So,we're almost out of lockdown...ish. Many of us were hoping to of been free by now 2021 finally seeing off the monotone drudgery of 2020. However 2021 has bought highs and lows. Property investors not only must navigate the deep space of Brexit and Covid uncertainty, but now rising unemployment coagulates on the horizon line in form of a giant question mark. You can almost feel the grey hairs emerging.
However, before you break out the Just For Men take a moment to indulge your thinking with some reason and balance. In this blog we’re going to look at how breaking with the EU, the global pandemic and the jobs market all bring with them much needed rays of light, plus a few tips on getting 2021 off to a great start. Enjoy….
Brexit. So let’s jump in. It’s scary and uncertain for society as a whole let alone those of us trying to create personal wealth. Up until now we’ve had our fare share of scaremongery. Be it looming unemployment, a drought in hospital and medical supplies, security risks from relinquishing our membership of Europol, the list goes on. Economic doom mongers now present the property market as the next fatted calf headed for the Brexit slaughter house, but as with all economic fluctuations the real problem here is the perception of reality, not the reality itself. Consider the market chaos one day after we voted to leave the EU and then compare this to the surprising growth in the property market during the recent pandemic.
How does a global health issue bring stability when a European political issue brings uncertainty? The reason is that whilst both expeditions played out in the dark howling moors of a Hammer Horror film, only one expedition consisted of a terrain that unfolded with each step as it was being taken. Consider the difference in landscapes. A Brexit landscape was, up until Christmas Eve, erratic, fluid and full of political in-fighting. In contrast a Covid landscaped emerged lava-like, gradually and slowly solidifying as it progressed.
Whilst the path twisted and turned in to strange and unforeseen shapes, a course could well be plotted even if only at the speed of the ongoing eruption. Brexit was shrouded in mystery with only negative perceptions and predictions emerging from the unknown. Covid provided new realities that gave the market something visible to work with, keeping the negative bias that follows uncertainty at bay. Add in motivating factors such as the stamp duty holiday, changes to Capital Gains Tax rate laws (click here to see how you can actually benefit from these) and a new demand for larger outdoor spaces, and the picture remains relatively clear. One small pimple on the face of all this is the possibility of a post Brexit rise in unemployment.
Then we come to unemployment and the jobs market. As last summer drew to a close, we saw a wave of uncertainty hit mortgage lenders as unemployment started to rise. Lenders became increasingly shy when it came to anyone on a low or unstable income borrowing 85% or more of their current home. To date the global pandemic has jettisoned 1,434,515 jobs in the UK alone, putting a squeeze on both personal and domestic finances. As we’ve already mentioned, this effects the types of perceptions and predictions lenders will make about the viability of their potential client base. Understanding how unemployment will effect the Leicester market will largely depend on the national picture.
Like many centrally based UK cities built on industry, one clear trend we may see is the young people working in sectors such as hospitality, leisure and catering being forced to find new work as remote work, in these industries is not an option. These types of jobs are by nature vulnerable to periods of lockdown, with any funds previously allocated for a deposit now having to be used to live on. Whilst this may mean a temporary pause in a specific corner of the market, remember that pent up frustrations when it comes to investing in property, as the first lockdown showed us, only leads to a surge in activity later.
On the other side of the coin, we may see larger homes reducing in value considerably when wealthier home owners after suffering the sudden loss of a job. The reason for this is the higher the mortgage, the higher the threat of repossession. In order to avoid the bargain basement price of a repossessed home, property owners may be forced to drop the asking price by a considerable amount. Now, this may trigger an alarm bell or two as the last time we checked (the previous two recessions of 2009 and 1989) a flood of cheap repossessed homes dragged the overall property asking price down by a fair amount and left many property investors haemorrhaging cash. Not so for 2021 as we have the added blessing of low interest rates. These should be enough to keep home owners financially stable and prevent repossessions.
Should rents keep on a northern trajectory between the 13 and 15% mark in the next five years, along with a rise in property prices in 2023/24, rental yields will be a little lower compared to today. It's worth remembering that rent and wage growth are long term bed fellows so the average Leicester investor who's willing to play the Leicester buy-to-Let market for the long term, new opportunities could be around the corner. Hopefully that's filled you with some much needed confidence and put things in a slightly different light.
Before we sign off here's some great tips the average Leicester landlord can take on board:
- Why not redefine relationships with your tenants and send them a house warming gift?
- Try to get as many of the maintenance issues resolved before lockdown ends
- Keep your portfolio ship shape. If you need advice we have a free advice service you can use at any time. Just call us on 0116 2706699
- How's your insurance cover looking? Has everything been accounted for?
- Always keep a monetary float for the rainy day. Trouble can emerge from any crack at any time so make sure you're solvent and ready!
- Keep your ear to the ground on a continual basis for great By To Let deals. New ones are emerging each day and it would be a shame to miss out!