April 29, 2020
Feeling worried about how COVID-19 will affect the Scottish property market?
COVID-19 has been a game changer for… absolutely everything. The property market is no different, and we’re now faced with challenges that no-one could have predicted just a few months ago.
Whether you’re thinking about buying, selling or how this is going to affect things in the months to come, it’s very safe to say that we’re all looking to the experts right now to get some idea of what we’re facing.
As a seasoned specialist estate agent, myself and Portolio co-founder Chris have over 35 years of experience in property between us, and we wanted to weigh in on what’s happening right now – as well as to share some of the general consensus from other property experts.
But before I get started with this blog post, I want you to know that if you are feeling worried about a crash resembling that of 2008, you shouldn’t be. Currently, this is NOT like the fiscal crash of 2008 – and any slump in property should be short-term.
In other words, this too shall pass.
NOTE: We’re going to be updating this article as this situation develops and more information becomes available. The most important thing to remember is that we need to take COVID-19 very seriously. Stay safe, stay in doors, and keep your loved ones safe.
We’ll see medium to long-term growth
In our recent ‘property pow wows’ with other experienced industry pros (where we’ve been soaking up info like sponges), there’s been lots of talk about a V-shaped recovery for the property market (a short-sharp dip then rise).
NOTE: Although every sector’s recovery will take a different shape (this article is focused solely on property), I’m sure you’ll agree that property is intrinsically linked to the economy as a whole.
In the short term, growth will be in the negative due to the effective closure of Registers of Scotland, resulting in a steep fall in transaction activity (despite that, properties are still being sold – find out how via our recent blog).
However, in the medium-to-long term, following the impact of COVID-19 (including continued loose monetary policy and super-low interest rates), we’re most likely looking at asset price inflation.
More sellers (of investment/tenanted property at least) will be looking to sell during COVID-19, and in the immediate aftermath leading to some good buying opportunities for eagle-eyed buyers who are prepared and can move to secure sales fast.
LTV rates are already recovering
We’ve seen some reports that, if you’re looking to leverage your cash through a mortgage, you’d be looking at a 60/40 LTV (loan-to-value). That did seem to be the case for a while, but since mid-April we’ve already seen a couple of the 80/20 LTV mortgage offers coming back.
This bodes well if you require a mortgage for an investment property – and for homebuyers, loans of up to 95% are already available in Scotland (and to a lesser extent in England), from the likes of Skipton.
Saying that, most rates are sticking at around the 60/40 rate, with larger deposits still needed for first-time buyers. We’ll be keeping an eye on this over the next few weeks and months ahead.
As a caveat, there will likely be a large backlog of bank surveying work once lockdown is lifted, slowing down the process of mortgage buyers – which could make some offers less attractive for buyers looking to make a quick sale. Which is why it could be worth speaking to lenders now.
Tenancy demand will increase
Renting demand is still expected to be high – and will perhaps reach an all-time high if we consider the economic downturn whilst people recover from the impact of COVID-19. Right now, we’re looking at 21% of households being privately rented.
BC (before COVID-19) the prediction was that this percentage would increase to 25% by 2025. Now we could be looking at this happening a lot sooner than initially predicted.
However, we also really need to address the elephant in the room; that is, the impending oversupply in the rental market, with currently vacant student properties and the influx of serviced accommodation property.
What we’re most likely looking at from now until the end of the year, and maybe until Autumn 2021, is an increase in void periods and drop in rent. This won’t cause too big of a hole, but it’s definitely worth noting.
Yield may increase, too
Well, at least in the short to medium term. Looking historically at rent prices, they’ve always been more generally robust than house prices (and less prone to volatility – as they’re contractual for a year or more).
Let’s take 2008, for example (although again, we’re not saying this is the same). Property prices fell sharply during the crash, yet rent levels stayed the same, and yields actually began to increase – swiftly followed by the bounce back on capital values.
Short-term lets are dropping
This forecast wouldn’t be complete without looking at the impact on short-term lets. There’s already been a noticeable shift from short-term lets to the long-term rental sector – and that was before the mad scramble we had in the approach to lockdown.
Looking at Edinburgh, AirBnB listings fell by over a quarter from late 2019 to March 2020.
Long-term property rentals in the city, however, are up by over a staggering 50% this year alone (through Citylets), as more and more landlords are looking at longer term solutions.
Advice from the tenanted property pros
What we’re really looking at here is a short-term slump, rather than a long-term slog. With that in mind, try to stay as positive as possible.
For sellers
It is possible to sell tenanted property at the moment; just not on the open market. This is something a specialist estate agent should be able to help with, as they’ll have access to a huge list of property investors who will be looking for opportunities. For us, offers are still coming in.
But a word to the wise; as we work with landlords who sell property, it should be noted that success is relative, and may be subject to the current market conditions. However, the goal remains the same; to get a good sale price, under the theory of shared success.
With the above in mind, if you do have a property you’re looking to sell, ask yourself if it’s really necessary to sell now – or whether you can hold on until lockdown is over, buyer confidence is up, and you have access to more visibility on the open market.
Remember, every situation is different. A good specialist estate agent should be happy to listen to you, and help you assess all your options so you can make a more informed decision. We’ve had situations where we’ve helped people sell immediately, for a good price.
For buyers
The recent tenancy changes mean that we’re going to be seeing a lot more tenanted properties being sold, as landlords now need to give tenants six months’ notice. This means that there will be certain opportunities for eagle-eyed investors – if you have your finger on the pulse, that is.
As you’ve no doubt gathered, properties can’t be sold on the open market during lockdown (as no surveys, home reports, viewings etc.) but properties are still being sold off-market. This means opportunities are still presenting themselves… but where?
Well, specialist estate agents (like us!) can provide savvy investors with property alerts based on factors such as location, type of property, and yield etc. so they can be notified when new opportunities of potential interest present themselves.
So, it’s well worth keeping your eyes peeled if you’re in a position to buy right now – and we understand not everyone is. As we mentioned above for sellers, there might be deals coming up that suit everyone, which is what we’re all about here at Portolio; shared success.
To sum it up…
When looking at how COVID-19 will affect the Scottish property market, it may well deliver a short, sharp shock to the system. However this is only expected to be a short-term effect.
If you’re looking for more information on how this will affect you as a buyer or seller, we recommend picking up the phone and speaking to an expert who can give you some advice on your next steps – even if that’s just preparing for when things return to normal.
Sellers should take advice to help assess their options, and buyers should prepare to move quickly if they want to seize any opportunities coming up. Try and stay positive; we’re going to get through this, and the market WILL recover – sooner than you might think.
If you’re looking to get some advice regarding property right now (or in the future), please don’t hesitate to get in touch.
And, most importantly of all – stay home, and stay safe!
Sources:
Written by Chris Wood, MD & Founder of Portolio
Get in touch on 07812 164 842 or email to [email protected]
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