Daily Archives: March 29, 2020

Coronavirus outbreak could cost the buy to let sector £14.9bn in three short months

Market: Brexit Bounce giving way to Corona Crippling, says agent

The latest research by Deposit Replacement Scheme, Ome, has found that the impact of the Coronavirus could cost buy to let landlords nearly £14.9bn should tenants be unable to pay rent during the three month support period announced by the government yesterday.

Last night the government announced that they would suspend new evictions and halt new possessions proceedings to the court while the Coronavirus crisis persists. They have also protected landlords as well as tenants with a three-month mortgage payment holiday on buy to let mortgages.

However, if tenants simply can’t pay, this holiday will do little to help landlords who will still have to pay once the three months is up, with or without the rental income from their tenants.

Ome’s research shows that there are 5.2m households currently within the private rental sector alone and without the ability to work and pay their rent, the buy to let sector could see a loss of £4.97bn every month based on the average monthly rent of £955 alone. Over three months this climbs to a huge £14.9bn.

Nationally, this lost income is highest in England with potentially £11.6bn lost in rental income, while London is home to the biggest sum regionally with a potential £4.9bn lost in three months alone.

What does this mean for the average landlord?

There are some 2.6m landlords operating within the UK buy to let sector meaning the average landlord has a portfolio of two rental properties. With an average rent of £955 and a loss of three months’ rental revenue across both properties, they could be facing an individual £5,730 shortfall in rental income.

With a ratio of 2.1 properties per landlord in Scotland, the loss is at its greatest at £6,146 over three months with Northern Ireland also high at £6,083.

Not only does this huge sum have implications on a sector that has already seen its financial return stretched by the government, but it could see tenants out of pocket even further should landlords look to keep their tenancy deposit to account for lost rental income.

Co-founder of Ome, Matthew Hooker, commented: 

“It’s great news that the government are providing some financial respite for the nation’s landlords, however, it’s more of a weekend away than a holiday and once expired, UK landlords are still facing the cost of a buy to let mortgage without the rental income to pay it.

It’s by no means the fault of the tenant if they are unable to pay but there is a very real chance that landlords will turn to the rental deposits at the end of a tenancy in order to recoup this lost rent. While this would be unfair on a tenant who has otherwise kept the property in good order, it may well be the case that landlords are simply left with no choice.

The silver lining at least is that hopefully, not all tenants will be unable to pay their rent and so this sum of lost rental income should reduce, but whichever way you look at it, the UK rental sector is in for a tough few months.”

 

Location
Private renters
Average rent
1 month B2L lost revenue
3 months B2L lost revenue
Number of landlords
Average number of B2L properties
Cost per landlord
England
4,552,000
£852
£3,878,304,000
£11,634,912,000
2,266,770
2.0
£5,753
Wales
176,000
£515
£90,675,200
£272,025,600
104,450
1.7
£4,828
Scotland
340,000
£748
£254,481,840
£763,445,520
158,505
2.1
£6,146
Northern Ireland
138,000
£627
£86,526,000
£259,578,000
64,995
2.1
£6,083
UK
5,206,000
£955
£4,971,730,000
£14,915,190,000
2,594,720
2.0
£5,748
Location
Private renters
Average rent (2019)
1 month B2L lost revenue
3 months B2L lost revenue
London
964,000
£1,697
£1,635,908,000
£4,907,724,000
South East
713,000
£998
£711,574,000
£2,134,722,000
South West
474,000
£816
£386,784,000
£1,160,352,000
East of England
437,000
£869
£379,753,000
£1,139,259,000
North West
571,000
£621
£354,591,000
£1,063,773,000
West Midlands
405,000
£662
£268,110,000
£804,330,000
Yorkshire and the Humber
427,000
£617
£263,459,000
£790,377,000
East Midlands
359,000
£628
£225,452,000
£676,356,000
North East
202,000
£533
£107,666,000
£322,998,000

House price gap between sellers and buyers reduces

Unmanaged vacant properties may invalidate insurance - claim

Leading lettings and sales agent, Benham and Reeves, has released the latest of its very own quarterly house price index based on data from the top four existing indices, looking at where the average house price sits and how the gap between buyer and seller expectation and actual sales has changed.

The Benham and Reeves House Price Index combines data from the four leading industry indices to give a singular figure of how the UK market is moving based on both buyer and seller sentiment, as well as looking at the difference in these indices and what they reveal about the state of the current market.

