Reside General Manager Toby Martin summarises rental activity over the last month, with the latest facts and figures from the local market.
If you had been living in a cave since the end of Lockdown No. 1, you might have still heard that the property market has been on fire in Bath (and the UK as a whole) for the last 18/20 months.
It has been very much a seller’s market, especially in 2021. Yet as we enter the second quarter of 2022, I have noticed a slight rebalancing of the Bath property market towards buyers, something that is good news for everyone (sellers and buyers) locally.
Interestingly, Bath was bang on the national average of 72 days in 2020. Yet, last year, this was reduced to 66 days in Bath (51 days nationally).
Well, that was last year, and things have changed slightly since.
That doesn’t sound a lot, yet that is an eternity in this market!
So, why are there so many properties on the market in Bath still for sale after all this time? It usually comes down to one thing… the practice of ‘overvaluing’.
So before I explain what overvaluing is, let me give you some background.
Many agents in 2021, were achieving top prices for Bath property with multiple offers becoming the standard. The property they were selling was only available to buy for days before the owner obtained multiple offers that were not only at a satisfactory level, but more than they ever dreamed likely.
Although this was great news for Bath homeowners, this caused fewer homes to come onto the market in the last six months in Bath, as people were afraid to put their home on the market without having a property to buy.
With fewer properties coming onto the market, some estate agents have become more and more desperate to get a larger slice of this smaller property market. It has seen an unwelcome side of the estate agency profession, the estate agency practice of ‘overvaluing’.
While ‘overvaluing’ is nothing new, the custom has been generally limited to a small number of estate agents. Yet now, it’s become more prevalent and creates uncountable distress and pressure for some Bath homeowners.
Many Bath homeowners want to sell quickly to get the property of their dreams. Yet, in many cases, when they do put their property on to the market, they don’t sell quickly enough because of this ‘overvaluing’ (even with the fantastic current property market conditions).
To give you an idea of the issue …
There are hundreds of Bath families having their dreams dashed by ‘overvaluing’.
Therefore, let me look at exactly what overvaluing is, why it’s on the rise and most importantly, the harm overvaluing causes to homeowners like yourself.
You would think the most important thing in estate agency is all about finding the best buyer for your home, at the best price, who can make the move with the least amount of hassle.
To us it is, and to many other Bath estate agents, it is as well. Yet, to some agents, sales aren’t the essential objective. Instead, it is having a vigorous catalogue of properties to sell to generate more future leads.
Deprived of an endless number of new properties for sale, the enquiries estate agents receive will significantly drop, leaving them high and dry without any buyer (or seller) leads, the lifeblood of estate agents.
Therefore, some (not all) estate agents will feed on a homeowner’s appetite to get the highest possible price for their Bath home by giving them an over-inflated suggested asking price at which to market their property (i.e. ‘overvaluing’).
The suggestion of pushing the asking price of your Bath home up by 10%, 15%, even 20% could be seen by many as a temptation too good to miss. Yet once you are on the market, the agent is trained to slowly get you to reduce your asking price over a lengthy sole agency agreement.
The problem is that the home of your dreams might have sold during the 3 months in which you have been reducing your price. Also, Which? reports in 2017 and 2019 proved you ended up getting less for your home when it did eventually sell (which means you lose money) and finally, the agents know homeowners perceive that it’s a hassle to swap agents (which it isn’t).
Would it surprise you that some estate agency chains pay their staff a commission when they put the property on to the market, not when it sells? So, their team overinflate their suggested asking prices to get that commission.
Over the last 18 months, with the rising property market, there has undoubtedly been a valid reason for pushing the envelope on the asking price. Yet, if every house like yours is on the market or sold subject to contract at £300,000 to £320,000, yours isn’t going to achieve £355,000, let alone £375,000 – even in this market.
With 65.8% of Bath homes still for sale after a month, the market is starting to level out and if you are keen to sell, then let me give you some advice.
