It’s been a tough week to keep up with exactly what’s happening to Section 21. Although this video was recorded shortly before the PMQs during which the Prime Minister appeared to confirm that Section 21 would be abolished, it’s pretty much hit the nail on the head (if I do say so myself!).
It’s been a tough week to keep up with exactly what’s happening to Section 21. Although this video was recorded shortly before the PMQs during which the Prime Minister appeared to confirm that Section 21 would be abolished, it’s pretty much hit the nail on the head (if I do say so myself!).
Reside is an award-winning independent letting agent in Bath. Please get in touch if you would like to discuss any aspect of letting or managing your property; we would love to hear from you.
The start of October has brought no fewer than three changes to regulations affecting landlords. Here’s Toby with everything you need to know.
Reside is an award-winning independent letting agent in Bath. Please get in touch if you would like to discuss any aspect of letting or managing your property; we would love to hear from you.
Chris & Lisa (Reside’s negotiators par excellence) make a brilliant series called Bath’s Best Bits, in which they explore their favourite parts of the city. This episode is the story of a fake castle on Bath’s skyline, and the extraordinary reason behind its existence.
Reside is an award-winning independent letting agent in Bath. Please get in touch if you would like to discuss any aspect of letting or managing your property; we would love to hear from you.
The inaugural Bath Landlord Forum event promises important updates for landlords, with particular focus on tax, mortgages and legislation.
With more than 170 different pieces of tenancy legislation to keep on top of (and more on the way!) how are landlords meant to keep up to date? The seminar will help Bath landlords to stay compliant with ever-changing regulations, and provide support to make the most of their property investments.
So join us at The Francis Hotel, Queen Square on Wednesday 19th October from 18:00.
Well, what a weekend that was. Street parties, gatherings in the park, the purple bunting, egg and cress sandwiches, union jack flags, cheese and pineapple on cocktail sticks, and let’s not forget the trifle – the Platinum Jubilee Party. And no decent party is worth its salt without a game or a quiz.
So, if you have post-Jubilee blues, let me ask you, how much was the average Bath house worth in 1952?
To start with, let me look at what a property is worth today in Bath.
The average price paid for a property in the Bath areain the last 12 months was £497,590.
Now, let’s go back to 1952. Sir Winston Churchill was the Prime Minister, Newcastle won the FA Cup, London was covered in the Great Smog, free prescriptions on the NHS ended (it cost 1 shilling or 5p in new money), and King George IV, at the age of 56 passed away on the 6th February, meaning Princess Elizabeth became the Queen. As for housing …
The average price of a Bath home in 1952 was £4,063.
This means Bath house prices are 121 times higher since 1952.
Yet over the last 70 years, the country has been subjected to 4.5% per annum inflation.
The 1952 Bath home is equivalent to £78,133 todaywhen adjusted for inflation.
This means Bath house prices have increased by 504.8% in real terms since 1952.
So, does that mean house prices are more expensive today compared to 1952?
In 1952, the average annual male wage was £452, 8 shillings and 1 pence, meaning the average Bath house was 8.98 times the average value of a wage. Today the average home is 8.85 times the average wage.
Yet let us not forget the average mortgage payment in 1952 was £11 per month. The average Brit earned £34 per month, meaning 32.3% of the household income was going on mortgage payments, whilst nationally today, according to Nationwide, it stands at 28%.
It’s cheaper, in real terms, to buy a property in 2022 than in 1952.
And that’s the point, some things in ‘real terms’ (real terms being true spending power of the money after taking into account wages, costs and inflation) were more expensive and some cheaper 70 years ago. For example, in 1952, petrol was equivalent (in today’s inflation-adjusted prices) to £1.02 per litre, a pint of beer £2, half a dozen eggs £2.20, cheddar cheese £2.40 per 500g, a basic radio £430, a Hoover £530 and a 12-inch TV £1,600.
So back to property… The Queen’s reign has seen some amazing house price rises in the UK, yet that growth hasn’t always been in a constant upward direction, as we have had a couple of dips along the way.
We had a house price crash in 1990, when the average value of a Bath property dropped from £122,264 to £101,259 in 1996, only for them to start rising again.
