Buy-to-let in 2020, like most sectors of the economy, has taken a battering in the first half of the year. There are additional Government regulations to consider, reduced access to funds, reluctance of tenants to move. Nevertheless, there are some glimmers of hope. Here’s my view of the buy-to-let market as of today, 25th June 2020.
What the Government Did to Buy-to-Let in 2020
Changes to mortgage interest tax relief were already causing market disruption for buy-to-let at the start of the year. However, the COVID-19 pandemic and consequent lockdown put more pressure on. Tenants were squeezed as their incomes reduced, either through furlough or redundancy. These pressures on buy-to-let in 2020 are still with us.
The Government protected tenants by suspending the ability of landlords to take possession of their properties, without 3 months’ notice. This is in force until September 2020. £500m was released to local authorities to help those in financial difficulty to pay their rent. However, accessing the funds proved difficult.
Major Market Changes During Lockdown
The banks yielded to pressure and offered mortgage holders the right to a 3-month freeze on repayments. That said, interest continued to accrue during this period. This applied to buy-to-let mortgages too; although they’re predominantly interest-only, the benefit to landlords was small, overall.
Also, in March, according to Landlord Today, many buy-to-let mortgage products disappeared from the market owing to the pandemic. So, buy-to-let landlords struggled to get new mortgages as the COVID-19 pandemic worsened.
In fact, reduced funding availability and fears of property price falls caused entire products to be withdrawn mid-application.
That wasn’t the worst of it however, the buy-to-let market was further impacted by the lack of demand from tenants. They seemed unwilling or unable to afford to move.
All of this created a market contraction in March and April.
Early Signs of Recovery
Between May and June 2020, buy-to-let mortgage product numbers increased rapidly, as lenders focussed on a mix of new and existing borrowers. Buy-to-let investors with an eye on the long term can now benefit from this increase in mortgage options.
According to Moneyfacts, the choice in mortgage products has increased and some of the higher loan-to-value (LTV) rates have reduced.
Also, a survey from Rightmove (May 20) revealed that demand from tenants for rental properties was 33% up vs last year. Welcome news to landlords in the current climate.
However, the early signs of recovery, although good news for landlords and investors, are not necessarily the start of a trend. As yet, we don’t know the true economic impact of the COVID-19 pandemic. Consequently, the future of the market for buy-to-let in 2020 is still relatively unclear.
However, if you’re willing to take a long-term risk, there is the opportunity to expand your portfolio while property prices fall. Investors that do decide to capitalise on current conditions should probably do so quickly. This is due to the steady speed at which the market seems to be recovering.
Also, it would be sensible to seek advice from a professional financial adviser. You’ll get a better understanding of the options available in the current circumstances.
In conclusion, the market for buy-to-let in 2020 is full of uncertainty which can cause problems for landlords and investors. The current, observed, steady recovery is likely to continue. However, it’s essential that you continue to monitor the current market situation and economic climate as well. Look out for any new rules and regulations for buy-to-let in 2020 and beyond, put in place by the Government.
Here’s a summary of my thoughts on investing in buy-to-let nowadays.