Nearly everything I’ve written in this article similarly applies to getting your property valued by a lettings agent. Many agencies secure instructions by quoting a high rental figure and tying their client into a lengthy sole agency period.
A couple of weeks later, the landlord will receive a phone call from their agent, saying that they must ‘listen to the market’ and reduce the advertised rent.
The landlord will eventually find their tenant, but weeks later than they should have done, and with an agency that was prepared to secure their business by deliberately overpricing.
(Come on, be honest – you have done that yourself haven’t you?)
When the property is eventually reduced because it has the stigma of being on the property market too long (begging the question from potential buyers or tenants that there may be a problem with the property itself hence no interest?), often when it does eventually let or sell, the owner will achieve less than it would have done if it were priced correctly from day one (as per the two reports from Which? in 2017 and 2019).
Of course, on the other hand, setting the asking price below its market value means potentially leaving money on the table needlessly – hence the need for a good agent.
Putting your Bath home or buy-to-let investment on the market at the right price from the beginning is the key to selling within the best time frame and for the best price to a serious and motivated buyer / tenant.
Ask a handful of estate agents to value your home, ask them to back up any valuation of your Bath home with cold hard comparables of similar properties to yours – ideally, properties that have actually sold, rather than ones that are languishing on the market at a high asking price.
Find your own comparables by searching ALL the property portals (i.e. Rightmove, Zoopla, Boomin, OnTheMarket).
If you only take away one thing from this article, when you search the portals for comparables, make sure you include under offer/sold STC properties, as that will triple the comparable evidence.
Thus, by doing your homework and then working with a dependable, trustworthy and experienced estate agent, who will help to ensure that your Bath property is put on the market to get you, the homeowner, the best price from day one without overcooking it so you don’t lose out, you will be just fine.
These are my thoughts, let me know if you have any yourself.
The UK is currently experiencing its highest inflation rate since the early 1990s. This increase in prices has primarily come about by the combination of an increase in demand for goods and services from consumers following lockdown last year together with global supply chain disruptions.
Most economists weren’t too concerned about this increase in the inflation rate as the very same thing happened in the early 1990s following the Credit Crunch with a similar rise in demand and supply chain issues. Thankfully, back in the early 1990s, inflation returned to lower levels quite quickly. However, the situation in Eastern Europe now could change matters.
The crisis in Eastern Europe has sparked even further rises in crude oil (which diesel and petrol are made from), gas and grain prices as pressure on supply chains around the world increases.
In my previous articles, I suggested UK inflation would rise to around 7% in the spring and drop back to 5% in the autumn and as we entered 2023, be approximately 3% to 4%.
Yet, with these issues, inflation could rise to 8% to 9% by late spring and still be around 6% to 7% in autumn, well above the Bank of England’s target of 2%.
This is because ‘real’ UK household incomes characteristically have been the most consistent lead indicator of growth (or a drop) in house prices. This is because growing inflation erodes the value of money you earn, which reduces its buying power. When the cash in your pocket has a lower spending power, people tend to spend less when they buy or rent a home (and vice versa).
Next month, Income Tax thresholds will be frozen, and National Insurance contributions are increasing. Collectively, all these issues will create a drop of around 2% to 2.5% in the real disposable income of Britain’s households in 2022 (real disposable income – i.e. somebody’s take-home wages after tax and the effects of inflation are considered).
With less money in people’s pockets, their inclination to spend the money they do have could also be curtailed. Whilst savings are at an all-time high, many will decide to sit on the cash instead of spending it, especially as consumer confidence has dropped to minus 26 on the GfK index (whatever that means! But in all seriousness… more on that below).
All this can only mean… there is going to be a house price crash.
My heart goes out to people caught up in the awful humanitarian crisis in Eastern Europe. For the purposes of this article, however, I need to respectfully put that to one side for just a moment.
This blog is about the Bath property market, and Bathonians want to know what will happen to the Bath property market.