Bath saw another house price crash between 2008 and 2009, when the average house price dropped from £365,746 to £311,803 in a year.
What else has changed about property and housing since the Queen came onto the throne?
In 1952, only 32% of people owned their own home, whilst 50% of people rented from a private landlord and 18% rented a council house.
By the time of the Silver Jubilee in 1977, 56% of people owned their own home, with 12% of people privately renting and 32% rented from the council.
Come the Golden Jubilee in 2002, 70% of people owned their own home, with 11% of people privately renting and 19% rented from the council.
Today, 63% of people own their own home, 20% of peopleprivately rent and 17% rent from the council.
I am sure the property market will be totally different again in another 70 years!
I hope you enjoyed reading this article and do share it with your friends if you find it interesting.
P.S. For all you Rightmove fans, the average Bath terraced home in 1952 was worth £3,959, and a semi in Bath could be bought for, on average, £3,608.
Reside is an award-winning independent letting agent in Bath. Please get in touch if you would like to discuss any aspect of letting or managing your property; we would love to hear from you.
Many commentators believe we have seen the peak of the Bath property market.
So, should savvy bargain hunters wait for Bath house prices to fall?
Or could postponing your house buying for any anticipated price drop be a costly mistake?
Over the last two years, the Bath property market has been a rollercoaster ride of hyperactive demand together with the new sport of getting your offer accepted when you compete with 30 other bidders.
Yet there are clouds on the horizon that theBath property market could be at its peak.
Bank of England interest rates have increased four times in the last few months to try and combat inflation. Meanwhile, many Bath households are finding it tough to counter the most significant drop in real incomes in a single year since records began in the mid-1950s, all at the same time as gas, oil and electricity prices are predicted to rise again in the autumn.
Hence why some economists are predicting house price drops in the coming 18 to 24 months of 3% to 5%.
So, surely this is not the best time to buy a Bath property – and surely savvy buyers should wait for Bath house values to fall?
Is it realistic to see double-digit national house price growth? Certainly not.
The question is how far the Bath property market will slow and whether the slowing will drop into modest falls.
Let me look at household income first.
At best, the outlook is gloomy as real household disposable income is set to drop by 2.4% in 2022/23, the largest drop since records began in 1956 this is despite the £17.6 billion of financial support for British households revealed in Rishi Sunak’s Spring 2022 Statement with the National Insurance thresholds, energy bill support package and duty cut on petrol. Without these changes announced by the Chancellor, real household disposable income would have fallen by an additional 1% in 2022/23.
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Secondly, as interest rates increase, mortgage rates will increase in line, increasing mortgage costs, so surely that will curtail demand, meaning Bath house prices will drop, and buyers should wait to catch a bargain?
Finally, with inflation on the rise, the real value of people’s savings will decrease quicker, and the value of their deposits will diminish meaning Bath prices will surely drop, and people should wait to buy?
Surely the Bath property market has peaked andbuyers should wait for the bargains?
Well, I don’t think so.
I believe, subject to no significant shocks in the world economy, Bath house price growth will be very slow in the next 18/24 months and go into low single digits (even the odd month dipping ever so slightly into the red), but not the 16% to 19% annual drop we saw in 2008/9.
Let me look at real household income. Every economist predicts growth in real household income in 2023/24 by around 1%.
If the two years are combined, the predicted effect on real household income in the next two years (2022/23/24) is a net loss of 1.4%, whilst in the credit crunch years 2010/11/12, the net loss was 2.7%.
I was looking at the increase in mortgage rates. 79% of owner-occupiers have fixed their mortgage costs and had their affordability stress-tested to Bank of England interest rates of 3% to 4% under the Mortgage Market Review rule changes in 2014. I believe the most significant impact of increasing interest rates will be at the point of taking on a new mortgage by first-time buyers (as opposed to servicing or the porting of an existing mortgage from one house to the next house).
The four successive Bank of England base rate rises, inflation and the rising cost of living are likely to bring more cautiousness over summer and autumn when it comes to people buying a property. Yet, there is still a massive imbalance of demand for property over the number of properties for sale to quench that demand.
The potency of the job market and the ongoing mismatch between the supply of properties (mentioned in last week’s article on the Bath property market) on the market and demand for those properties will support property values.
