All the facts and figures on the rental market in Bath & beyond from May 2023, including a close look at how long it takes to let a property and what that tells us about the current market.
Reside’s local experts Chris & Lisa visit one of the city’s most recognisable Georgian terraces.
The Bath Landlord Forum hosted a successful event at The Francis Hotel, Bath on 15 March 2023, which focused on energy efficiency considerations in rental properties. The event was hosted by Reside’s Toby Martin and featured guest speakers who provided valuable insights on this important topic.
The event was attended by a large number of local landlords, property managers, and industry experts, who were keen to learn more about the latest developments in energy efficiency and how they could apply them in their own rental properties.
Toby Martin started off the event by giving a lettings legislation update. He summarised a range of recent and upcoming regulations, including the importance of complying with regulations related to energy efficiency.
Olly Meyer, a domestic energy assessor from Meyer Energy, was the next speaker. He spoke about how Energy Performance Certificates (EPCs) are recorded and what constitutes a good or bad EPC. Olly explained that EPCs are a legal requirement for landlords and that they need to be renewed every ten years. He also highlighted some of the factors that can impact the rating of an EPC, such as the age of the property, the type of insulation, and the heating system.
Sonia Pruzinsky from the Centre for Sustainable Energy was the final speaker. She explained the funding options that are available for landlords looking to improve the energy efficiency of their properties. Sonia discussed the different schemes that landlords can take advantage of, such as the Energy Company Obligation (ECO) and Home Upgrade Scheme. She also highlighted the importance of taking a holistic approach to energy efficiency and encouraged landlords to think about ways to reduce energy usage beyond just making physical upgrades to their properties.
The event was highly informative and provided valuable insights into the latest developments in energy efficiency for rental properties. Attendees also had the opportunity to network with other landlords and share best practices.
“We were delighted with the turnout for this event and the engagement of our speakers and attendees,” commented Toby Martin. “Energy efficiency is an important issue for landlords, and we hope that this event has helped landlords to better understand how to deal with the government’s proposed regulations.”
The Bath Landlord Forum plans to host more events on important topics related to the rental property industry in the future. For more information about the Bath Landlord Forum and future events, please visit their website at www.bathlandlordforum.co.uk.
The latest Propertymark Housing Insight Report suggests that tenant demand is on the rise again, with supply of property unable to keep up.
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:
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.
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.
You can earn money two ways with buy-to-let.
The first is the rental income from the property.
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%.
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.
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).
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.
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.
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).
‘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 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.
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…
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?
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…