In the first half of the article, I looked at the impending 2 to 2.5% fall in real disposable incomes during 2022. I appreciate it’s going to be tough for many families in Bath. Yet, it is always important to consider what has happened in times gone by:
1982 – a drop of 2.3% in real disposable income
1992 – a drop of 3.7% in real disposable income
2008 – a drop of 5.8% in real disposable income
Yes, it’s going to be tough, but we got through 1982, 1992 and 2008 – and so we shall in 2022/23.
Next: the price of petrol is very high compared to a year ago.
The average price of unleaded petrol is £1.51/litre today, quite a jump from the £1.21/litre a year ago. But here is an interesting fact, petrol was a lot more expensive (in real terms) in 2011 than today. In TODAY’s money, a litre of unleaded petrol in 2011 would be the equivalent of £1.79/litre. We have some way to go before we get to those levels – and again, the Bath economy (and property market) kicked on quite nicely after 2011.
In 2015, owner occupiers were spending on average 17.3% of their household income on mortgages, yet in 2021 this had risen, albeit to 17.7% – not a huge increase.
Council (social) tenants have seen a drop in their rent from 29.2% of their household income in 2015 to 26.7% in 2021, whilst for private tenants it has dropped from from 36.4% in 2015 to 31.2% in 2021.
The average UK home spent 4.2% of their household income on energy in 2021, and that is due to rise to 6.3% after April (and probably 7% in October). Yet, as a country, we spend 9% of our income on restaurants and hotels and 8% on recreation and culture. As with all aspects of life, it will mean choices, and maybe we will have to forego some luxuries.
Just before I move on from this aspect of the article, again I appreciate I am talking in averages. Many people with low incomes suffer from fuel poverty and they will find the increases in energy prices hard.
79% of homeowners with a mortgage are on a fixed rate, so any rise won’t be instantaneous. But there will be a bizarre side effect from the issues in Eastern Europe. Surprisingly, though the current situation in Eastern Europe by its very nature will bring greater UK inflation, it will also probably defer the Bank of England raising interest rates. This means mortgage rates won’t increase as much, as the bank won’t want to exacerbate any pressures to the UK economy in 2023/24 caused by the conflict.
The stock market had priced an interest rate rise to 2% by the end of 2022. I suspect this will now be no more than 1% to 1.25% by Christmas, slowly going up in quarters of one per cent every few months. The crisis in Eastern Europe might even come to be seen as a defence for higher inflation throughout 2022, all meaning everyone’s mortgage increases will be marginal for now.
Next, let’s look at Consumer Confidence Indexes – these indexes are fickle things. I prefer to look at the Organisation for Economic Co-operation and Development Consumer Confidence Index as it has a larger sample range and a longer time frame to compare against. Looking at the data from the mid 1970s, the drop in consumer confidence is big, yet nothing like the drops seen in the Oil Crisis of the mid 1970s, Recession of the early 1980s, ERM crisis of 1992 and the Global Financial Crisis of 2008/09. Also, when compared to the other main economies of the world (G7), the UK has always bounced back much more quickly from recessions when it comes to consumer confidence.
Increasing energy prices, rising inflation, an increase of sanctions, and a probable drop in consumer confidence and spending in the aftermath of the conflict will knock the post-pandemic recovery globally, which will lead to a recession around the world, including the UK.
A recession is when a country’s GDP drops in two consecutive quarters. For the last 300 years, there has been a direct link between British house prices and GDP (i.e. when GDP drops, UK house prices fall). Yet in 2020, the British GDP dropped by nearly 12%, but house prices went the other way.
Let’s look at what would happen if Bath house prices did drop by the same extent they did in the Global Financial Crisis of 2008/09.
House prices in Bath dropped by 17.2% in the Global Financial Crisis, the biggest drop in house prices over 16 months ever recorded in the UK.
Meaning that if Bath’s house prices dropped by the same percentage in the next 16 months, an average home locally would only be worth £331,184.
On the face of it, not good… until you realise that it would only take us back to Bath house prices being achieved in February 2020 – and nobody was complaining about those.
