UK buy-to-let has 'defied gravity' through Covid-19, says S&P

Related Topics

The UK buy-to-let (BTL) market remained resilient through the Covid-19 pandemic and has features that could help it remain buoyant, says S&P Global Ratings in a new report.

Amid the pandemic-related lockdowns, private sector UK rental arrears reached 9.0 per cent by the end of 2020, but the S&P RMBS post-2014 originations buy-to-let (BTL) index recorded total delinquencies no higher than 0.5 per cent.

"Diversification in terms of property and borrowers, the increasingly professional nature of BTL, and generally high debt servicing ratios has helped buy-to-let performance remain resilient," says S&P Global Ratings credit analyst Alastair Bigley.

For post-2014 originations, approximately 50 per cent of properties at a portfolio level could be in rental arrears in the short term before it would affect debt service and cause a significant spike in arrears.

Ultimately, Covid-19 represented a shock to only one risk factor that determines BTL performance – tenant affordability – while other factors such as the prevailing interest rate environment and house prices were supportive.

"Looking forward, although peak stress for landlords may be argued to be over, the recent prominence of 95 per cent owner-occupied lending may facilitate some renters to become buyers and change the supply-and-demand dynamics for certain properties, and make some properties harder to rent," says Bigley.