Tucked away on the southern outskirts of the city centre, Bath City Farm is a wonderful, thriving community hub. Join the Bath’s Best Bits team to find out more…
or ‘how to avoid a rental property shortage again in 2023’.
In 2022, the shortage of rental properties simply couldn’t satisfy tenant demand, driving up rents to unprecedented levels. How can we avoid this happening again in 2023? Here are 3 good places to start…
With energy prices soaring, rents rising and tenants feeling the pinch, a property’s energy efficiency has become so important that it can affect the rental value and desirability of a property.
The government has set ambitious targets that will require landlords to improve the energy ratings of their rental homes in the near future… so what can Bath landlords do to get ahead of these incoming regulations? What makes a good and bad EPC? And what can landlords do to improve their properties?
We have assembled a panel of expert speakers to discuss this hot topic at our second Bath Landlord Forum event. There will be a chance to put your questions to the panel and speak with fellow landlords.
We have the following speakers:
Oliver Meyer, of Meyer Energy, is a government-approved and accredited Domestic Energy Assessor operating in Bath. He will explain how property EPCs are compiled, and what constitutes a good or bad EPC.
Sonia Pruzinsky, of the Centre for Sustainable Energy, will discuss the options and funding available to landlords who wish to increase the energy efficiency of their property.
Toby Martin, of Reside Bath & ARLA Propertymark, will summarise current and upcoming EPC regulations, and other recent changes to landlord legislation.
We want to help Bath landlords to stay compliant with ever-changing lettings legislation, and provide support to make the most of your property investments.
So join us at The Francis Hotel, Queen Square on Wednesday 15th March 2023 from 18:00.
Places are limited, so booking is vital.
The autumn of 2022 saw economic and political instability with the resignation of Boris Johnson as Prime Minister and the ill-fated Liz Truss 44-day premiership. Now as we go into 2023, the economic and political turmoil has subdued, offering a greater feeling of stability in money markets.
So on the back of that, what is the expectation for the British (and Bath) housing market as we go into the new year?
The biggest issue is inflation. Low steady inflation of around 2% a year is good for the economy, yet the high levels we are experiencing now isn’t. It affects the spending power of the pound in your pocket, and it alters the way people spend their money (including buying and selling property).
Many blame it on inflated gas prices because of the Ukraine situation (however, it is believed by most economists only around 4% of the current 10.7% inflation figure is because of the fuel crisis).
UK inflation was already running at 6.2% when the Russian tanks rolled into Ukraine in February 2022 which created that energy price shock. Therefore, where has the rest of the inflation come from?
The catalyst of inflation started in 2020 with the Bank of England’s Quantitative Easing (QE). This pumped £450m new money into the economy at a time when the future looked bleak. The problem was, people had nothing to spend that money on, so when things started to get going after the lockdowns, there was a mis-match of too much demand for goods (as people had that money) and a lack of goods and services (because there wasn’t enough supply of those goods and services with the supply chain issues).
This all meant prices went up (i.e. inflation). The catalyst of this inflation was the Bank of England printed too much money in 2020 with QE and the supply chain issues (all easy to say with hindsight!).
Two things will reduce inflation.
One is a recession and the other is increased interest rates.
Many find it fascinating that the Bank of England were talking the UK economy into a shallow recession in the autumn. Yet there was method in their madness. It was because they didn’t want to rely solely on the second method of increasing interest rates.
Better for the economy to have a shallow mild recession and interest rates rising to say 4.5% by the middle of 2023 to reduce inflation, than placing the whole job of reducing inflation on interest rates.
If that had been the case, interest rates would need to rise to say 7% (or more), causing the economy (and property market) to stall… and thus create a subsequent deep and long recession.
Therefore, with the Bank of England having recently increased its base rate to 3.5%, with more interest rate rises to come in 2023, what does this and the mild recession mean for the Bath property market?
A recession will increase unemployment levels, which have been comparatively low in the last few years. Depending on the type of roles/jobs that are made redundant, will determine the effect on the property market. Until that happens, we won’t know.
Everyone is suffering from higher gas, electric, shopping bills, yet with interest rates rising, this will increase the pressure on household budgets. Higher interest rates mean higher mortgage payments if the homeowner/landlord is on a variable rate mortgage (17 out of 20 homeowners with a mortgage are on a fixed rate).
Yet let us not forget this pressure is coming off the back of two of the strongest years on record in terms of house prices and transaction levels.
This is interesting when compared to the UK average, where average house prices have risen by 27.4% or £44,700 since March 2020.
Before I tackle the issue of house prices in 2023, I would like to look at the number of transactions.
To many the number of properties selling is irrelevant, yet I believe it is as important, if not more important, than house prices. I believe the best way to judge the health of the Bath property market is the number of people moving home (i.e. housing transactions).