Yes, that means if they do drop in price, the 5.7% of Bath homeowners who moved home since February 2020 would lose out if they sold after that price crash. But how many people move home after only being in their home for a few years? Not many!
And all this assumes there will be a crash.
The circumstances of 2009 that caused the property crash are entirely different to 2022 (no lending by the banks, higher interest rates and increasing unemployment compared to today’s increased lending, ultra-low interest rates and low unemployment).
I do believe with all that’s happening in the world we might see a rebalancing of the Bath property market later in 2022, and could see the odd month with little negative growth in house prices… But it will be nothing like 2009.
The expected fall in household spending could be counterbalanced by UK businesses’ plans to invest more in their businesses (with last year’s tax breaks on investing), which will create even more jobs.
Who knows what the future holds? These are just my opinions – what are yours?
Reside General Manager Toby Martin summarises rental activity over the last month, with the latest facts and figures from the local market.
First, let’s look at the scale of the costs.
Considering the increase in energy prices from April, the combined energy bills for the whole of Bath come to…
There are extra energy costs for washing, fridges, etc., yet I wanted to focus just on the home as this is a property blog.
Everyone’s bills will be around 50% more expensive in 2022 than in 2021, but it’s not too late for Bathonians to take some quick steps to cut their energy bills and, at the same time, cut our carbon footprint.
Upgrading the energy efficiency of UK homes is seen as a vital step to attempting to mitigate the issues of climate change, fuel poverty and our nation’s energy security.
So, what are some quick wins for Bath residents to reduce the energy bills on their homes, and how will energy efficiency play a more significant part in the value of Bath homes in the future?
These are just a handful of ideas. Check out the internet for others as it’s fascinating how much energy we use for overfull kettles, chargers left on and tech on standby etc.
Yet, these things will only scratch the surface… many of us will need to go further, especially Bath landlords, to retrofit our properties to make them more energy-efficient.
This is particularly important as in June the Government announced they would make the country carbon neutral by 2050, meaning Britain’s homes need some enormous retro-fitting to meet these ambitious climate targets.
In 2018, the Government required private landlords to improve the energy rating of their rental properties by prohibiting the rental of any property with an Energy Performance Certificate (EPC) rating of F and G (the lowest ratings). Yet from 2025, it is proposed that will be increased to C for all new tenancies and 2028 for all existing tenancies (more on these EPCs below).
I don’t believe there is an appetite to mandate private homeowners to do this work, though you never know in the future.
Since 2007, every new home that has been built, rented out or put on to the market in Bath has had to have an EPC, giving it a rating between A and G (rather like those stickers you see on fridges and washing machines).
A is the highest rating (i.e., best energy efficient and greener), and G is the worst efficiency rating.
So, what next? Well, the Government will attempt to make the green revolution as painless as possible with technology.
In the future, we might have hydrogen central heating instead of mains gas; or have solar panels for electricity, all triple glazed windows and even ground source heating – sounds fanciful? Well, who would have thought some of the most wanted cars would be electric 20 years ago?
There is no doubt that the energy efficiency of our homes will rise in the coming years as the cost of fuel increases and people’s opinion on going green changes.
You don’t need to spend thousands of pounds to find out what you can do to make your property greener and cost less. Look at your EPC and it will tell you what small changes you can make to improve your Bath home’s energy efficiency rating and ultimately save yourself money. If you want to find the EPC rating of your Bath home, go to epcregister.com. If you need an EPC, drop me a line as I know some great local energy assessors that can easily do an EPC on your property at a price that won’t cost the earth!
There are 322 properties for sale today in Bath; roll the clock back exactly a year, and the figure was 676 – there’s been a drop of 52%. This drop is being dubbed the ‘for sale board crunch’.
The ‘for sale board crunch’ has left many prospective Bath home buyers stressing to find the right property as the number of properties available to buy has dropped significantly.
I am sure you know people looking for their next Bath home, but when they see it on the portals (Rightmove, Zoopla, Boomin, OnTheMarket, etc.) the properties are gone within days.
