Do you want to invest in buy-to-let, but worry how the recession is affecting the market? In this three-part series, we investigate the hotspots where employment has been most resilient since March, working with three budgets: £25,000, £40,000 and £60,000
Coronavirus has created a strange and polarised market for buy-to-let investors. While the pandemic has sent the central London rental market into turmoil, it has boosted demand in many areas outside the capital, as renters seek to upsize and relocate after lockdown.
But anyone thinking of entering the market now needs to be wary. Nearly 700,000 people have become unemployed in the first five months of the pandemic, and the numbers will rise further as the furlough scheme ends in October.
The pandemic has generally hit tenants' income harder than that of homeowners, said David Fell, of Hamptons International, an estate agency. “They tend to be younger and disproportionately employed in sectors which have been slower to recover from lockdown.”
He added: “Cheaper northern towns have so far proved more resilient." Many have recorded much smaller rises in unemployment than wealthier parts of the country as fewer jobs are concentrated in the most affected industries such as hospitality and travel.
Coronavirus will therefore likely compound a trend: in the last five years, the number of southern landlords investing in the North has doubled, as investors seek cheaper properties with higher yields, said Mr Fell.
So which buy-to-let markets are most stable to invest in? Using exclusive data from Hamptons, we have analysed which local employment markets have so far proved most resilient in the face of the pandemic.
Though cheaper areas had higher than average rates of unemployment before, many of the biggest increases in unemployment post-coronavirus have been in the pricier parts of the country. Spending more money these days does not necessarily buy you access to a more reliable or stable market.
So, if you have a budget of £25,000, where should you buy?
Barrow-in-Furness in Cumbria has recorded one of the smallest changes in unemployed claimant count in the country during the pandemic. Between January and July, the numbers increased by only 1.9pc. This is partly because before the local unemployment rate was relatively high, at 9.7pc.
The pandemic has turbo-charged the local lettings market. Shaun Dixon, of PC Lettings, a local agent, said: “I’ve been working here 15 years and since lockdown lifted I have never known it to be this busy.
“For the last three months, we have been letting 10 houses a week, when usually we would let 10 houses every eight weeks.” Rent prices have jumped 10pc since June.
Tenant demand is centred around two sources of local employment which have been immune to the pandemic, said Mr Dixon: the BAE Systems shipyard, which manufactures submarines, and Furness Hospital.
The pandemic means that tenants with bigger budgets who would previously rented in Ulverston, closer to the Lake District National Park, now want to be able to walk to work and are renting more centrally, said Mr Dixon.
Meanwhile, corporate relocators are increasingly opting to house employees in rented accommodation, which they consider to be safer, rather than local hotels, said Mr Dixon.
Brexit has meant that many of the EU workers employed at the hospital have left, said Mr Dixon – but these people usually bought homes. They have been replaced by doctors and nurses coming from further afield who are opting to rent instead. The number of doctors looking to rent has quadrupled, he said. The neighbourhood of Hawcoat, near the hospital, is particularly popular.
Tenant demand is also strong around Oxford Street, just north of the station, and Walney Island, which sits just off the tip of the peninsula, said Mr Dixon.
Yields are high, at 11pc for flats and 8pc for terraced houses, according to Hamptons. Both cost £96,000, meaning a deposit will set you back £24,000.
The claimant count in Copeland, north-east of Barrow and also in Cumbria, has also risen by only 1.9pc. The pre-coronavirus tally here was slightly lower, at 9pc.
Homes are cheaper than in Barrow-in-Furness too. Flats here cost just £92,000 while terraced houses are £90,000 – so allow about £23,000 for a deposit.
The respective yields here are lower, at 8.1pc and 7.2pc, as rents here are not as high.
Lesley Kenyon, of Grisdales, a lettings agent, said lockdown has boosted the market by driving a surge in local upsizing. “People are looking for more space because they are working from home, they want an extra bedroom, or a reception room,” said Ms Kenyon.
Tenant demand from employees at the Sellafield nuclear plant, which has a graduate intake each autumn, and the West Cumberland Hospital, is strong, said Ms Kenyon.
Where should a buyer invest £25,000? “I would recommend buying a two-bedroom property with parking in Whitehaven town centre, with some outdoor space,” said Ms Kenyon. The neighbourhoods of Hillcrest and Kells are also popular, she added.
Between January and July 2020, the unemployed claimant count in the London Borough of Haringey jumped by 6.7pc, the highest rate in the country. The average price of a flat here is £593,000.
In Darlington, which sits within Country Durham, the claimant count has risen at less than half that rate – a jump of 2.5pc – while properties cost a sixth of the price. Unemployment in March was 6.8pc.
Flats here are on average £99,000 while terraced houses cost £96,000. Invest £25,000 in an apartment and you will get yields of 9.1pc. EE, the mobile network, and Student Loans England are two major local employers.
In the wider County Durham local authority area, the increase in claimant count is a little higher at 2.7pc. But property here is the cheapest of the top four.
Flats here cost £79,000 while terraced houses are on average £80,000, so you need only budget £19,000 for a deposit. Yields sit at 8.1pc and 8.4pc respectively.
Kelsey Burdess of Rise, a local estate agent, said the pace of the local market has picked up since lockdown. “Properties are let easily within a couple of days now, when previously it would have taken a week or two,” said Ms Burdess.
The lettings market in Durham town is closely tied to Durham University, said Ms Kenyon. In the student market, landlords can earn between £400 to £500 per month for a room.
Buy-to-let investors could benefit from the A-levels results fiasco. Now that students have been awarded their predicted grades, many are able to ditch their back-up options. Acceptances at top tier universities are already up 11pc year-on-year, according to UCAS, the admissions body. Durham University is part of the Russell Group, meaning student numbers could increase.