property investment
When the UK government announced plans to ease the UK coronavirus lockdown there was a shared sigh of relief from the property market. In effect the UK property market has been frozen since mid-March when the UK government brought in the lockdown. While there has been limited online activity, property valuers were unable to visit properties and this had a knock-on effect to the mortgage market. So, what is happening now the UK government seems to be part way down the road to lifting the lockdown? Demand for property As you might expect, there has been a significant rebound in demand for rental properties with the number of completed lets standing at around 70% of last year’s comparative figure for June. Current demand is running around 30% higher than both January and February of this year although once the backlog has been cleared we will see a softening of these figures. One thing which may shock some people is a suggestion in a Daily Telegraph article that 41% of home buyers now plan to delay their property purchases in light of the ongoing uncertainty. Are they expecting further downside for the UK property market? On a more positive note, at the same time Zoopla also reported an 88% surge in house buyer demand since the restrictions were part lifted. However, this seems to be varied across different areas and different cities of the UK. In reality this makes short-term forecasting quite challenging to say the least! Rental markets There is an ongoing debate regarding the UK rental market and whether landlords or tenants have been “better looked after” by the UK government. On one hand critics suggest that landlords have been encouraged to take-up mortgage holidays with no legal obligation to offset tenant rents. This suggestion is not actually correct because landlords have been encouraged to pass on the benefits of their mortgage holidays to their tenants. Currently, tenants unable to pay their rent are safe from eviction, with the Government just announcing a two-month extension to the non-eviction period. Homeowners and mortgage holidays In connection with the above comment, the Financial Conduct Authority (FCA) has warned property owners to be cautious of extending mortgage holidays. While the UK government has extended financial assistance for landlords and home owners, these deferred payments will still need to be honoured in the future. Therefore, the FCA is advising those who can afford to pay mortgages at the moment to do so. Incidentally, there have also been suggestions that those who take extended mortgage holidays may see a negative impact on their credit rating. Was this ever mentioned by the authorities at the time?     Rental arrears     As and when the UK mortgage support scheme comes to an end, or property owners decide against extending their mortgage holidays, this will bring another crunch moment. On one hand, landlords will need to negotiate a repayment plan with their mortgage companies for deferred payments. On the other hand, it is unlikely that the vast majority of tenants will be able to repay their rental arrears in the short-term. While there have been calls for landlords to be more “understanding” it will be interesting to see how understanding the banks are with landlords. Despite suggestions to the contrary, it would appear that landlords are in the more precarious position at this moment in time.     Bank of England economic forecast     Interestingly, despite the fact that the Bank of England has reduced UK base rates to 0.1%, and is even contemplating moving into negative territory, there are still high hopes of a V-shaped recession. This effectively means that the Bank of England is expecting the UK economy to bounce very sharply as and when it reaches the bottom. This is likely to be just prior to or around the time of the full lockdown easing – although many people will have concerns about a second coronavirus wave in the back of their minds.     Conclusion     On one hand we have a report suggesting property buyers are stepping to the sidelines while another has reported an 88% surge since the lockdown restrictions were eased. We then have the Bank of England effectively predicting a V-shaped recovery in the UK economy while still considering moving UK base rates into negative territory. What we can devise from these very different signals is the fact that notwithstanding the short-term bounce in the UK property market, as a consequence of pent-up demand, nobody is really certain where markets are going in the short to medium-term.     What we will see over the coming months is how supportive/unsupportive the UK mortgage sector is to landlords and homeowners. We know there are challenging times ahead!    

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