Many economists believe the number of property transactions is a better judge of the health and virality of a housing market. The higher the number of people moving home the better for the whole economy than a smaller number of property transactions, whilst the same can’t be said for higher house prices.
Transactions levels have been quite high in the last couple of years.
Looking at the stats coming through in the last couple of months, maybe we will settle for a figure somewhere between the two figures above, yet nowhere near the sub-800 annual figure of homeowners moving in the Credit Crunch years in the 2008/9/10 time frame.
Finally, let’s look at Bath house prices in 2023.
A good place to start to judge house prices is how many reductions are taking place on the properties that are already on the market.
Homeowners are being more realistic with their pricing and the price that one will achieve for their Bath home today and the rest of 2023 will be lower than one would have achieved in the spring of 2022.
Yet, as most Bath people buy another property when they sell (and most of the time move up market) the price you would have had to pay on the next purchase would have been even more.
Final thoughts.
Several economic commentators are preaching doom and gloom for the property market in 2023, yet things are very different than the Credit Crunch years of 2008/9.
The property market crashed in 2008/9 mainly because the banks and building societies stopped lending money i.e., credit (that is why it was called the Credit Crunch).
There are two large differences this time round.
The first is the introduction of Mortgage Market Review mortgage stress testing instigated in 2014.
Homebuyers taking out a mortgage must have undergone a stress test on interest rates to obtain a mortgage since 2014. These stress tests are a safeguard to ensure that if their household income continued to be the same, the homeowner could afford higher mortgage rates.
The second is the banks and building societies have much higher cash reserves. Higher reserves will ensure they can continue to lend money and so more mortgages are available, although at a slightly higher interest rate than a year ago.
With mortgage rates falling back, with some very attractive fixed-rate deals knocking on the door of 5%, this is a development that may continue into 2023 as banks and building societies obtain cheaper funding sources and then compete for business by driving down the price of mortgages – which would only be good news for the Bath property market. These are my thoughts – what are yours?
As a proudly independent Bath business, we know the importance of supporting and investing in our local community – especially during such difficult times.
This is why we have a company tradition of donating a percentage of our annual profits to charitable causes in the Bath area.
Every year, the Reside team researches and discusses local charities, before deciding which to support. We are delighted to confirm that the team has chosen Off The Record and Bath City Farm as this year’s charities.
Reside has previously supported Off The Record, whose brilliant work improves the emotional health and wellbeing of young people in Bath and North East Somerset. We have always been struck by the energy and dynamism of their team, and the Reside staff unanimously voted to continue our support of their hard work.
“Reside Bath have been strong supporters of our work with young people in B&NES over the years and I am delighted that you have chosen to support us again. Your donation will help us to improve the mental health and emotional wellbeing of more young people through our community listening support services in Bath, Radstock and Keynsham.”
James Brown, Off The Record
Bath City Farm has been a feature of the city’s community for more than two decades, offering 37 acres of farmland with a café, adventure playground, amphitheater and allotments. They work with people living with poor mental health, learning disabilities and other complex needs, offering therapeutic wellbeing sessions and helping children to get closer to nature.
“My sincerest thanks on behalf of everyone at Bath City Farm. I’m so glad to hear that your staff know about us and support the work that we do, and that many access the site with their families. This means so much to us to know that there is support from within the business community. This donation has come at a very welcome time and will make a big difference.”
Brendan Wistreich, Bath City Farm
We are delighted to support these two charities who give so much to our local community, and wish them every success for 2023.
Walcot Street is home to Bath’s Artisan Quarter, a hive of bustling independent shops and businesses. Also featured in this tour of Bath’s most eclectic corner is the story of the tunnel that was supposed to start at Walcot Street and go right under the the city…
Anybody who enjoys surfing the property portals (Rightmove, Zoopla and On the Market) will have observed an emerging trend that the number of properties available to rent in Bath has dropped considerably in the last couple of years.
This reduction has been seen all around the UK as well. For example, on 1st November 2020, there were 372,931 properties to rent on portals. By the 1st November 2021, that had dropped to 275,650; by the 1st November 2022, that had fallen to 171,224.
That doesn’t mean the number of privately rented homes in the country has dropped by over half. Fewer properties are coming onto the market to rent. I will explain why in this article.
For tenants, especially over the last 12 months, it has become progressively more challenging to find a rental home, thus making the rent they must pay go up. This state of affairs in the property market isn’t showing an indication of getting any easier either, making for a hard time for Bath renters.
Several different components are making the perfect storm in the UK property market.
Firstly, the number of households in the UK.
The UK has not been building enough homes for the last 20 years. I appreciate that parts of Bath seem like one huge building site, yet as a country, we are woefully undersupplied with property to live in. This has meant house prices continue to rise due to demand.
The government have known about this issue for decades. The Barker Review of Housing Supply published in 2004 stated that the UK had experienced a long-term upward trend of 2.4% in real house prices since the mid-1970s because of a lack of house building. The report stated that 240,000 houses needed to be built each year to keep up with demand.
