As the turbulent year 2020 comes to an end, it is an opportunity for us to both reflect on the year’s unusual events and look forward to 2021.
The coronavirus pandemic continues to dominate discourse, affecting jobs, salaries, education, legislation and, most importantly, health. And we envisage that the ongoing crisis will have a significant impact on rental trends in 2021.
At Ome, we anticipate that both buyers and renters will choose the suburbs over cities as inner-city offices remain vacant as a result of people continuing to work from home; that there will be a new tenancy boom in early 2021; and that there will be increased use of deposit replacement schemes that offer flexibility and choice in an ever-changing world due to ongoing furlough, redundancies and other life events.
Here, we explore Ome’s predictions for 2021 in a little more detail…
1. Suburbs favoured over cities
The steep rise in working from home, in accordance with government guidelines, has led more and more people to choose the suburbs over big cities; due to offices being closed and therefore a reduced need to travel into town.
In the suburbs, renters and buyers alike benefit from more space for their money, often with the added bonus of gardens and green spaces that city living cannot usually provide.
Business Comparison’s Remote Working Report found that only 5.1 per cent of people mainly worked from home in 2019. But, as of April 2020, according to the Office for National Statistics (ONS), 46.6 per cent of people in employment did some work at home.
We predict that this huge transformation in ways of working will remain, as working from home continues to be advised by the Government, therefore making suburban properties more attractive due to the space and value for money they offer.
Perhaps the public health crisis and ensuing lockdowns have caused people to reassess their priorities and choose spacious sleepy commuter properties over smaller city flats.
This prediction is supported by data from Rightmove, the UK’s largest online property website, which reported that enquiries from city residents for village locations increased 126 percent in June and July compared to the same period last year. They refer to ‘the shift in more buyers looking to move outside big cities’ which began in April and is continuing most notably around Liverpool, Edinburgh, Birmingham and London.
SpareRoom.com compiled similar research and it was reported in LandlordZONE that 27% of renters in London are waiting to move once restrictions lift; with half of them expecting to leave London altogether.
Spending more time at home due to socialising restrictions, plus the requirement for many to work from home, will inevitably cause renters and buyers to look further away from cities for properties with space for a home office, and a garden to relax in.
Fast broadband is now the vital must have for tenants rather than good transport links to work, as priorities and ways of working shift.
According to a recent survey of more than 1,700 tenants by London lettings agent Benham and Reeves, fast broadband was the number one feature they looked for in a rented property, overtaking easy access to good transport links which had topped a previous poll.
The prospect of returning to ‘normal’ has recently become more realistic as the COVID-19 vaccine was rolled out in early December, to the UK’s most vulnerable people. However, the long and complex process of mass immunisation means that the ‘new normal’ will remain for the foreseeable future.
2. Need for financial flexibility
It’s hardly surprising that, due to the devastating impact of the pandemic, the UK’s unemployment rate is the highest it’s been in three years.
According to the ONS the unemployment rate for those aged 16 and over stood at 4.8 per cent from July to September 2020.
Unfortunately, of those out of work, the majority – around 60 percent – are young people. This suggests that young people have been disproportionately affected by unemployment as a result of the pandemic.
SpareRoom reported that almost a quarter of 23-29 year olds left their rented accommodation during the pandemic to save money or after losing their source of employment.
Perhaps those who choose to remain in their rented accommodation will look for more flexible and affordable options to help them manage their finances and avoid facing financial difficulties, such as struggling to pay their rent.
Deposit replacement options like Ome could be an option which people turn to in 2021 due to the flexibility it affords tenants in relation to positive cash flow; allowing greater control over short term finances which can be highly beneficial in uncertain circumstances.
Perhaps one of the benefits of the financial uncertainty caused by the pandemic is that people will become more aware about their finances and better at looking for alternative options.
Our prediction that there will an increased need for financial flexibility in 2021 is backed up by an analysis of the private rental sector by the London School of Economics, which suggested that there could be three times the current number of private tenants in rent arrears in England in the next 12 months.
For advice on how to manage the relationship between landlords and tenants during testing financial times, read the Hamilton Fraser guide What should I do if my tenants can’t pay rent.
Citizens Advice also have a wealth of advice and information about dealing with rent arrears and so does housing charity Shelter. If you are a tenant struggling to pay rent it is important to seek advice and try to formulate a repayment plan with your landlord or letting agent as soon as possible.
3. Tenancy boom in early 2021
Ome data was reported on in early November by LandlordZONE, in an article which revealed how the rental market bounced back in May after the lockdown during March and April 2020.
Our analysis revealed that while market activity slumped by 31 percent during March to May, from the beginning of June to the end of August, the number of new tenancies increased by 22 percent year-on-year.
Using this data as a guide, we predict that the second lockdown will also be followed by a boom in tenancies.
Although recent lockdowns have not seen a complete shut down of the rental market, renters are still encouraged to view properties online rather than in real life, and are facing continued financial uncertainty, which could be deterring them from signing new tenancies at the moment; and encouraging them to wait until the new year.
4. Increased uptake of deposit replacement schemes
Deposit replacement schemes are flexible alternatives to the traditional upfront cash deposit taken by landlords or agents at the start of tenancies.
This new model has grown in popularity over the last few years to support renters’ desire for choice and flexibility over their own cash flow. Deposit replacement schemes can help to avoid traditional rental hurdles such as the deposit ‘double bubble’, whereby renters await the return of their previous property deposit despite relying on the money to secure their new home.
Deposit replacement schemes should offer tenants choice, flexibility, and transparency and come in a variety of models. The common theme however is that they replace the tenant’s need to provide a one-off lump sum deposit with a deposit replacement product, whereby the tenant pays by a non-refundable fee.
We predict that, due to cash flow issues exacerbated by the pandemic, more and more renters will utilise deposit replacement options which reduce the upfront costs associated with moving; instead, relying on small non-refundable monthly payments.
It is more reliable and safer for all parties to opt for independent and established schemes such as Ome’s Deposit Replacement Membership over agent operated ‘do-it-yourself’ schemes. A ‘do-it yourself’ deposit replacement scheme is an option offered and operated by the agents themselves.
For more information about the pros and cons of different types of deposit replacement schemes, check out the blog by the Property Redress Scheme, ‘What are the risks of ‘do-it-yourself’ deposit replacement schemes?’
In summary, it is of course impossible to predict exactly what next year will bring, especially after the disruption and difficulties wrought by coronavirus.
But, as the light at the end of the tunnel appears through vaccine development and roll out, it is possible to look towards the end of the crisis and make predictions.
For a more landlord-focused review of the 2020 rental market, read Hamilton Fraser’s blog: ‘Has 2020 been another landmark year for landlords?‘