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Why landlords may need to 'reassess the balance' in a post-Covid PRS

Bob Young | Fleet Mortgages
|
16th October 2020
Bob Young Fleet
"How many tenants are currently looking at their existing living arrangements, reflecting on their previous national lockdown experience and wondering if they are able to go through that situation again?"

One of the clearest signals of the underlying strength of the private rental sector (PRS) is yield, and at a time when there is so much uncertainty in the marketplace, landlords – and indeed all stakeholders – should be buoyed by the latest average rental yield figures from our latest Rental Barometer.

Covering Q3 this year and comparing it to the same three months in 2019, our figures reveal that seven out of nine regions in England saw an increase in yield and those two regions which saw a slight dip, were already at high levels, plus the fall was very small.

Perhap unsurprisingly it is Northern regions which are showing the highest levels of yield with the North East at 8.8%, Yorkshire & Humberside at 8.2% and the North West at 7.8%, and this may well be enticing landlords who have not yet been active in those areas to look at the opportunities therein.

In looking at potential purchases or reshifting of portfolios, it’s clearly important to carry out a high level of due diligence, especially at a time when there could be some real changes in what tenants are now looking for, and the areas in which they want to live.

It’s clearly difficult to postulate that we’re seeing fundamental shifts and structural changes within the PRS because we are very early into the piece, however, it does seem likely that the same concerns/wants/needs that many homeowners are feeling about their current living arrangements will be replicated by tenants.

Indeed, there might be a likelihood of quicker changes within the PRS simply because of short-term rental agreements allowing tenants to potentially change their arrangements within a shorter timeframe. In other words, if tenants want to change to a different type of property or a different area, if they want to move much further away from where they are currently, providing there is the supply of property to do it, then they could achieve that relatively quickly.

As mentioned, we are too early into the Covid-19-influenced housing cycle to view set-in-stone trends, but there appear to be some early signals of what might be happening.

For instance, in future months it will be interesting to see how demand holds up for rental properties in (and around) city centres, plus somewhat tied in with this, will be the ongoing demand for apartments and flats which have no outside space.

With many people now able to work from home/remotely, there could be less of a need to live closer to offices or work places within cities; similarly, for those who have based their living needs on how close they are to trains/bus stations/how quickly they can get into cities/work places, again they might be prioritising other parts of the living experience (such as access to outside space/home offices, etc) rather than simply how long it might take them to get to work.

Those latter points might become even more relevant in the weeks and months ahead, as we may have greater levels of local lockdown brought into effect, and there is also the potential for a more widespread national lockdown which could put us back into a March to May 2020 situation.

One wonders how many tenants are currently looking at their existing living arrangements, reflecting on their previous national lockdown experience and wondering if they are able to go through that situation again?

Landlords who have portfolios with large numbers of city centre properties, or based in commutable areas, may need to reassess the balance they have in order to maintain profitability in the future. They may need to look further afield than their normal catchment area to find tenant demand that they can meet – properties in the country/those with gardens and offices/or potentially short-term lets in ‘staycation‘ areas if the continuing demand for holidaying in the UK continues to grow, might all deliver the yield that landlords are looking for.

The old advice about ‘sticking to the areas‘ you know might have to be shifted slightly as we move forward. Advisers may have to work with landlords who are entering a new region for the first time, or help them understand different parts of the country where property might be cheaper and/or it might deliver a better yield. Having that level of local knowledge in those regions which are showing stronger yield could be a real advantage, especially when you are accessible to landlords who might ordinarily not be working in your locale.

As mentioned, we are still very early into this but we’ve all seen how the situation can change quickly, and the PRS is unlikley to be immune from this. We have good news to impart in terms of lending appetite and access to buy-to-let funding though, and for those advisers who can provide a strong level of support to landlords and help them access new areas, there should be plenty of business to secure. And I’ve not even mentioned the stamp duty holiday.

 

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