2020 has been a black swan of a year, so far.
Things are looking up, lockdown is easing, the health crisis seems like it’s under control and the economy is moving again, to a degree. There are many reasons to be positive and yet the consequences of what we’ve already been through will cast a long, economic and social shadow.
Beyond that, the near future is still very uncertain.
Not only is there the threat of a resurgence of the virus and an oncoming recession but we have a government, forced to behave reactively to a fluid situation, whose election manifesto is now mostly meaningless, in the face of what’s happened.
All of this makes the future uncertain and yet, not everyone will bear the brunt of it, equally. Certain areas of the country are going to be hit harder and certain industry sectors will suffer more than others.
And in the property sector, for agents, lawyers, builders, investors and homeowners that tread carefully, there are lots of reasons to be positive. Despite everything, the market still looks strong.
Here, we’ll be looking at 15 things buy-to-let investors and property industry professionals should be thinking carefully about, in 2020. Some of these things were planned well in advance of the epidemic, some are in reaction to it. Everything is somewhat under its shadow.
Please note: currently there is a lot of government focus on real estate and infrastructure and as a result, we are increasingly seeing temporary measures fazed in and out, particularly in regard to purchasing and renting property. We have tried to be as accurate as possible but it’s a changing landscape.
You should always seek an expert’s advice and let them work with you when you’re making big decisions. And, with that said, let’s get into it…
1/ Market Demand
During the UK’s lockdown, transacting on a property, either as a tenant, a homeowner or as an investor was difficult and in many cases, impossible. As conveyancers, solicitors and estate agents closed or reduced their active workforce and social distancing made viewings and face-to-face meetings difficult to do, people who want to buy, sell or move house put their plans on hold.
This pent-up demand in the market is now being released, as it, once again, becomes functional, with activity set to rise to somewhere near pre-lockdown levels.
Towards the end of the year, however, we could well see a drop. Houses that should have built have not been; people’s financial situations have been hurt and there is the likelihood of a recession.
And yet there is always an underlying demand in the property market. People need to buy houses and often need to move for work or other reasons. And for investors, property, during a crisis, can often be more attractive than stocks and shares.
2/ Extended Buffer Periods for Evictions
As a temporary law, applicable until September 30th 2020, landlords must currently give three months notice if they intend to seek possession of their property if, for instance, the tenant has ceased to pay rent.
As well as this, the courts did suspend all ongoing housing possessions, meaning that it was not possible to move to a position where a tenant can be evicted. This suspension has been lifted but there is a backlog in the courts and things are moving slowly.
3/ Right to Rent Checks
In March 2019, the High Court ruled that Right-to-Rent checks, where the immigration status of potential tenants must be verified, were discriminatory and in breach of human rights law.
As a result, last September, the government launched its own evaluation of the scheme and many expect 2020 to be the year when it will be revoked.
For the moment, however, it is still the legal responsibility of landlords or letting agents to perform tenant referencing with regards to immigration.
And yet, due to the Coronavirus, the process has changed a little so that in-person meetings are no longer required and digital copies of documents are acceptable in place of the originals.
These changes are temporary and so it’s important for landlords to check what is currently required of them before they enter into any agreements.
4/ House Prices
Last year, it was predicted that in 2020, house prices would rise throughout the UK. This prediction could not have factored-in the economic reality we find ourselves in today, May’s 1.3% fall in house prices was the steepest drop we have seen since 2009 and house price crash later in the year is possible – although if it happens it may well only apply to specific regions or postcodes
Investors should be very wary, therefore, of national statistics and of the news and data they are ingesting, more generally. The economic impacts of the coronavirus crisis will not be felt in some uniform way across the country – and some areas will be hit hard, while others will be unaffected.
Investors will need to do their research on the areas they are interested in and should bear in mind two important facts.
- That the data they are getting from sources that rely on the Land Registry is always at least three months out of date.
- That house prices are not as important for long-term planning as rental yields and monthly cash-flow.
5/ Rental Prices
In 2018, a RICS survey predicted rental prices to rise by 15% by 2023 and there is no particular reason why the current situation should blow this particular prediction far off-course.
It is simply a question of rental supply being under rental demand. And while legislation continues to make things difficult for landlords, the supply of rental accommodation looks unlikely to meet the need there is, for that property class,
Rents are still likely to rise.
But there are plenty of reasons to be cautious. With a shrinking economy, it will be more important than ever, for investors to thoroughly assess any location they are thinking of buying in.
If there are major employers, in the area, who are in difficulty, prospective tenants may find themselves in difficulty, as well.
6/ A Change to EPCs
Requirements regarding EPCs (Energy Performance Certificates) changed on the 1st of April 2020 meaning that Minimum Energy Efficiency Standards now apply to all tenancies, not just new ones or renewals.
So, as of a few months ago, if a property does not have a rating of ‘E’ or above, the property cannot be let out.
7/ Mortgage Interest Rate Tax Relief
The end to mortgage interest rate tax relief has been coming for some time now but in April 2020 the rollout for this change in taxation was completed.