Finally, the by-product of increasing inflation is that it makes buy-to-let more attractive. If there is a reduction in first-time buyers, this will be counterweighted by more landlords buying again, supporting the current level of Bath properties.
But what if Bath house prices do drop significantly?
So let’s assume that Bath house prices do fall, irrespective of the reasons above, it will not inevitably help Bath buyers.
If we have a house price crash, people tend to find their careers are at risk, and their salaries don’t rise as much. The younger generation (i.e. first-time buyers) often gets hit the toughest by recessions.
If first-time buyers wait until 2024 to buy and Bath property values drop by 10%, that will prove more expensive.
In the last 2008/09 crash, lenders weren’t offering 5% deposit mortgages. The lowest deposit mortgage that first-time buyers could get was with a 10% deposit and even then, they were hard to come by.
When writing this article, first-time buyers can obtain a 5% deposit mortgage for a fixed rate of 2.66% for five years.
The typical terraced house inBath sells for £485,700.
So, if they were to buy now, on this mortgage deal, the first-time buyer would have to stump up a £24,285 deposit and their mortgage payments would be £1,689.37 per month.
Yet, let’s say property values in Bath do drop by 10% in the next 18 months, the terraced house would now be worth £437,130, so a significant saving. Or is it?
Everyone believes interest rates will rise further, so let’s assume they go to 3% by the autumn of 2023. That means the mortgage rate for a 10% deposit mortgage will be in the early 5%s, so let me assume 5.29% (because the banks tend to increase the gap between the base rate and the mortgage rate in recessions to allow for the extra risk).
The monthly mortgage payment on the 5.29% mortgage would be £2,058.88 per month, and you would need to nearly double your deposit to £43,713.
So even if Bath’s house prices did drop by 10%, the first-time buyer would be £4,430 worse off a year in mortgage payments and would have to find double the deposit.
… and then there is the other cost of waiting.
You have two years’ worth of rent to pay. The average rent for a Bath property is £1,636 per month.
If you waited a couple of years for Bath house pricesto drop by 10%, you would spend £39,264 in rent.
Choosing to buy a Bath property makes even more economic sense if it is a long-term choice, as homeowners can ride out any house price drops.
Homeowners who plan to stay in a property can generally rely on getting their money back within six to ten years whilst not paying any rent.
Will Bath prices go up, or will they go down?
Remember, George Osbourne said house prices would drop by 18% in May 2016 if we voted to leave the EU, whilst many economists said they would drop by 5% to 10% when Covid hit in March 2020.
And we all know what happened.
If you think you will be better off owning your own Bath home rather than renting one, don’t bother to wait for the suggested house price drop that may never happen. These are my thoughts, what are yours? Let me know in the comments.
Reside is an award-winning independent letting agent in Bath. Please get in touch if you would like to discuss any aspect of letting or managing your property; we would love to hear from you.
According to some newspapers and pundits, the property market boom could soon be over with the increasing interest rates and inflation.
In this article, I share the 3 fundamental economic reasons why things are different to the last property market crash.
The insider’s way to find out if there will be a property crash.
…and 4 reasons why buy-to-let landlords are coming back into the Bath rental market to protect their wealth and hedge against inflation.
With inflation and the cost-of-living crisis, some say this could cause property values to drop, by between 10% and 20% in the next 12 to 18 months.
There can be no doubt that the current Bath property market is very interesting.
At the time of writing, there are only 334 properties for sale in Bath (the long-term 15-year average is between 870 and 900), meaning house prices have gone up considerably.
According to the Land Registry…
Bath property prices have increased by 14.5%(or £53,100) in the last 12 months.
So, as Robert Kiyosaki says, ‘the best way to predict the future is to look to the past’. I need to look at what caused the last property crash in 2008 and how that compares to today.
Increase in Interest Rates
One reason mentioned as a possible cause of a crash is the rise in the Bank of England interest rates affecting homeowners’ mortgages.
Higher mortgage rates mean homeowners will have to pay a lot more on their mortgage payments, leaving less for other household essentials. In 2007 (and the 1989 property crash), many Bathonians put their houses up for sale to downsize to try and reduce their mortgage payments.
