Investing in property post COVID-19

How has the Property Market Changed Since the COVID-19 Crisis? 

The COVID-19 pandemic has changed the property landscape for the foreseeable future – that much is clear.

With many people looking to leave urban centres in search of greener spaces, quarantine rules sparking the rise of the ‘staycation’, offices closing and redundancies putting rent payments at considerable risk, there are a number of new variables influencing the market.   

This said, compared with the coronavirus-catalysed stock market plunge, the property market has remained relatively strong. Defying expectations of a crash, house prices have continued to rise since the end of lockdown, with prices for first-time-buyers up 1.2% since last September and rising an average of 4.2% for ‘second steppers. 

This buoyancy can be partially owed to the stamp duty holiday giving many people across England and Northern Ireland renewed incentive to buy, with more mortgage approvals this September than any month since 2007.  

The long-term closure of offices has also shifted the priorities of many people working from home, seeing rising activity in suburbs and rural regions such as Norfolk, Suffolk, Dorset and Kent.  

What does this mean for investors? Here, we’ll outline how the market has shifted since the coronavirus pandemic and how options for investors have been affected as a result.  

Buy-to-let mortgages 

Since coming into play in 1996, buy-to-let has been a common choice for property investors. Buy-to-let allows landlords to offset mortgage repayments and any upkeep costs with rental yield. Yet tightening regulations and stringent tax laws introduced in 2017 are costing landlords thousands when they do decide to sell, deterring many from this type of mortgage.  

However, the landscape has changed drastically in the past months, drawing attention from investorsInterest in buy-to-let mortgages has increased by as much as 15% since the start of the stamp duty holiday in July, with many lenders currently offering reduced rates. 

Howeverpotential redundancies following the end of the Furlough scheme in March 2020 mean that a large number of tenants may struggle to make rent payments in the coming months. This could leave landlords with difficult decisions to make – shoulder the deficit or face finding new tenants. Furthermore, the future of the property market is by no means stable. It’s resilience to the pandemic is seen by many as a result of its strength pre-pandemic, and could waiver still. Many experts are predicting a decline in property prices by next year. 

Holiday lets 

Buying a property with the view of turning it into a holiday home is another investment option. With an increasing number of people looking to holiday within the UK after a summer of quarantine rules and foreign travel bans, holiday lets have become increasingly popular. 

Pros: 

  • Whilst buy-to-let mortgages have been subject to tougher tax laws in recent years, holiday lets are classed as ‘businesses’ rather than investments, meaning that owners are exempt from such regulations 
  • Rental yield on holiday lets can be as much as 30% more than on buy-to-let properties 
  • Where previously there may have been periods of the year where a holiday let was left empty, since the end of lockdown many owners are seeing their properties booked until the end of 2021 

Cons: 

  • As holiday lets are typically sought in tourist towns and beauty spots, property prices may well be higher 
  • With many people looking to move permanently to rural towns after lockdown, competition for good deals may be tough 
  • New lockdown restrictions could ban holidaying in the UK, meaning that you could face mortgage repayments with no offset from rent 

Indirect property investments 

Indirect property investments allow users to invest in property through stocks and shares, without owning a property outright. These investments can be made either by placing your money in shares in property companies, land banking schemes, or real estate investment trusts (REITs).  

Many argue that the coronavirus pandemic has simply sped up an inevitable change, forcing high street stores to close their doors and offices to become redundant spaces. This dramatic shift in commercial real estate has put investors at risk. Retail property can make up over half of REIT portfolios, with these retail-heavy trusts seeing share prices fall by as much as 46%. 

However, with the foresight that these closures were already underway, many REITs have been strategically weighting their portfolios towards warehouse and logistics space. The shift towards online shopping has seen the demand for this type of commercial property rise dramatically. 

Selling for profit 

Location has traditionally been a key variable to the success of selling for profit, with investors seeking to purchase in ‘up-and-coming’ areas. However, changing trends in recent buyer behaviour prove how unpredictable the market can be. Urban centres were highly sought-after before the pandemic, with proximity to offices a priority for professionals. But the closure of the offices has forced many to reassess. For example, rural regions on the Welsh coast have seen property prices skyrocket in recent months, as city dwellers leave in search of more green space.  

Conversely, property prices in London’s Zone 1 have dropped by as much as 5%. 

Nonetheless, your capital growth will also depend on factors such as the age and state of the property, and the state of the market.  

If the COVID-19 pandemic has taught us anything, it is that the property landscape is liable to tectonic shifts that often fly in the face of predictions. If you’re considering your options for investment, or are have any queries regarding existing investments, a financial planner at gpfm can answer your questions. 

This article is for information only and must not be considered as financial advice. We always recommend that you seek independent financial advice before making any financial decisions. Investments can go down as well as up and you may get back less than you invested.