With demand at an all-time high, many home buyers are in a state of misery as Bath house prices have grown in the last few years, forcing many of them to review their plans.
Normally when there has been excess demand in the residential sales market, that frothiness has been taken care of by people moving into rented accommodation. However, the number of Bath properties available to rent is at a 15-year low.
Demand for Bath homes has exceeded the number of properties for sale since the General Election in December 2019. After years of long drawn-out Brexit negotiations, homeowners and buyers were more confident about their move. Many Bath people who put their home move on hold in 2018/19 had more confidence to return to the market.
The first lockdown in the spring of 2020 did nothing to quell this pent-up urge, and since the late spring of 2020, the Bath property market has been on fire! The lockdown changed what homeowners are looking for in their Bath home. Proximity to public transport dropped down the wish list for buyers, and demand for apartments dropped. Whilst properties with larger gardens and rooms that could double up as home offices tended to be at the top of most Bath buyers’ wish lists.
Looking at the supply side of the equation, in the last five years, an average of 204,410 new homes per year have been added to the number of properties available in the UK. Also, 239,600 properties came back into the market when they became available after their owners had sadly passed away. Yet still, that isn’t enough. The country needs at least 300,000 new dwellings to keep pace with demand.
There is also another problem that has come to light with the cladding issue of apartments. Just over ¾ of a million apartments have issues with cladding. Whilst these are being sorted out (which will take many years), they are essentially unsaleable unless a fire safety expert on these buildings signs them as safe.
These cladding issues prevent these apartments from coming onto the market (thus reducing the supply of properties to buy). It also precludes their owners from moving up the property ladder from their apartment to a house. Also, many first-time buyers who can save a bigger deposit or be gifted cash from the Bank of Mum and Dad are skipping the apartment as their first home and going straight for a house, thus intensifying the lack of larger properties for sale.
This means it is a seller’s market in Bath, empowering them to push up their asking prices in high demand areas. However, most sellers are also buyers, which means the advantage they have on selling their property is turned on its head when they come to buy.
Many Bath sellers prefer to find their future Bath home before putting their current home on the market. That is making the lack of properties on the market seem even harsher than it may otherwise be.
However, not all Bath homeowners are doing so, partially because they (wrongly) believe they will be made homeless if they find a buyer and can’t find another property to buy (remember, you are not legally committed to moving until exchange of contracts).
A big issue will be finding a suitable home in Bath. We very much have a chicken and egg scenario. Some homeowners are waiting for the right property to come onto the market before they put their home on the market. This will probably mean that their property will sell even before the photographs have been taken of your home.
Yet, many Bath homeowners are worried if they put their house on the market and it sells, they won’t be able to find another suitable home and thus be homeless.
There is another way of doing this. It’s a technique estate agents used to use before the internet, and it’s called ‘chain building’, which involves slowly building a group of people in a chain over many months. It requires a lot of patience to build a chain downwards and upwards around you.
There is no cost to this and no legal commitment to go through. It can take six, even twelve months to build a chain of people who are prepared to wait for the chain to form.
Because if you don’t play the long game, build relationships with Bath estate agents (who can build these chains) and only rely on waiting for properties to appear on Rightmove, Boomin, OnTheMarket or Zoopla, you will be sorely disappointed.
According to national research from Denton House Research, 7 out of 8 people who viewed a house through an estate agent in 2021 were not on the mailing list of that agent before they viewed it.
That means all these Bath properties built on a chain builder (as above) will sell, yet won’t appear on Rightmove or Zoopla, meaning you will miss out.
You must get yourself on the mailing list of every estate agency so you don’t miss out on your next forever home in Bath.
If you would like a chat about anything mentioned in this article, feel free to drop me a message or call me.
On the face of it, yes, it could be seen as another attack on the humble Bath landlord, having to spend money on their properties and get tangled up with red tape on a register and then having no-fault evictions removed.
