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Bath Property Market to Crash in 2022?

Posted on by prateek

  • 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.

  1. 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 Rental Homes Nightmare!

Posted on by prateek

  • 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 …

  1. Bath has proven to be a popular destination for the high volume of renters who decided to leave London during the pandemic.
  2. People are living longer, meaning not so many properties are coming back into the mix to be recycled for the younger generation.
  3. 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.
  4. 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.

Bath Rental Market Review: April 2022

Posted on by prateek

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.

Bath Rental Market Review: March 2022

Posted on by prateek

Everything you need to know about the Bath rental market in March 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.

1 in 4 Bath Homeowners Unable To Sell

Posted on by prateek

  • The average time to find a buyer for a Bath property reduced from 72 days in 2020 to 66 days in 2021.
  • Yet just over 1 in 4 Bath homeowners are still on the market after 12 weeks.
  • Why are so many Bath homes still on the market after all that time, and what does it mean for the Bath property 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.

In 2020, it took on average 72 days from the average Bath property appearing on the property portals (i.e. Rightmove, Zoopla etc.) to the property going sold (STC).

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.

Of the properties for sale in Bath, 26.6% of houses have been on the market for more than 12 weeks.

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 …

65.8% of Bath homes put on the market in the last 30 days have not sold.

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’).

If one estate agent can get you an extra £30,000 for your Bath home, you will take it, won’t you?

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).

But estate agents only get paid when they sell the house; why do they overvalue?

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.

Beware the same practice from lettings agents

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.

Research has shown that if the asking price is initially set too high, it will be ignored by people surfing Rightmove and Zoopla.

(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.

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.

How Will Rising Inflation Affect the Bath Property Market in 2022?

Posted on by prateek

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.

So, let’s look at all the factors and what it means for the Bath property market.

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%.

With Bath wages rising at only 3% to 4% and inflation at 7%+, Bath household incomes, in real terms, will fall.

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).

Will Bathonians be more anxious about spending their money?

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.

It’s all doom and gloom! …or is it?

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.

What are Bath people spending on their rent and mortgages?

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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.

Interestingly, private tenants are proportionally 14.29% better off in 2021 than in 2015.

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.

Higher inflation is generally brought under control using higher interest rates, meaning mortgage payments will be higher.

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.

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What about house prices in Bath in 2022/23?

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.

The average value of a property in Bath and North East Somerset today is £399,981.

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!

The simple fact is that 94.3% of Bath homeowners will still be better off when they move if house prices crash.

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 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 Rental Market Review: February 2022

Posted on by prateek

Everything you need to know about the Bath rental market in February 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.

Why Are There So Few Bath Homes For Sale?

Posted on by prateek

  • 52% drop in the number of properties for sale in Bath in the last 12 months.
  • 402 Bath homes have sold (stc) in the last three months alone, taking the time from the ‘for sale board’ going up to sale agreed to a median of 42 days.
  • The £200k to £300k price range in Bath is the most active, where it only takes 36 days to sale agreed, but the over £1m price range is taking 82 days.
  • Yet, what issues cause Bathonians to want to move home and what can people wanting to move in 2022 do to ensure they sell and find the home of their dreams?

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.

They are victims of the ‘for sale board crunch’ in the Bath property market, the likes of which have not been seen since 2007.

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.

So why is the Bath property market this way?

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.

Around 36% more Bath properties have sold in the last 18 months than the long-term 20-year average.

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.

So, how long does it take to sell a Bath property now?

Bath Apartments – 80 days

Bath Terraced/Town House – 19 days

Bath Semi-Detached – 27 days

Bath Detached – 37 days

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.

The ‘for sale board crunch’ would be somewhat eased if Bath sellers put their property onto the market whilst they were hunting for their next ‘forever home’.

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.

Classic chicken and egg – so what do you do first?

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.

Yet, everyone normally gets their next ‘forever home’ by playing this long game.

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.

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.

What Bath Landlords Need To Know About The Government’s ‘Levelling Up’ White Paper

Posted on by prateek

  • Some Bath landlords could face bills of between £11,000 to £14,000 as Michael Gove, the Housing Minister, declared an attack on poor quality private rental homes.
  • 2,114 Bath rental properties could require upgrading. The Government announced in their ‘Levelling Up’ White Paper last week, they plan to introduce a new minimum standard for private rental properties.
  • Also, the White Paper wants every landlord in Bath (9,075 of you) to go on a Landlord Register and proposes the removal of Section 21 no-fault evictions.

But despite what some might think, these proposed changes are not another nail in the buy-to-let coffin for Bath landlords. Here is why…

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…

Yet the Levelling Up White Paper reads very much like a shopping list of great ideas without the means to pay for it.

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!).

So, what does this mean for the landlords of the 9,075 private rental properties in Bath?

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…

The estimated total cost to improve the 2,114 Bath properties, that are considered substandard, could be as high as £29,602,650.

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:

  1. It must meet the current statutory minimum standard for housing
  2. It must be in a reasonable state of repair
  3. It must have reasonably modern facilities and services
  4. It must provide a reasonable degree of thermal comfort

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…

In 2006, 46.7% of private rented homes in the UK were classed as substandard and today that has reduced, without any legislation, to 23.3%. One must ask if new legislation is now required?

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.

This White Paper is not another nail in the coffin of buy-to-let in Bath.

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.

In a nutshell, if Bath landlords do end up selling in their droves (which they won’t), yet if they do, those Bath properties will still exist.

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.

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.