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Summary
- UK Mortgage Lending Plunged to Record Low in April
- Biggest Monthly Fall Recorded in Housing Prices Since 2009
- Opportunities for Buy-to-Let Investor in the Rental Sector
- Supply of Rental Homes to drives the future growth in Rental Market
Uncertainty hovering around the pandemic has pushed the would-be house buyers under the ceiling of rental properties to cope up with the financial anxiety. The housing market in the United Kingdom has plunged to the level of a global financial crisis with prices falling by 1.7 percent in the month of May from April, the biggest monthly decline recorded since February 2009.
But amid the crisis, the rental housing sector has proved to be the shock absorber of the housing market as demand for rental properties has grown significantly during the Corona crisis. The economic crash wrought by the pandemic Coronavirus has created a new group of tenants who have shifted their demand from new houses to rental properties due to their lowered buying powers. This is because coronavirus has impacted people’s regular flow of income with widespread fears of lay-off taking place around the world. However, job insecurity is not the only reason for this shift as the record-low number of mortgage approvals has witnessed a reduction among home-loan borrowers.
UK Mortgage Lending Plunged to Record Low
The latest figures from Bank of England (BoE) revealed that mortgage lending in Britain has slumped to a record low in April as the country spent the months in the coronavirus lockdown. The number of mortgage approvals declined to 15,848, which is around 80 per cent down from the level recorded before the pandemic hit the country and the lowest since comparable records began in 1993.
UK’s lenders have withdrawn low deposit mortgages in masses like the leading mortgage lender Halifax had pulled back a majority of the mortgages it sells through brokers and stated that it would not continue the practice to offer any mortgages with a ‘loan-to-value’ of beyond 60 per cent. It simply, means that buyers who can afford 40 per cent deposit would only be eligible for loans.
However, since the seven-week housing market freeze has been lifted on June 2, mortgage lenders have gradually started reopening their doors to new applications. The mortgage broker has reportedly said that there has been a sharp increase in enquires since lockdown was eased in mid-May, reflecting the substantial pent-up demand in the current market.
Housing Market Decline the biggest Since 2009
Coronavirus has grappled the global economy, the jitters of which could be easily spotted across various sectors, from the beaten-down businesses, disrupted market activities and even the collapse of many in a wave of financial crunch. The fallout of pandemic coronavirus has also hammered the British housing market where the prices have fallen to 11 years low.
Nationwide Building Society reported that annual growth in house prices has declined to 1.8 per cent in May from 3.7 per cent in April 2020. This marks the monthly change of negative 1.7 per cent, not seen since the global financial crisis of 2009.
Economists and market experts believe that house prices could come under huge pressure as coronavirus damages the economy with a huge decline in households’ income and consumer confidence touching decade low. Thus, this fall in housing prices in May could just be the beginning of housing market crash expected this year, with as much as 5 per cent decline projected in prices by the end of the third quarter.
Opportunities for Buy-to-Let Investor in the Rental Sector
Investors are eyeing the opportunities available around buy-to-let investment as the rental properties record a resurgence in tenant demand. It is not possible to accurately predict where we would be after six months from now, as global scenario continues to change on a weekly and even daily basis. But in these uncertain times, people are more likely to rent for a longer period instead of living at self-owned homes to save up for a deposit. This radical change in the property market could potentially add the skin in the game of the rental sector in order to boost the rental values while maintaining a check on affordability.
Institutional investors like insurers and pension funds are being said to have started investing in billions in building homes for rent as they see an opportunity to capture safe income-generating investment even during the economic meltdown. On the same time, the investors further believe that government should support the rental market through a cut in the stamp duty to help boost the landlords and property investors.
Let’s take a snapshot of some major players of the build-to-rent sector in the United Kingdom.
Sigma Capital Group PLC (LON:SGM): Sigma Capital Group specializes in building single-family homes through both private vehicles and a Real Estate Investment Trust (REIT) it created to own completed assets. SGM stock is trading at GBX 95.00 as on June 5 (10:44 AM GMT).
British Land Company PLC (LON:BLND): Real estate player British Land Company owns, develops as well as manages rental properties’ portfolio across the United Kingdom. BLND stock is trading at GBX 458.00, up 1.40, on June 5 as at 10:39 AM GMT.
Grainger PLC (LON:GRI): Grainger is one of the UK’s largest residential landlord and has become a leading building-to-rent developer over the years. GRI stock is trading at GBX 303.00, up 1.34 per cent, as on June 5 at 10:58 AM GMT.
Legal & General Group PLC (LON:LGEN): Insurance company Legal & General Group Plc has long been investing in build-to-rent residential property market. It is a giant investor in student accommodation, social and affordable housing, senior living and has established its own modular construction factory. LGEN stock price surged up by 2.79 per cent to trade at GBX 235.90 as on June 5 at 10:59 AM GMT.
Coronavirus has hard hit the UK’s housing market but not the rental market, for sure. Rental market’s further recovery depends upon the supply of rental homes to absorb the double-digit growth in demand for lettings, which otherwise could push up rent prices, providing landlords the leverage to be more selective with tenants.