The result of this is likely to mean more landlords will be seeking to invest in buy-to-let through a limited company to off-set their tax bill although it should be made clear that taking this route is going to be far from suitable for all investors.
Whether we achieve a smooth Brexit or not, people will still need to buy and sell property and people will still need to move. One thing is certain about the property market, there will always be a demand for housing.
However, if Brexit has the effect of further depressing the UK’s economy, then there will undoubtedly be a knock-on effect for the housing market.
The important things to remember are that not all locations will be affected equally (with, potentially, large employers who export to the EU affected so will be the areas where their staff are living) and that data for the housing market can be at least three months out of date.
So, the trick to weathering this storm, as with the fallout from COVID 19, will be for would-be landlords to diligently research the areas they are looking into while making sure that they are using the best possible sources of data to do so.
9/ Mortgage and Interest Rates
With the base interest rate currently at 0.1% (the lowest on record) and with the Bank of England paving the way for negative interest rates, one thing that is sure is that in the short to medium term mortgages could become very cheap, when compared to previous years.
To put things into perspective, mortgages with negative interest rates have already gone on sale in other countries, where the sum owed falls by more, month by month, than the amount that has been paid back.
How lenders are going to respond to the new economic reality is far from clear at this moment but now, more than ever, it is going to be essential for investors and homeowners alike to seek out expert advice from a broker.
10/ Stamp Duty
A lot of property buyers were hoping that the budget of March 2020 would bring about reform or a (permanent) reduction in Stamp Duty but that didn’t happen.
There was however one, a significant change in legislation which brought in an additional surcharge of 2% for non-UK residents, applicable in April 2021, which the Government claim will bring in £650m which will be directed at initiatives to help rough sleepers.
But in a very significant move, Rishi Sunak has instigated a Stamp Duty holiday, now in place until 31st of March 2021, which has seen the threshold raised to 500k, meaning that nearly nine out of ten transactions will no longer be subject to the tax.
Good news for the industry and for the wider economy but investors should take note: while the holiday does include second homes and investments, buy-to-let landlords will still have to pay the 3% surcharge.
11/ Unsafe Cladding
In the spring, the government announced a 1bn building safety fund to help with the removal of flammable cladding used on tower blocks of over 18m. This came about as a result of the enquiry into the Grenfell Fire disaster and should be of some relief to investors in and residents of leasehold highrise buildings.
12/ New Build Houses
It was always the government’s plan to make building new houses a priority in 2020 but with the economy going south, they have stepped this up a notch. On the 30th June, in Boris Johnson’s speech – branded ‘Build Build Build’ – he set out a loose framework for planning deregulation and unequivocally stated that new homes and infrastructure would provide the backbone to his government’s recovery plan.
However, while it will be welcome to many that the government is thinking in these terms, we currently have no details as to what this plan will look like and anything started now, will take a long time to have an impact on the market.
And there are still problems to deal with first. During the lockdown, there were fewer houses built than normal and supply chains for construction are likely to continue to be disrupted for months to come.
13/ No-Fault Evictions
In 2019 the Government looked on-course to ban Section 21 notices, also known as no-fault evictions, whereby a tenant can be removed from a property as long as they were outside of the initial term of the AST for no reason and with no possibility of being challenged by the tenant in court.
However, because of measures brought in by the situation caused by the Coronavirus and the extended buffer periods for evictions, questions around Section 21 have been put on hold.
14/ Electric Certificate Requirements
From July 2020 all-new tenancies will require electrical installation inspections and testing to be carried out and as of the 1st of April 2021, this will apply to all existing tenancies, as well.
In practical terms, this means that landlords will have to ensure that every fixed electrical installation in their properties are checked once every five years by a competent person and a copy of the report supplied to the tenants.
15/ Mortgage Payment Holidays
For the last few months, during the coronavirus lockdown period, mortgage lenders have agreed with the government to allow greater leniency in mortgage repayments for people who were struggling and as such mortgage holidays have been granted.
But according to moneysavingexpert.com, not everything is, necessarily, as it seems and those who have had to make use of these holidays may well find it more difficult to secure the same mortgage deals, as they would if they hadn’t used this service.
This isn’t certain. The majority of lenders have stressed that they ‘could’ factor previous mortgage holidays into their calculations in the future. But with more than 1.6 million mortgage holidays taken out before the end of April, it could be a significant factor in the future.
2020 is shaping up to be a difficult and fast-changing year and as we move into the second half, there are still many challenges ahead of us.
The property market, however, is still strong and there is plenty of demand in the system. On top of that transacting on a property is not hindered by the ‘new normal’ and the government is actively focussed on this area of the economy, in the hope that it will help with other areas and protect the nation’s wealth.
But property investors and homeowners still need to be diligent, when making big decisions. The wider economy is damaged, the future is uncertain and some areas of the country will fare better than others in the storm ahead.
So, now, more than ever, it is necessary to do a lot of research and to think locally, before committing to a transaction and essential to seek out expert advice at every opportunity.