Yet, as always, the devil is in the detail…
This ‘Levelling Up Bill’ is a White Paper. White Papers are policy documents created by the existing Government that set out their future proposals for legislation. Many White Papers don’t even make it to the House of Commons to be debated on, and even then, it needs to be voted on by both Houses of Parliament before becoming law. Any changes are at least two or three years away, and that’s assuming it gets debated and subsequently approved.
Many have said the White Paper is supposed to lay out how to resolve the problem of rebalancing the UK economy that is suffering from the highest level of regional inequality than any G8 country. This is a gargantuan challenge…
One of the 12 points in the White Paper was focusing on housing, with a plan to introduce a new minimum standard for rental properties, a landlord register and the removal of no-fault evictions (as an aside, there was also a mention of a possible reintroduction of Home Information Packs – remember those from 2009!).
Sub Standard Rental Properties
The proposed changes will mean rental homes in the private sector will have to meet two specific standards that the existing 6,848 social housing homes in Bath currently need to meet.
The first is called the ‘Decent Homes Standard’ (DHS) and the second, the Housing, Health and Safety Rating System (HHSRS) evaluation.
Looking at data from the Government, there are 2,114 private rental properties in Bath that are considered substandard under these two measures and each one would cost between £11,000 and £14,000 to bring up to the prescribed standard. That means…
Yet both systems of standards (DHS & HHSRS) have been slated by many (even by the Government itself).
The DHS criteria for the standard are as follows:
Note how the word ‘reasonable’ is used in three of the four points of the DHS. Reasonable is an arbitrary and very much subjective point of view. It screams loopholes and get out clauses to me.
Looking at the HHSRS, the Government announced just before the pandemic in June 2019 that the HHSRS would be revamped after it was found to be ‘complicated and inefficient to use’.
Putting aside how one measures the standards, it is a simple fact that there are many Bath rental properties that are substandard. I believe it right the Government have an ambition to halve the number of sub-standard private rentals by 2030. However, would it surprise you that…
Also, if you recall in an article I wrote recently (drop me line if you would like me to send it to you), Bath landlords could be faced with bringing their properties up to an energy rating (EPC) of C between 2026 and 2028 in legislation already proposed.
Most of the works to meet that EPC rating requirement will be the same works to meet this new DHS and HHSRS. Also, in that article, I discussed how the Government have suggested that certain allowances will be made for landlords on rental properties that can’t be improved – such as Listed properties.
So, I think Bath landlords should sit tight and let the Government shine more light on this in the coming months before any knee jerk reactions are made.
Landlord Register
To be honest, there are several city/borough registers around the UK for landlords. Experience has shown they seem to add an extra level of bureaucracy and red tape. The register would be for every Bath buy-to-let landlord and rogue landlords would be struck off whilst allowing tenants new redress rights. Another reason to employ the services of a letting agent to sort!
End of No-fault Evictions
Again, I spoke about this a few weeks ago with the proposed removal of Section 21 to evict a tenant (again, if you want a copy, drop me a line). If you recall, I stated that no-fault evictions were removed in Scotland over four years ago and the apocalyptic suggestions it would kill the rental market for Scottish landlords was not forthcoming. Now of course, the Scots strengthened the other grounds to evict a tenant. If the Government strengthen the Section 8 legislation, again, I cannot see this being an issue south of the border. Time will tell once the Government put more meat on the bones of the White Paper.
Conclusion
Many of the announcements made in the Levelling Up White Paper are re-hashed proposed legislation that has been on the books for the last couple of years.
Yet, many commentators have cautioned that more landlords with substandard homes will sell up because of these proposed changes, warning the sell up would add to the private rental sector’s shortage of homes, thus pushing up rents.
If that was true, that would increase rental returns on Bath buy-to-let and attract more Bath landlords into the sector, wouldn’t it?
But if you don’t agree other Bath landlords will buy these rental properties that other landlords are selling, who will buy their Bath properties from them? It will be Bath renters, who are now able to buy because the price has come down, meaning equilibrium should return to the market.
