Will we get the usual fourth quarter lull in the buy-to-let sector?

 

The UK rental market often slows down after a summer rush. However, the curve balls of 2020 could mean high levels of activity right up to Christmas in buy-to-let.

The latest monthly market data from estate and lettings agency Chestertons shows a number of key trends in the UK’s rental market. Both tenant demand and rental property supply have picked up “dramatically” since April. There’s also indications that the height of activity could still be ahead of us in buy-to-let.

The report looks at the London market specifically. However, while London often moves at a different pace to the rest of country, other regions could see similar trends.

According to Chestertons, while tenant moves fell drastically in early lockdown, they have since picked up. Between April and June this year, there was a 49% increase in website enquiries from tenants up from the same period last year. There was also a 38% rise on viewings, despite the lockdown restrictions.

How supply and demand balances out

However, demand in central London has fallen. There were around 52% less tenants moving in the area between April and June compared to the previous three months. This is likely down to a combination of job uncertainty among tenants, and more people staying with family.

Other reports show how many people, tenants included, are increasingly looking away from central London. Lockdown has changed people’s priorities as well as their work-life balance. For many, home-working is now a way of life. More people are looking for more space or even a whole new location in the north or the Midlands, where they can find better value for money.

Supply, however, has begun to recover in central London. Chestertons says the number of rental properties available at the end of June was almost 70% higher than June 2019. According to Richard Davies, head of lettings at Chestertons, some landlords are reducing rents to attract more tenants.

He added: “This is undoubtedly a tough market for landlords and rents are still under a lot of pressure but September has started strongly, with applicant registrations up 50% compared to the same time last year and viewings and move-ins up 39% and 58% respectively.”

What’s the outlook for buy-to-let landlords?

What happens to the wider economy will certainly impact the short and long-term outlook in buy-to-let. Chestertons believes smaller landlords could be the worst hit, in part due to regulatory burdens that were already in place.

It adds: “However, with sales prices lower than they have been for some time and borrowing costs remaining low, we may see more professional landlords looking to expand their portfolios in 2020. The £15,000 stamp duty saving will be an added incentive to buy.”

Chestertons also believes that the supply-demand imbalance should even out as the economy recovers. This will bring more tenants back to the market, and decrease void periods for landlords.

On the flip side, it states that rents in Greater London could call by 8-10% in 2020 and 3-5% in 2021. However, specific locations could see big variations, with some areas seeing bigger surges in demand than others.

The report concludes: “The market is changing rapidly, however, and as in the wider market, locations which see a quicker return to a balance between supply and demand could even see rents rise again before the end of this year.”

While Richard Davies acknowledges that the fourth quarter is “traditionally quieter for the lettings market”, the year so far has been turned on its head, so there is the potential for even more demand to return to the sector over the months ahead.

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