After the storm, comes the flood?

while we might see an uncertain short-term, the reality is that looking at a wider timeframe, property investment remains a sound choice

After the storm, comes the flood?

Jeff Knight is director of marketing at Foundation Home Loans

One of the major questions that we are all having to address, especially as lockdown eases, is what happens next? What will we see as a world, that effectively became frozen, begins to thaw.

While I possess a high level of optimism, I have been reminded that one needs to remain real and aware we have been impacted in many different ways. For example, there will be households across the country experiencing stress, in different ways and relationships which are being tested.

Now the legal profession dub the first day back to work after the Christmas and New Year period as ‘Divorce Day’ because after spending a prolonged time together the stresses and strains, which might ordinarily be avoided at any other time, bubble over and result in relationships breaking down. That is just a two-week period at most, so what might be the result over months?

This isn’t just a situation for partners, marriages and families, but those individuals who flat- or house-share might also have come to the conclusion that, going forward and with the potential for future waves of the virus and future lockdowns, they shouldn’t be living with groups of people who they can’t get away from, or they need a property with outside space, or they need to live on their own.

Such situations perhaps go some way to explaining why recent research from Rightmove suggests there has been a boost in rental demand since the lockdown began to be eased.

Its research says demand has increased by 22% and believes much of this can be put down to lockdown tension resulting in break-ups, job losses and the requirement for urgent relocations.

The big question of course is, can the private rental sector (PRS) cope with such an increase in demand? The likelihood is that at present the answer will be no – it’s fair to say that over the last half a decade, we’ve seen the number of landlords active in the PRS drop as the financial impact of stamp duty increases and cuts to tax relief hit home.

While the sector has been professionalised by such government measures, the reality is that there remains a shortage of PRS supply.

In the meantime, existing landlords might well sense an opportunity to be grasped here. You do not need to be a Professor of Economics to work out that when demand is greater than supply, the cost to access that supply is going to rise. Prior to COVID-19 rents were already inching higher and this trend is likely to continue now, especially if that pent-up demand is sustained.

Couple this with the potential for some marked short-term falls in house prices, and those landlords who might have the money to be acquisitive may well be eyeing up a double opportunity – greater rental yield plus future increases in capital.

While the ‘dinner party landlord’ might well see the COVID-19 situation as another reason to up sticks and leave the buy-to-let market, I suspect those semi- and professional landlords who recognise the long-term nature of property investment, will actually be weighing up the opposite approach.

To that end, it is going to be highly worthwhile for advisers to contact their clients who fit that bill because they might be looking to raise capital to fund future purchases and then seeking the necessary mortgages in order to add to their portfolios.

There is good news in that respect as lenders, including Foundation, return to higher LTV lending in the buy-to-let market and we begin to inch back towards a pre-COVID-19 normality albeit with it still being necessary to adopt a cautious approach.

Advisers will be well aware of the opportunities for landlord clients, potentially founded on their ability to tap into this growing tenant demand and to ensure the PRS can house as many people in this situation as possible.

Once again, while we might see an uncertain short-term, the reality is that looking at a wider timeframe, property investment remains a sound choice and there should be a growing number of opportunities for advisers to support their landlord clients who recognise this.