Yet the newspapers fail to mention that 79% of British people with a mortgage have it on a fixed interest rate (at an average mortgage rate of 2.03%).
Also, just under 19 out of 20 (93.2%) of all UK house purchases in 2021 fixed their mortgage rate.
So, in the short to medium-term (two to five years), most homeowners won’t see a rise in mortgage payments for many years. Also, 27.8% of all UK house purchases were 100% cash (i.e. no mortgage).
Of the 932,577 house purchases registered since February 2021 in the UK, 259,205 were bought without a mortgage.
Yet some people say it will be a problem when all these homeowners come off their fixed rate. The mortgage lending rules changed in 2014, and every person taking out a mortgage would have been assessed at application as to whether they could afford their mortgage payments at mortgage rates of 5% to 6% rates, not the 2% to 3% they may well be paying now.
No pundit says the Bank of England interest rates will go above 2% with a worst-case scenario of 3%. If the Bank of England did raise interest rates to 3%, homeowners would only be paying 4.5% to 5.5% on their mortgages and thus well within the stress test range made at the time of their mortgage application.
This means the probability of a mass sell-off of Bath properties or Bath repossessions because of interest rate rises (both of which cause house prices to drop) is much lower.
House Price / Salary Ratio
Another reason being bandied about by some people for another house price crash is the ratio of average house prices compared to average wages.
The higher the ratio, the less affordable property is. In 2000, the UK average house price to average salary ratio was 5.30 (i.e. the average UK house was 5.3 times more than the average UK salary). At its peak just before the last property crash in 2008, the ratio reached 8.64.
The ratio now is 8.85, so some commentators are beginning to think we’re in line for another house price crash. However, I must disagree with them because mortgage rates are much lower today than in 2007. For example…
The average 5-year fixed-rate mortgage in 2007 was 6.19% (just before the property crash), yet today it’s only 1.79%.
So, whilst the house price/salary ratio is the same as the last property crash in 2008, mortgages today are proportionally 71.1% cheaper.
Banks’ Reckless Lending
Another reason for a property crash in 2008 was the reckless lending practices in the run-up to that crash.
The first example of reckless lending was self-certified mortgages. A self-certified mortgage is when the lender doesn’t require proof of income.
In 2007, 24.6% of new mortgages were self-certified mortgages.
So, when the economy got a little sticky in 2008, the people that didn’t have the income they said they had to pay for their mortgages (because they were self-certified) promptly put their properties on the market.
The banks’ second aspect of reckless lending was how much they lent buyers to buy their homes. Today, banks want first-time buyers to have at least a 10% deposit and ideally more. There are 95% mortgages available now (meaning the first-time buyer only requires a 5% deposit), yet they are pretty challenging to obtain.
Back in 2005/6/7, Northern Rock was allowing first-time buyers to borrow 125% of the value of their home. Yes, first-time buyers got 25% cashback on their mortgage!
In 2007, 9.5% of all mortgages were 95%, and 6.1% of mortgages were 100% to 125%.
Meaning that nearly 1 in 6 mortgages (15.6%) taken out in 2007 had a 95% to 125% mortgage.
When the value of a property goes below what is owed on the mortgage, this is called negative equity. A lot of Bath homeowners with negative equity (or who were getting close to negative equity) in 2008 panicked because of the Credit Crunch and put their houses up for sale.
To give you an idea of what happened last year (2021) regarding mortgage lending, only 2.4% of mortgages were 95%, and 0.2% of mortgages were 100%. This is because the mortgage lending rules were tightened in 2014.
So why did Bath house prices drop in 2008?
Well, in a nutshell, a lot more Bath properties came onto the market at the same time in 2008, flooding the Bath property market with properties to sell.
Meanwhile, mortgages became a lot harder to obtain (because it was the Credit Crunch), so we had reduced demand for Bath property.
Prices will drop when we have an oversupply and reduced demand for something. Bath property prices fell by between 16% and 19% (depending on the property type) between January 2008 and May 2008.
So, what were the numbers of properties for sale in Bath during the last housing market crash?
There were 867 properties for sale in Bath in the summer of 2007 (just before the crash), whilst a year later, when the Credit Crunch hit, that had jumped to 1,708.
This vast jump in supply and the reduction in demand caused Bath house prices to drop in 2008.
