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Is Buy-to-Let in Bath Still Worth the Risk?

Posted on by prateek

Over the last five years, life has become a little trickier for Bath landlords, with changes to their taxation status, mortgage interest relief and an additional 3% stamp duty for a buy-to-let property and has made lots of Bath landlords ask themselves:

‘Is buy-to-let in Bath still worth the risk?’

Regarding taxation, in 2016, the Government added a 3% supplement in stamp duty on all buy-to-let properties. Then, in 2017, the Government started to reduce mortgage interest by stopping landlords from deducting the interest they paid on their mortgage before paying tax on the rental profits and replacing it with a flat rate tax credit based on 20% of the interest they spent on their mortgage.

There would be no effect if a Bath landlord were a basic rate 20% taxpayer. Yet Bath landlords who were higher-rate (40%) or top-rate taxpayers (45%) saw an effect as their tax relief was cut in half.

So, is buy-to-let in Bath still an advisable investment?

The response to this question is much more significant than the issue of taxation.

To a large degree, as with all investments, it depends on why you are investing and what your final objective is. Let me expand.

The rewards of Bath buy-to-let.

You can earn money two ways with buy-to-let.

The first is the rental income from the property.

The average rent achieved in Bath is £1,849 pcm, a rise of 10.2% in the last 12 months.

This rent is expressed as a yield and is described as a percentage figure that’s calculated using the annual rental income and dividing it by the value of the buy-to-let property.

Landlords and buy-to-let investors use rental yield to judge and measure the value of their rental investments and portfolios. E.g., rent is £1,000 per calendar month (pcm), which means the annual rent is 12 x £1,000 = £12,000. If the property is worth £180,000, the rental yield is £12,000 divided by £180,000, which, when expressed as a yield percentage, is 6.67%.

The average yield in Bath is 4.8%.

Some areas in Bath can achieve a 5.5% to 7% yield, sometimes even more, depending on your choice of property and type of tenancy you wish to have.

If yield is your number one focus, the highest average yield in the UK can be found in Bradford City Centre, where it is 12%, Hyson Green and Radford in Nottingham at 9.6% and Pontypridd at 8.7%, while other areas in the UK can be as low as 2.2%.

So indeed, is the best strategy to go for high-yielding properties?

The problem with pursuing high-yielding Bath buy-to-let properties is that you usually must compromise on the property’s capital growth to attain that high yield.

The second way to earn money with buy-to-let is capital growth as your Bath property increases in value.

BA1 property values are 22% higher than 3 years ago.

A reasonable return in anyone’s books.

Of course, this all depends on the rent coming in, yet you can buy landlord insurance to cover against loss of rental income, tenant damage and legal costs.

Interestingly, using Government data and Industry data, Denton House Research has found that in the first lockdown landlords who managed their rental properties themselves were 272.5% more likely to be in arrears of 2 months or more (compared to those who utilised the services of a letting agent to manage their property).

The drawbacks of Bath buy-to-let.

Your tax bill is higher today than a few years ago, but isn’t everyone’s?

If Bath property prices fall, the capital you invested will reduce, yet if it sat in the bank, it would decline in value anyway.

Being a landlord is a big responsibility, with over 170 pieces of legislation and orders to comply with. That’s where a suitable letting agent can help you with your rental property to ensure you remain compliant.

I recommend Bath landlords consider all options to maximise their rental income whilst reducing their outgoings concerning their rental property.

Rents are rising in Bath (as mentioned above), and many Bath landlords appreciate the demand-led increases in their rent. And let me ask you, why shouldn’t they, as they have been exposed to many legislative and taxation changes over the last five years?

Ok, last point and the elephant in the room.

Will there be a house price crash, and should Bath landlords wait for it?

A house price crash conjures up a big event that makes house prices go down, and it certainly happened like that in 1988 with the removal of dual-MIRAS tax relief on mortgages and the Credit Crunch in 2008. Yet this time, it’s different.

As there is more normality and balance in the Bath property market at the moment (compared to 2021/early 2022), the price that is being paid today on most houses in Bath is not as extreme or as extravagant as what was being paid in 2021/early2022 (when people were outbidding each other).

