Expert opinion on the future of buy-to-let and housing development

The forecast for the future of the rental and housing development markets is mixed but not gloomy. In its report on coronavirus and the rental market, Savills state the obvious in that there will be less movement in the next three months as restrictions place practical constraints on people’s ability to view properties and move.

Lucian Cook, Savills Director of Residential Research, says: “The Government has announced a range of measures to help support those in the private rented sector, including a moratorium on evictions for three months in England and it has extended its mortgage payment holiday to mortgaged buy-to-let landlords whose tenants are in financial difficulty. However, the Government has yet to announce direct support for tenants struggling with rental payments.”

Savills believe there may be modest falls in average private rents paid as some landlords heed the call to act to help tenants in financial distress. They add that for the majority of households, rental payments will continue as normal with no significant impact on rental values in the short term.

“There is a long-established correlation between rental value growth and income growth. We expect this correlation will continue. The coronavirus pandemic is therefore likely to result in slower rental value growth over the next year, with growth accelerating as income growth returns.”

As for housing development, he believes that restrictions on people’s ability to move and work will present obstacles to housing delivery.

“Some housebuilders, such as Taylor Wimpey, Barratt, and Persimmon, have already announced that they are suspending construction on their sites; we expect other housebuilders to follow. Inevitably this means there will be a fall in both housing delivery and new build sales this year.”

Developers will face pressure to restore their sales rates when restrictions on doing business are lifted as they need to ensure they maintain cash flow to service their funding commitments.

This could have a positive effect for buyers as housebuilders keen to sell at pace may offer tempting incentives for them to sign on the dotted line. Savills add that if household demand for new build homes is slow to return, we could see housebuilders take other routes to market.

“We could see an increase in the number of sites converted to affordable housing with additional grant funding, as we observed in the aftermath of the Global Financial Crisis,” says Lucian Cook. “There will also be continued demand from institutional build-to-rent investors, albeit they may require greater discounts to account for difficulty letting in the coming months.”

The consensus among economic forecasters is that the coronavirus disruption will be relatively short-lived. On that basis, Savills anticipate continued demand for land as housebuilders continue to plan their construction rate.

However, there could be disruption to land supply where local authorities have diverted resources away from planning.

“The Vale of White Horse, for example, has stated they will not register new planning applications until the crisis is resolved,” says Lucian. “This will reduce the supply of consented land and could put upward pressure on land values in the medium term.

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