules. Tenants are much likely to agree to a tenancy based on a virtual viewing and the turn-around time in order to get people in those homes is much shorter.
However, what we’re also seeing is the impact of a lack of supply on the market. While professional landlords can spy the opportunity and hope to use this period to purchase, there are still landlords leaving the sector and, one would surmise that during a period when their existing tenants may not have been able to pay the rent fully, this will only hasten their exit.
It leaves the PRS in an extremely odd place – tenant demand has grown, but supply is down, resulting in rents on the rise. The ONS statistics highlight this – it found that the average rent between the 1st April last year and the 31st March was £700. That figure has never been so high according to those stats, however I would suggest it will continue to climb.
For those landlords who can stay the course and add to portfolios, the much wanted (and needed) increase in rental yield is there to be had across all manner of properties, perhaps not just in those areas – HMO/MUB – where landlords have been looking in recent years in order to secure the rents needed to cover the phased-in cut to mortgage interest relief and the increased cost of being a landlord.
Mortgage advisers who can tap into the potential of the market and highlight their service offering to professional landlords, should see a steady stream of business, and over time we might anticipate that they’ll also have more product optoins to provide clients with at higher LTVs. There has been some movement in that direction and over the course of 2020 I would anticipate that will continue.
Those positive green shoots we hear a lot about are starting to appear, and as a lender we intend to provide all the support necessary to our adviser partners to ensure they can benefit from them.
