This article was contributed by Landlord Lifeguard, who are part of Nationwide Building Society.
Low confidence levels reported in Q1 2020 from landlords responding to the coronavirus pandemic look to be improving according to the latest BVA BDRC panel research.*
Impact of coronavirus on confidence levels
Landlords now anticipate the pandemic to have less of a negative effect than originally anticipated, with sentiment appearing more positive in Q2. In support of this, landlords indicated higher confidence levels in comparison to Q1 figures.
This improvement in business expectations is related to; capital gains, rental yields, the UK private sector and the health of landlords’ letting businesses. Those surveyed were least confident about the future health of the UK financial market.
Impact of coronavirus on activity
The impact of the pandemic affected everyday activity for almost half of landlords, with new issues arising. These consisted of tenant requests, changes in tenant demand and a need to take important financial decisions.
Where landlords were requested to make changes in their rental agreement due to coronavirus, 70% chose to grant these requests. In addition, where tenants were unable to meet rental requirements due to the crisis and requested a rent-free period or rental holiday, over half of landlords intended to cover this deficit with their own savings.
Mortgage holiday requests
- Of the landlords surveyed, just under 1 in 10 landlords requested a mortgage holiday; the most common length of a 3 month duration
- The reasons for requesting a mortgage holiday included; to counter a fall in rental income, to protect the business and to pass savings on to tenants
- Landlords who took a payment holiday broadly expect future mortgage payments to increase to cover these costs.
Profitability in Q2 2020
87% of landlords reported making a profit in Q2. Landlords with one rental property were among those most likely to make a loss.
Rental yield rose to an average of 5.8% (up 0.5% from Q1 2020) - the highest point for over a year. The highest mean of 6.5% was experienced in the North West, with the lowest of 5.0% seen in central London. HMO landlords enjoyed the highest yield overall of 6.9%.
Other key findings to emerge from the research include:
- The incidence of common problems has fallen in Q2 2020. These cover issues such as rental arrears, the need to withhold a tenant’s deposit and anti-social behaviour
- On average, 20 - 25% of gross income was spent on running a rental property
- 17% of landlords interviewed are looking to expand their portfolios in the next year
- The typical void period experienced was 72 days.
Landlords looking to buy more property gave remarks as to potential reasons why:
“There appears to be bargains in the market both in relation to sales and lenders’ products. This will help achieve a greater yield initially.”
Also, some landlords experienced a reduction in tenant demand and stated the reasons why:
“People not moving into the area, companies not taking new-graduates, job offers being rescinded, post-grad mature students not taking courses at universities (many usually from abroad), reduction in recruitment as well as redundancies, university jobs being changed to online”
“Lack of jobs, people worried about shared accommodation, general uncertainty”
“Viewings weren't able to take place. People are waiting to see if their jobs are safe and still around after furlough scheme ends.”
Q2 has brought more positivity than previously anticipated as landlord confidence increases and profitability stays strong.
Regional variance paints a more challenging picture in central London than in other parts of the country. However despite hardship, the majority of landlords have accommodated tenant requests relating to the pandemic by allowing changes to rental agreements and absorbing requests for deferrals and rental holidays with their own savings.
Expectations for the financial market are not as positive as other parts of the industry and it’s undeniable that coronavirus has forced the hands of landlords during this period. We will update our website as new research emerges in the next quarter.
Source: BVA BDRC
*Online interviews totalling 1,305 landlords were conducted to form this research between the period of 12 June - 5 July 2020.