Many landlords were already jittery about the buy-to-let market before the Covid-19 pandemic struck. Cuts in tax relief, stamp duty surcharges, increased government red tape and political uncertainty all contributed towards a rise in residential property investors looking to exit the sector at the start of 2020.
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Now, however, the outlook is gloomier still as many find themselves having to waive bills for hard-up tenants while applying for mortgage holidays themselves.
One of the biggest challenges landlords face is how to navigate the lending landscape. For one, the process has become more time-consuming. “Covid-19 uncertainty manifests itself in the form of mortgage lending taking longer. It’s holding up the process,” says Lawrence Bowles, director of residential research at Savills.
He adds that the issue has been exacerbated by the tightening of lending criteria.
“The availability of higher loan-to-value mortgages has been severely knocked,” he notes, adding that lenders are also scrutinising landlords’ credit history more heavily. “If they [landlords] took a mortgage payment holiday, lenders are considering that as part of the credit history when they’re checking the credit files – that’s causing issues for some landlords as well.”
Another issue is the change in the supply and demand dynamic. Knight Frank’s head of UK residential research, Tom Bill, says that it is currently “a tenant’s market”, with a build-up of supply keeping rents down.
“If you’re a landlord, it’s a time for flexibility around rents. Tenants are able to shop around and don’t feel any urgency, so landlords and buy-to-let investors need to be aware of that in terms of rental values and yield.”
The threat of new taxes could also scare off landlords, with reports last weekend in The Sunday Times that chancellor Rishi Sunak is working on plans that would see additional home sellers paying capital gains tax at 40% or 45%. This would be in line with each seller’s own income tax liability, instead of the current 28% CGT imposed in the sale of some residential property.
Perhaps the biggest concern for landlords is evictions. In a last-minute U-turn a fortnight ago, the government extended the eviction ban until 20 September amid fears there would otherwise be a wave of evictions and homelessness.
The government also introduced a minimum six-month notice period for landlords seeking to evict tenants and ministers said that repossession cases on the grounds of rent arrears would not be treated as a priority until tenants had built over a year’s worth of rent debts.
In response, the National Residential Landlords Association wrote to the prime minister claiming that some landlords could lose up to £20,800 in the next two years.
However, there are some chinks of light amid the gloom. The chancellor’s stamp duty holiday has given the sector a boost, with a recent RICS report finding 6% more respondents reported an increase rather than a fall in new buy-to-let property coming to the market in the past three months as a result.
Bowles expects to see “continued increasing activity in coming months as investors try to take advantage of the stamp duty holiday”.
He also thinks there is pent-up demand from affluent households that have not spent money during Covid-19 but do not want their cash sitting in a bank with interest rates as low as they currently are.
“Even if yields are low, lots of people will think they can get a decent return on buy-to-let property when compared with the interest rates you’re getting on savings accounts. There is a general perception that property is a safe bet, so we’ll see continued demand for that as an investment.”
Whether low interest rates and the stamp duty holiday are enough to mitigate all the difficulties landlords face remains to be seen.