This is all theoretical and there are shortages/gluts in specific locations. Let us not forget it was 12/18 months ago that rents were dropped by double digit percentage points in the space of a couple of months in the big cities. Those rent drops weren’t anything to do with landlords buying up City Centre rental properties, but demand plummeted with 20-something tenants moving back in with their parents during the first lockdown and the months that followed. Yet, now rents have bounced back to pre-pandemic levels (and more) with the return of tenants to the cities.
Few of them will be left empty because most of them will be bought by other Bath landlords as they will be attracted to the sector as inflation takes hold whilst others will be bought by first-time buyers.
What goes around, comes around. So, let’s see what happens in the coming months. In the meantime, if you’re a Bath landlord and you want to discuss anything in this article, please either drop me a line or send me an email.
Tenant demand has far exceeded property supply for the last 12 months, but just what is the extent of this property shortage? As Reside’s Toby Martin discusses in the above video, the number of rental properties on the market at any one time is currently 35-40% below the average for the last decade.
This month’s round-up also includes news of upcoming smoke and carbon monoxide alarm regulations that landlords should be aware of. Be sure to watch the video for full details.
On a positive note, Bath house prices have rocketed, rents have risen faster than inflation, at the start of the year we had the benefit of a stamp duty holiday and finally, ultra-low mortgage rates, meaning Bath landlords had lots to be happy about in 2021.
On a more cautious note, the laws regarding renting are currently being debated in Parliament which will see the end of no-fault tenant evictions, and changes in regulations will require landlords to make their buy-to-let rental properties more eco-friendly at a cost of up to £10,000+ each.
So, let’s have a look at these points …
Bath buy-to-let landlords have seen the average rent of a Bath rental property rise by 6.5% in the last 12 months.
The number of Bath properties available to rent on the property portals (e.g. Rightmove, etc.) at any one time is roughly 35% to 40% below the last decade’s average, meaning there is greater competition for each rental property.
Demand has increased for several reasons.
Firstly, some homeowners cashed in on the high prices, sold up and moved into rented property.
Secondly, some Bath buy-to-let landlords have also cashed in on the buoyant property market and sold their rental property when their existing tenant handed in their notice.
Finally, the rental sector has an inverse relationship to the state of the general British economy, meaning with the uncertainty in the British economy in the early part of 2021, this meant more people decided to rent rather than tie themselves into a mortgage.
Looking at the supply side of the Bath rental market, in the short term, rents will continue to grow as some Bath landlords are abandoning the rental market – some because of the impending regulation changes which I will talk about later, and others with the natural flow of people cashing in their investments on retirement.
With increased demand and restricted supply, this will only lead to competition becoming more severe between renters, thus making Bath rents continue to rise.
For those that own property, the way house prices grew in 2021 surprised most people.
Bath house prices, according to the Land Registry, grew by 15.3% in 2021, with the typical Bath home reaching £425,500.
Many local landlords have been helped by this increase in Bath house prices and will be in a place to cash in on those capital gains by either selling their buy-to-let property (as mentioned in the previous section) or releasing some equity by re-mortgaging.
Whether Bath house price rises carry on at such a rate in 2022 will mainly depend on whether the imbalance between the number of properties that come on to the market (supply) is by the number of buyers (demand).
Most commentators believe that nationally house prices will be between 3% and 5% higher by the end of 2022 and I can see no reason why Bath house prices won’t be in that range by the end of the year either.
The reduction in tax relief for Bath buy-to-let landlords with mortgages in the last five years hit some landlords hard, yet this has been tempered by the inexpensive ultra-low mortgages available to buy-to-let landlords.
Yet even with the Bank of England increase in base rates, landlords with big deposits of 40% or more can benefit from low rates. For example, at the time of writing, you can get a BTL mortgage at 1.49% fixed for 5 years with a 40% deposit (meaning borrowing £180,000 on a £300,000 purchase would only cost you £719 per month on a 25-year mortgage – or £224 per month on interest only).