Current property values

The latest index from Benham and Reeves for Q4 2019 shows that the current overall average UK house price is sitting at £251,912 having dropped marginally by -0.2% on the previous quarter, although prices were up by 1.4% on an annual basis.

In London, the average property value also dropped marginally to £511,166, down -0.4% on the previous quarter, down -0.7% on an annual basis.

Seller and buyer expectations show signs of alignment 

The latest quarterly data from Nationwide and Halifax shows that the amount UK buyers are committing to borrowing has increased slightly by 0.31% to £225,188. At the same time, the average asking price has fallen by -1.02%, while sold prices are up 0.4% to £234,167.

Despite a market bounce following the election, it’s clear that months of Brexit uncertainty have seen the expectation gap between buyers and sellers close. The gap between buyer expectation and asking prices dropped -1% in Q4 to 35%, while there was also a -1% decrease between asking price and sold price, down to -23%.

However, in London, this gap remained consistent with a 33% increase between the price at which buyers were being approved for a mortgage and the asking price expectations of UK sellers, while there was a -22% drop between this asking price and the average sold price.

Director of Benham and Reeves, Marc von Grundherr, commented: 

“It’s only natural that asking prices will remain at a higher level than the average mortgage approval or sold price, but it’s interesting to see that months of Brexit uncertainty had started to bring this difference in buyer and seller expectations closer together.

As buyers committed to slightly more in the way of a mortgage approval price to take advantage of lower market values and lower interest rates, sellers realised they had to lower asking expectations to secure a deal in tough market conditions. This also translated to a smaller gap between asking price and the sold price accepted.

However, with a huge spike in activity following December’s election, we will no doubt see asking prices start to lift once again, as UK sellers look to take advantage of returning buyer demand.

While this asking price expectation will always be higher than the reality of the average sold price, an optimistic increase in a stronger market places sellers in a better position to negotiate a stronger sale price before accepting an offer.”

Benham and Reeves House Price Index
UK
Year
Quarter
Average House Price
Quarterly Change
Annual Change
2018
Q1
£245,074
Q2
£248,245
1.3%
Q3
£250,244
0.8%
Q4
£248,513
-0.7%
2019
Q1
£247,463
-0.4%
1.0%
Q2
£251,682
1.7%
1.4%
Q3
£252,487
0.3%
0.9%
Q4
£251,912
-0.2%
1.4%
London
Year
Quarter
Average House Price
Quarterly Change
Annual Change
2018
Q1
£519,238
Q2
£520,412
0.2%
Q3
£517,059
-0.6%
Q4
£514,976
-0.4%
2019
Q1
£504,731
-2.0%
-2.8%
Q2
£512,193
1.5%
-1.6%
Q3
£513,180
0.2%
-0.8%
Q4
£511,166
-0.4%
-0.7%
UK
Year
Quarter
Mortgage Approvals Price
< Difference >
Asking Price
< Difference >
Sold Price
2018
Q1
£218,231
37.8%
£300,684
-25.4%
£224,319
2018
Q2
£219,116
40.4%
£307,745
-26.3%
£226,869
2018
Q3
£221,959
37.4%
£305,060
-24.1%
£231,438
2018
Q4
£220,522
37.1%
£302,239
-23.8%
£230,274
2019
Q1
£221,578
35.6%
£300,481
-24.3%
£227,608
2019
Q2
£225,987
36.2%
£307,691
-25.5%
£229,276
2019
Q3
£224,490
36.5%
£306,321
-23.6%
£234,074
2019
Q4
£225,188
34.6%
£303,182
-22.8%
£234,167
London
Year
Quarter
Mortgage Approvals Price
< Difference >
Asking Price
< Difference >
Sold Price
2018
Q1
£473,776
30.8%
£619,905
-23.1%
£476,653
2018
Q2
£468,845
34.0%
£628,174
-23.8%
£478,555
2018
Q3
£468,544
31.2%
£614,537
-21.9%
£480,090
2018
Q4
£466,988
31.5%
£614,044
-22.4%
£476,273
2019
Q1
£455,594
32.8%
£605,178
-22.9%
£466,356
2019
Q2
£465,722
32.7%
£618,232
-24.5%
£466,683
2019
Q3
£460,686
33.1%
£612,967
-21.9%
£478,594
2019
Q4
£458,363
32.9%
£609,315
-21.5%
£478,227