Compared with today, there are only 334 properties for sale in Bath, whilst the long term 15-year average is between 870 and 900 properties for sale.
So, what is going to happen to the Bath property market?
The Bath house price explosion since we came out of Lockdown 1 has been caused by a shortage of Bath homes for sale (as mentioned above) and increased demand from buyers (the opposite of 2008).
However, while there are early signs the discrepancy of supply and demand for Bath properties is starting to ease, this takes a while before it has any effect on the property market – so it will be some time before it takes effect.
This will mean buyer demand will ease off whilst the number of properties to buy (i.e. supply) increases. This should gradually bring the Bath property market back in line with long-term levels, rather than the housing market crash.
My advice is to keep an eye on the number of properties for sale in Bath at any one time and only start to worry if it goes beyond the long-term average mentioned above.
But before I go, I need to chat about what inflation and the cost of living will do to the Bath property market.
How will inflation and cost of living affect the Bath property market?
There is no doubt that cost-of-living increases will have a dampening effect on buyer demand. If people have less money, they won’t be able to afford such high mortgages. This will slow Bath house price growth, especially with Bath first-time buyers.
Yet, the reduction in first-time buyers is being balanced out by an increase in landlords’ buying, especially at the lower end of the market.
This, in turn, will stabilise the middle to upper Bath property market. This means the values of such properties (mainly Bath owner-occupiers) will see greater stability and a buyer for their home, should they wish to take the next step on the property ladder.
So why are more Bath landlords looking to extend their buy-to-let portfolios, even in these economic circumstances?
I see new and existing buy-to-let Bath landlords come back into the market to add rental properties to their portfolios. As the competition with first-time buyers is not so great, they’re not being outbid as much.
Yet, more importantly, residential property is a good hedge against inflation.
Firstly, in the medium term, property values tend to keep up with inflation.
Secondly, inflation benefits both landlords and existing homeowners, with the effect of inflation on mortgage debt. As Bath house prices rise over time, it reduces the loan to value percentage of your mortgage debt and increases your equity. When the landlord/homeowner comes to re-mortgage in the future, they will receive a lower interest rate.
Thirdly, as the equity in your Bath property increases, your fixed-rate mortgage payments stay the same.
Finally, inflation also helps Bath buy-to-let landlords. This is because rents tend to increase with inflation. So as rents go up, your fixed-rate buy-to-let mortgage payments stay the same, creating the prospect of more significant profit from your buy-to-let investment.
Reside is an award-winning independent letting agent in Bath. Please get in touch if you would like to discuss any aspect of letting or managing your property; we would love to hear from you.
Bath needs 369 additional private rented properties per year to keep up with current and future demand from Bath tenants.
Yet over the last 5 years, Bath has lost 617 private rented homes.
What are the 5 reasons the supply of private rental properties in Bath are falling? What does this mean for tenants and landlords in Bath?
There has been a rise in demand for rental properties and an 8.9% fall in the number of private rented properties in Bath, which has caused Bath rents to rise by 8.8% in the last year – a new all-time high.
The National Residential Landlords Association asked the respected economics think tank, Capital Economics, to carry out research on the UK rental market. It found that demand for homes in the private rented sector needs to increase by 227,000 homes per year if the current trends in the property market continue (growth of the population, Brits living longer, the lack of new homes building and the reduction in social housing).
So, based on those numbers, Bath needs to have an additional 369 private rented properties per year.
The problem is the number of private rented properties in Bath has reduced from 11,553 in 2017 to 10,936 in 2021, a net loss of 617.
So, why has supply of private rented homes in Bath reduced?
1. Section 24 Income Tax
Section 24 was introduced in 2017 to level the playing field on the taxation of property between homeowners and landlords. Section 24 stops landlords from offsetting their buy-to-let mortgage costs against the profits from their rental property. Interestingly, no other kind of UK business is affected by the Section 24 taxation. In other words, whatever other form of business you might be in, be it butcher, baker or candlestick maker, every other business can offset their finance costs against their profits, except buy-to-let.
The issue caused by Section 24 Tax is that some landlords ended up paying more income tax than they really made in profit after paying their buy-to-let mortgages. Meaning on the back of rising house prices in the last five years, some Bath landlords have sold their buy-to-let investments.
