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Mortgages

What makes a smart buy-to-let investment in 2020?

Picture of a t with a blue dot next to it, in front of a purple background.

What people want from their home, and their local area for that matter, has changed.

Lockdown, and subsequent work and lifestyle changes, mean that the idea of ‘home’ now encompasses much more than it did before. Therefore, a property needs to work much harder to win over those seeking a place to rent.

But this does bring with it some good news for investors? Compared to the same time last year, demand for rental properties had increased by 33% in May 2020. By investing in the most desired properties and locations, landlords could potentially increase their rental income.

And tax savings from the Stamp Duty holiday should also come as welcome news, despite the 3% surcharge which still applies to investment properties.

So it appears it’s still a good time to make an investment. But what does a good investment look like in 2020?

The need for more space

Okay, it’s a fairly obvious one to start with. But unsurprisingly, after months of lockdown and restrictions, the desire for more space tops the wish-lists of UK home-hunters.

The latest research has revealed that 25% of moves post-lockdown were those making the jump from a flat to a house, compared to just 16% in the months leading up to the pandemic. A separate study by Rightmove likewise found that the studio flat - the most sought after rental property in January this year - has now dropped out of the top five searches, with a two-bed house taking the number one spot.

These results suggest that Brits are desperate for their own outdoor space, which could be a result of this year’s glorious hot weather. Prospective investors may want to focus their attention on properties with a garden, which 60% of renters included in their search criteria (the most popular request of all).

This was followed closely by indoor space. Another study revealed that between May and August, 34% of tenants who moved home added at least one extra bedroom, as opposed to 25% during the first three months of 2020. Despite current fears of redundancy, unemployment and salary reductions, people are willing to spend more on rent too. This is obviously great news for landlords, adding a 23% increase in the average rent being paid in the same timeframe.

And as it turns out, it’s not a baby boom causing the need for more room! According to Zoopla, 34% of 35-49 year olds said a home office in particular is, and will continue to be, a much greater priority.

We previously found that one way to get your hands on a more spacious property could be by investing in a period house. Traditionally providing more square footage, higher ceilings and characterful charm, there’s also evidence to suggest they’re better for our mental health, which is understandably a big concern at the moment. So, this kind of property could be perfect, providing it ticks some other boxes too.

Location, location, location – or maybe not?

As well as the need for more space of their own, current restrictions have left people wanting to spend more time in nature. A significant 44% of both buyers and renters have altered their criteria on Zoopla to include a shorter distance to parks or the coast.

Among the highest yielding areas are four rural and coastal areas in Scotland, which could all make for an ideal location and investment.

Currently less desirable to renters are city locations across Britain, as applications for urban areas have decreased by 23% since the Coronavirus outbreak. The same research indicated that 63% of London renters who upsized actually left the capital, suggesting that space has taken priority over location, as many are willing to take a longer commute for more room.

While this research indicates that access to public transport is now slightly less important, (though perhaps not as much as we anticipated), we do expect to see the desire for off-road parking become more prominent over the coming months. As workers return to the office, more people are sourcing cars as a safer alternative to public travel.

Staycations are on the rise

We all know that international tourism has taken a massive hit as a result of the pandemic, and many are opting to vacation closer to home to avoid quarantining. In the Telegraph’s travel supplement, it was reported that holiday rental bookings across the most popular UK destinations have quadrupled. The BBC also reported that in many cases, there aren’t enough properties to keep up with demand.

For landlords, holiday lets had already begun to grow in popularity well before Coronavirus, mainly due to the significant tax advantages as they are classed by HMRC as a business (rather than an investment). Combined with the potential for bigger profit margins and a much higher return per-night, now could be a great time to invest, as the sector is predicted to come through 2020 stronger than ever.

The evidence certainly suggests that some new trends are emerging amongst home-hunters, but of course, not everybody is reassessing their priorities. Seemingly less affected by the pandemic, 60% of over-35s said they hadn’t revaluated their criteria at all.

So perhaps you’d rather know what would make a poorer investment, and student accommodation is an obvious one here.

We already touched on the impact of the virus on students in our previous blog, particularly on international learners who usually have no choice but to find rented accommodation. But with the UK’s doors largely shut, this is a section of the market which is now missing.

Student housing also has something in common with HMOs, in that they’re particularly unsuitable for social distancing. Many renters have reported their fears about sharing their home with others, and it’s likely that individuals may prefer to stay with family for the time being. The only potential respite for landlords is that with pay cuts and unemployment rising, people may have no choice but to use this form of cheaper accommodation moving forward.

Overall, with restrictions on travel and people unwilling to use shared living spaces, these investments may not make the best choice right now – but that’s not to say they won’t pick up again in the future.

What should I do next?

Despite a lot of uncertainty for many industries in the current climate, we believe there are some great investments to be made for landlords, as the sector remains resilient.

It’s clear that young professionals and families are feeling the impact of the virus the most, and have changed a lot of their priorities when it comes to choosing a place to live. Before you take the plunge with your next purchase, make sure to think like your customer and prioritise features such as a garden or nearby green spaces, a home office, or a driveway.

If you’re still struggling for inspiration, we’ll be looking more closely at some smart examples of savvy buy-to-let investments currently on the market in our next blog.

But for now, you can find out about our Buy to Let mortgages here.
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