However, those with only a 25% deposit must pay slightly more, but only at a mortgage rate of 1.64%… Who can remember mortgage rates of 14% to 15% in 1992?
With inflation rising, the Bank of England has already indicated further interest rate rises are on the cards. I suspect they will be around the 1% mark by Christmas 2022. Therefore, if you are one of the one in five landlords on a variable rate mortgage, your margins will be squeezed as your variable rate mortgage will rise in line with the Bank of England interest rate rise.
Maybe it’s time to consider fixing your mortgage?
The Renters’ Reform Bill in England and The Renting Homes Act in Wales are both set to abolish Section 21 (no fault eviction). Section 21 laws allow landlords to take back possession of their rental properties without having to prove fault by the tenant.
Yet in 2022, Westminster will issue plans for a change of this law which will probably incorporate the eradication of Section 21, which would signify a major change in the balance of power between the landlord and tenant.
Some doom mongers are worried that with the abolition of Section 21, landlords may be unenthusiastic about renting and therefore sell up and leave the rental sector altogether. Yet these people said the same when tax relief for landlords was changed five years ago.
The Scottish equivalent of Section 21 was abolished at the end of 2017.
At the time, there was some anxiety about how this would affect the Scottish rental market, as anxious landlords and letting agents felt that they could lose control of their rental properties under this new law. Nonetheless, just over four years later, the rental sector has not collapsed in Scotland. The buy-to-let market remains upbeat, and there are signs that a Scottish landlord’s right to evict their tenant has been reinforced by these changes in the law.
The reason the Scottish changes worked was because the new grounds for repossessing rental properties was clear and wide-ranging. The Scots sped up the slow and unwieldy eviction process where the landlord had a legal and genuine reason to re-claim their property.
All I hope is the same changes to court procedures are made south of the border.
The law currently stands that landlords need an Energy Performance Certificate (EPC) with at least a rating of E.
Westminster is anticipated to increase the EPC requirement for private rental properties in England and Wales to an EPC rating of C for all new rental tenancies by 2025/6, and for all existing tenancies by 2028, whilst Scottish landlords are also expected to see energy efficiency measures in their new proposed Housing Bill.
The problem is 1,959,045 of the 2,965,455 registered rental properties on the EPC database have an energy rating of D or below.
To take a property from an EPC D rating to a C rating might only cost a few hundred pounds, yet the average for all rental D and E rated properties has been calculated at just over £10,000 per property.
My advice to every Bath landlord is to look at the full EPC report of their rental property (and if you haven’t got it, contact me and I will send it to you – whether you are a client or not) as that will tell you whether this will be a big or small job.
Renovating the UK’s rental stock to meet the Government’s carbon neutral targets will be a big trial for landlords. There is talk of exemptions, which may apply to a great many Listed buildings, as there currently is for the existing minimum EPC E rating – yet only time will tell on that front.
Maybe those landlords currently buying properties to add to their rental portfolio should reconsider their buying strategy? In the past, it has been normal for Bath buy-to-let investors to be attracted to the inexpensive older properties that need an overhaul. However, with the potential energy efficiency laws coming into the game, it’s rational to suggest that buy-to-let landlords will be more predisposed to buying slightly newer properties rather than have the cost for the upgrades to meet the potential energy targets.
Roll the clock back 20 years and making money from buy-to-let in Bath was as easy as falling off a log. Yet with increased legislation and regulation, together with the changing dynamics of the British economy and the requirements tenants want in a rental property, making money won’t be as easy over the next 20 years.
It amazes me that 11 out of 20 landlords do not use a letting agent to help them with their rental portfolio, considering the cost can be offset against your tax.
Moving forward, savvy landlords will increasingly utilise their letting agent not only to collect the rent and manage the property, but also build up their portfolio to withstand the regulatory and demographic changes on the horizon, and to ensure that their investment is fit for purpose in the medium to long-term.
If your existing letting agent does not offer such advice, or you are a self-managing landlord, let’s have a chat about the future of the Bath rental market.