(i.e. 45 years multiplied by 75,000 missing homes per year)
Several years ago, the government set a target to build 300,000 new homes each year to address this issue.
However, in 2019/20, the actual number of homes delivered stood at just 243,770. In 2020/21, the number of properties built dropped to only 216,000 new homes. In a nutshell, there are fewer available homes to buy, meaning fewer available homes to rent.
Secondly, Bath tenants are staying in their rental homes longer.
The average rent of a Bath property in November 2022 is £2,245 per calendar month (up from £1,409 per calendar month in February 2020) – quite a rise!
These numbers translate into Bath renters not being able to pay the rent and be able to save for a deposit, or if they are saving, it is taking a lot longer to save for a deposit due to the cost-of-living crisis and higher rent costs.
Also, many Bath tenants have decided to stay in their existing rental homes because of the rent rises. Many landlords are less inclined to raise the rent on an existing property when they have a decent tenant who keeps the property in good condition and pays rent on time. Anecdotal evidence also suggests that rent arrears in those properties are dropping as tenants know if they don’t pay the rent, the chances are they will have trouble finding another property, and if they do, they will have to pay a lot for their next rental home.
For Bath landlords, this is all positive news – tenants are staying for longer in their rental properties, arrears are lower, and void periods are less likely. When it comes to the market there is less competition (because of the decrease in the availability of Bath rental properties) so this makes the investment an even better bet.
Thirdly, landlords are selling up on the back of recently increased house prices.
It would be difficult for Bath buy-to-let landlords to ignore the rising property prices in recent years.
For some buy-to-let landlords, especially those who were classified as ‘accidental landlords’ (an accidental landlord is a landlord who never chose to become a landlord, it was just after the Credit Crunch of 2008/9, they found themselves unable to sell their property, so they temporarily let their own property out), they chose to ‘cash in’ on the higher house prices. This would have also contributed to the lack of available Bath homes for rent.
Landlords have a few costs to consider before investing in buy-to-let, including everything from regular refurbishment costs, buildings insurance, letting agents’ fees, income tax, and not forgetting stamp duty.
Talking of costs, one issue some Bath landlords are facing is their failure to plan financially for the recent mortgage interest rate rises. Some landlords may have become complacent to the ultra-low Bank of England base rates we have had since 2008 and, therefore, may need to sell their rental property, which, if bought by a first-time buyer, will remove another property from the Private Rented Sector.
Another hurdle to jump is the proposed new regulations requiring better energy efficiency for rental properties. It is proposed that all new tenancies must have at least a minimum of a ‘C’ rating for their EPC (Energy Performance Certificate) from 2025 (and 2028 for all existing tenancies).
Therefore, as a buy-to-let Bath landlord, it is wise to do your research to make sure the buy-to-let opportunity is correct for your rental portfolio, particularly when it comes to weathering any impending financial storms.
Landlords can earn money from their buy-to-let investments in two ways. One is the property’s capital growth, and the other is the rental return (often expressed as a yield). In 96% of buy-to-let investments, there is an inverse relationship between capital growth and yield (i.e. properties that tend to go up in value quicker will have lower yields 96% of the time – and vice versa).
Getting the best balance of yield and capital growth depends on your current and future needs from your Bath buy-to-let investment.
The continued shortage of Bath rental properties means it will be more difficult than ever to find a Bath property to rent, and so rents will continue to grow.
Unlike in Scotland, England and Wales do not have rent controls, with Westminster ruling out the possibility of introducing rent control here to deal with the cost-of-living crisis.
You would think rent controls would be a no-brainer, yet economists from around the world have proved for the last 75 years that rent controls might help tenants in the short term, yet ultimately it drives landlords to sell their investments in the long term, thus reducing the stock of available properties to rent out (not great for future tenants).
Landlords who persevere with their Bath buy-to-let properties or become a Bath buy-to-let landlord are set to benefit because they have an asset in very high demand.
The housing shortage, not to mention the other issues discussed above that are affecting the supply of rental properties, is unlikely to be fixed anytime soon!
In conclusion, the Bath rental market is a constantly changing picture. What is known is that the supply of rental properties is far from what is needed, which can only be to the benefit of buy-to-let investors rather than of tenants renting.
I see buy-to-let as a long-term investment. Everyone reading this knows that the real value in your buy-to-let investment is playing the long game, allowing your Bath buy-to-let investment to grow over time. Like the crypto or stock market, getting sucked in by get-rich-quick schemes that are selling ‘apparent quick wins’ in property investment is very easy.
The final episode in our ‘Masonic Trilogy’. First it was The Circus… then the Royal Crescent… and now Queen Square!
This month, Toby talks about the practice of offering over asking rent, and looks at some recently introduced landlord legislation.