2. 3% More Stamp Duty for Landlords
When someone buys a property, they normally must pay a tax to the Government for the privilege. This tax is called Stamp Duty. Yet landlords must pay an additional 3% stamp duty supplement on top of that when they purchase a buy-to-let property. Evidence suggests some Bath landlords have decided to hold off or scale back buying additional buy-to-let properties for their portfolio because of the thousands of extra pounds that landlords have to pay to buy the rental property.
3. Holiday and AirBnB Lets
Some Bath landlords are converting their long-term rental properties into short-term furnished holiday and AirBnB properties. Whilst the hassle, stress and service levels are much higher, these types of properties do tend to make more money and aren’t as heavily taxed as normal lets. When properties convert to short-term lets, it removes another property out of the general supply chain of long-term rental properties.
4. Greater Legislation for Rental Properties
With more than 170 pieces of legalisation, and new laws being added each year, the burden on landlords is huge. On the horizon is the Renters Reform Bill which will remove no fault evictions. Also, all rental properties with an Energy Performance Certificate (EPC) rating of below a ‘C’ will have to be improved (i.e. money spent on them) by the landlord. Hence why some landlords have been selling their rental properties with low EPC ratings in the last 18 months.
5. Accidental Landlords Selling Up
There are some Bath landlords who are classed as ‘Accidental Landlords’. In 2008/9, with a slowing property market and house price values dropping in the order of 16% to 19% (depending on the type of property), some Bath homeowners decided to let their home out as opposed to selling it at a loss. But with the price booms of the last 18 months, many decided to cash in on the higher property prices and sell – again taking another private rental property out of the system.
So, why is demand of private rented homes in Bath increasing, even though more people own their home in Bath than 5 years ago?
Even with better provision of affordable social housing and higher rates of owner occupation in Bath (rising from 56.22% of homes in Bath being owner occupied in 2017 to 58.28% in 2021), demand for private rental property continues to outstrip supply.
There are many reasons behind this including …
Bath has proven to be a popular destination for the high volume of renters who decided to leave London during the pandemic.
People are living longer, meaning not so many properties are coming back into the mix to be recycled for the younger generation.
Net migration to the UK has continued at just over a quarter of a million people a year since 2017, meaning we need an additional 115,000 households to house them alone.
For the last two years, one in six of the owners of properties that have been sold have moved in to rented accommodation instead of buying on because of the lack of properties to buy.
So, what is the outcome of the imbalance between supply and demand on Bath rental properties?
Quite simply – Bath rents have rocketed. They are 8.8% higher today than the spring of 2020 … and that’s on the back of rents being 9.7% higher in spring 2020, compared to spring 2019.
The severe shortage of housing in the private rented sector is pushing up rents in Bath as demand continues to grow. Many Bath people are finding it hard work to find appropriate accommodation at a reasonable rent, and with mounting numbers of tenants predicted to continue, this situation will only get worse unless more houses are built.
My heart goes out to those Bath tenants struggling with the cost-of-living crisis only to then be hit by higher rents.
Yet, these higher rents are now enticing new landlords back into the Bath buy-to-let market because of the higher returns.
With higher inflation, property investment has often been seen as a safe harbour to invest one’s money in. With the bonus of rising yields (because of the increase in rents) together with the nervousness of the Bank of England to increase interest rates too much because of the issues in Eastern Europe, this could be the start of a second renaissance in the Bath buy-to-let market.
If you have concerns about the issues in legislation and taxation, then the advantage of employing a qualified letting agent, with the choice of property, what you pay for it and how it’s managed, will go a long way to mitigate them.
If you would like to discuss any aspect of this article, you’re very welcome to drop me a message or call me.
Reside is an award-winning independent letting agent in Bath. Please get in touch if you would like to discuss any aspect of letting or managing your property; we would love to hear from you.
Everything you need to know about the Bath rental market in April 2022.
Reside General Manager Toby Martin summarises rental activity over the last month, with the latest facts and figures from the local market.
Reside is an award-winning independent letting agent in Bath. Please get in touch if you would like to discuss any aspect of letting or managing your property; we would love to hear from you.