Therefore, if you were to look at the house price indexes going into the spring and summer of 2023, then there will be a reduction. The doom-mongers and newspaper editors will call that a house price crash, yet I see it as the market easing back to normality.

A massive driver behind landlords and home buyers ‘waiting for a house price crash’ is that they fear they have ‘missed the boat’ when it comes to buying/investing.

There is always newspaper (and now social media) attention when house prices explode. This means people quickly feel pressure to enter the ‘property market’, as everyone is making money, yet they aren’t.

The problem is that during the previous boom phases (the late 1980s and early/mid-2000s), house prices increased quicker than some people could save money for their deposit (for a house purchase). They saw their friends and acquaintances snapping up buy-to-let deals and they were missing out on the spoils of house price growth. As a result, many of these excluded house buyers judged that a house price correction was foreseeable, inevitable, and sometimes even needed. Not with any rational economic argument, but classic FOMO (Fear of Missing Out).

Yet a ‘house price crash’ isn’t the silver bullet that many think it will be.

‘House price crashes’ virtually never drop house prices to reasonable levels, and in fact, they have a lot of additional effects that make house buying even harder.

Investing in buy-to-let is a long-term investment. Remember what I said at the start. It would help if you decided why you’re getting into buy-to-let investment and when you will get out (and what you want to get out of it). Buy-to-let has advantages and disadvantages, but it is something tangible and something that investors can understand.

The UK needs to build more houses, so the demand for rental properties will only continue to grow.

The heady days of the early 2000s, when anybody could make money from any property, though, have gone. With increased legislation and taxation, you need the advice of a great agent to guide you on what to buy (and not to buy) for an excellent yield, incredible capital growth or a balance of the two. That agent should be able to find you a great tenant who will pay the rent on time and look after the property to ensure that when they leave, your investment is returned to you in the best condition possible.

If you would like to pick my brain, whether you are considering becoming a landlord in Bath, an existing landlord (irrespective of which agent you use) or even a self-managed landlord, do not hesitate to pick up the phone to me. I will tell you what you need to hear, not necessarily what you want to hear.

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.

3 Key Concerns For Landlords In 2023

Posted on by prateek

3 Key Concerns For Landlords In 2023…

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…

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 rents set to reach new heights, as available rental properties drop by 12%

Posted on by prateek

  • The number of properties available to rent in Bath has dropped from 1,086 to 951 since February 2020.
  • The average rent a tenant has had to pay in Bath has risen from £1,409 to £2,245 since February 2020.
  • Many Bath landlords have cashed in on the post-lockdown property boom of the last two years and sold their properties to owner-occupiers – not fellow landlords.
  • The supply of Bath rental property isn’t near what is needed, which is of benefit to Bath landlords rather than Bath renters. 

The Bath rental property shortage is currently very evident. In this article, I will investigate why there is such a significant lack of homes available for rent across Bath and what it means for buy-to-let investors.

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.

So, what is the reason behind the Bath rental property shortage, and what does this mean for existing Bath landlords or those potential investors considering buying a Bath buy-to-let property soon?

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.

The average number of houses built since the mid-1970s has been around 165,000 per year, meaning the UK is short of 3,375,000 houses

(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.

A Bath first-time buyer’s average house deposit is £49,592

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.

The average property value in Bath in the summer of 2022 was 12.5% higher than in the summer of 2021.

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.

Yet everything isn’t all sweetness and light for Bath landlords.

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 need to consider the returns from their Bath buy-to-let investments.

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.

What does all this mean for the Bath rental market?

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).

Therefore, it is highly likely that Bath rents will continue to rise for 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.

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: September 2022

Posted on by prateek

Everything you need to know about the rental market in Bath & beyond during September 2022.

This month, Toby talks about the practice of offering over asking rent, and looks at some recently introduced landlord legislation.

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’s Best Bits: The Royal Crescent

Posted on by prateek

The Royal Crescent – it was only a matter of time before we arrived at Bath’s best-known landmark. But what on earth has prompted Chris to use the phrase “All fur coats and no knickers”? Watch to find out…

If you would like to watch previous episodes of Bath’s Best Bits, you can find them all here.

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.

 

Landlord Legislation Update

Posted on by prateek

The start of October has brought no fewer than three changes to regulations affecting landlords. Here’s Toby with everything you need to know.

Reside is an award-winning independent letting agent in Bath. Please get in touch if you would like to discuss any aspect of letting or managing your property; we would love to hear from you.

What Was The Average Bath House Price in 1952?

Posted on by prateek

Well, what a weekend that was. Street parties, gatherings in the park, the purple bunting, egg and cress sandwiches, union jack flags, cheese and pineapple on cocktail sticks, and let’s not forget the trifle – the Platinum Jubilee Party. And no decent party is worth its salt without a game or a quiz.

So, if you have post-Jubilee blues, let me ask you, how much was the average Bath house worth in 1952?

To start with, let me look at what a property is worth today in Bath.

The average price paid for a property in the Bath area in the last 12 months was £497,590.

Now, let’s go back to 1952. Sir Winston Churchill was the Prime Minister, Newcastle won the FA Cup, London was covered in the Great Smog, free prescriptions on the NHS ended (it cost 1 shilling or 5p in new money), and King George IV, at the age of 56 passed away on the 6th February, meaning Princess Elizabeth became the Queen. As for housing …

The average price of a Bath home in 1952 was £4,063.

This means Bath house prices are 121 times higher since 1952.

Yet over the last 70 years, the country has been subjected to 4.5% per annum inflation.

The 1952 Bath home is equivalent to £78,133 today when adjusted for inflation.

This means Bath house prices have increased by 504.8% in real terms since 1952.

So, does that mean house prices are more expensive today compared to 1952?

In 1952, the average annual male wage was £452, 8 shillings and 1 pence, meaning the average Bath house was 8.98 times the average value of a wage. Today the average home is 8.85 times the average wage.

Yet let us not forget the average mortgage payment in 1952 was £11 per month. The average Brit earned £34 per month, meaning 32.3% of the household income was going on mortgage payments, whilst nationally today, according to Nationwide, it stands at 28%.

It’s cheaper, in real terms, to buy a property in 2022 than in 1952.

And that’s the point, some things in ‘real terms’ (real terms being true spending power of the money after taking into account wages, costs and inflation) were more expensive and some cheaper 70 years ago. For example, in 1952, petrol was equivalent (in today’s inflation-adjusted prices) to £1.02 per litre, a pint of beer £2, half a dozen eggs £2.20, cheddar cheese £2.40 per 500g, a basic radio £430, a Hoover £530 and a 12-inch TV £1,600.

So back to property… The Queen’s reign has seen some amazing house price rises in the UK, yet that growth hasn’t always been in a constant upward direction, as we have had a couple of dips along the way.

We had a house price crash in 1990, when the average value of a Bath property dropped from £122,264 to £101,259 in 1996, only for them to start rising again.

Bath saw another house price crash between 2008 and 2009, when the average house price dropped from £365,746 to £311,803 in a year.

What else has changed about property and housing since the Queen came onto the throne?

In 1952, only 32% of people owned their own home, whilst 50% of people rented from a private landlord and 18% rented a council house.

By the time of the Silver Jubilee in 1977, 56% of people owned their own home, with 12% of people privately renting and 32% rented from the council.

Come the Golden Jubilee in 2002, 70% of people owned their own home, with 11% of people privately renting and 19% rented from the council.

Today, 63% of people own their own home, 20% of people privately rent and 17% rent from the council.

I am sure the property market will be totally different again in another 70 years!

I hope you enjoyed reading this article and do share it with your friends if you find it interesting.

P.S. For all you Rightmove fans, the average Bath terraced home in 1952 was worth £3,959, and a semi in Bath could be bought for, on average, £3,608.

Reside is an award-winning independent letting agent in Bath. Please get in touch if you would like to discuss any aspect of letting or managing your property; we would love to hear from you.

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.