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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.

Is buy-to-let still profitable?

Posted on by prateek

Rising interest rates, Section 24, EPC regulations… today we answer the question: can buy-to-let still be profitable?

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.

Will Bath buy-to-let continue to be profitable in the next few years?

Posted on by prateek

Being a Bath landlord is undoubtedly a challenge. The glory years of making money from ‘any old property’ are certainly in the past. With increased legislation and taxation from Government and the cost-of-living crisis (which will result in some Bath tenants struggling to pay their rent), times are challenging for many landlords.

Then newspapers are full of stories of landlords being pushed into the red as mortgage rates continue to rise. A landlord last summer could have fixed their 5-year buy-to-let rate with a 25% deposit at 1.86%, whilst today the best 5-year deal is with Barclays at 4.36%. This increase will add more than £246 per month to the landlord’s mortgage bill for the average UK buy-to-let property.

Landlords’ mortgages stand at £237.81bn, meaning collectively, landlords could have to pay an additional £7.11 billion per year in mortgage interest payments.

Next, the press is reporting in Q2 2022 (when compared to Q2 2021), landlord possession claims for arrears increased from 6,997 to 18,201 properties (a rise of 160%), property orders from 5,431 to 14,319 (an increase of 164%), warrants from 3,786 to 7,728 (a rise of 104%) and landlord repossessions from 1,582 to 4,900 (a rise of 210%).

This is on the back of the Section 24 tax changes made a few years ago and ahead of expensive energy efficiency upgrades that the Government is expected to legislate for in the coming 12 months.

Doesn’t sound good for landlords.

Until you look past the headlines and look at the actual detail.

79.93% of UK buy-to-let (BTL) mortgages are interest-only mortgages (compared to 12.29% of homebuyers), meaning the repayments are considerably lower than typical homebuyer mortgages. Therefore, the rise in interest rates won’t hit landlords’ profitability as much as many thought initially.

93.21% of all new BTL mortgages agreed in the last two years have been on a fixed rate mortgage, and 73.27% of all existing BTL mortgages are on a fixed rate. So, the increase in mortgage payments will only affect one in four landlords on variable-rate mortgages.

Let us not forget that less than one in three landlords have a BTL mortgage, meaning two out of three landlords aren’t affected by these interest rate rises.

The average rent of a Bath property is now £2,065 per month, an impressive rise of 11.5% compared to a year ago.

Those possession orders mentioned above look high until you realise that there are 4.4 million properties in the private rented sector. That means only 2.04% of UK rental properties had arrears bad enough for landlords (or agents) to start possession proceedings to evict the tenant. Also, only 0.045% of tenants were evicted through the courts in a calendar year.

Talking of arrears, recent studies using statistics from the Government and other letting industry sources show that …

landlords who didn’t use a letting agent to manage their property were 272.5% more likely to be two months or more in rent arrears in 2021. It pays to use a letting agent!

Next, the potential cost of upgrading rental properties’ energy efficiency.

The proposed changes in the MEES regulations require a minimum energy efficiency (measured by its Energy Performance Certificate (EPC)) to a ‘C’ rating on new tenancies from 2025 and existing tenancies by 2028. That will cost, on average, £10,000+ per property.

Yet it cannot be forgotten when the rules changed in 2018 properties had to have a minimum EPC rating of E in England and Wales to be legally compliant. If a landlord of an ‘F’ or ‘G’ rated rental property could prove that it would cost more than £3,500 to make those improvements to their EPC rating, then that was the most the landlord had to pay. No doubt something similar will take place in the future proposed legislation.

Then there is the profitability of renting. Rental yields are the primary guide to profitability in buy-to-let.

Yields are starting to rise as Bath rental growth is beginning to outstrip Bath house price growth.

The average yields being achieved in Bath today are …

  • 1 bed – 4.5% yield
  • 2 bed – 4.0% yield
  • 3 bed – 4.1% yield
  • 4 bed – 3.7% yield
  • 5 bed – 3.0% yield

Yet investing in buy-to-let isn’t just about the yield.

Demand from tenants plays a massive part in the success or failure of your buy-to-let investment, so other yardsticks, such as void periods, should be considered. There is no point in securing a higher-yielding rental property if that buy-to-let investment remains empty.

My research has found that the Bath overall void period average so far is 41.4% lower than 18 months ago, reducing from 29 days in April 2021 to 17 days in September 2022 (the void period being the time it takes from the date of an old tenant moving out until the new tenant moves in).

Finally, buy-to-let investment is also an excellent hedge against inflation compared to other investments. If you would like more information on that, drop me a line, as it’s too long to post here.

In conclusion, the days of buying any old Bath buy-to-let property at any price and making loads of money from it as easy as falling off a log are gone!

The next few years will be challenging for everyone. Still, with the advice and opinion of a decent Bath letting agent to guide and support you on your buy-to-let journey, buy-to-let will continue to be a profitable investment.

You need to review your rental portfolio regularly. See how your portfolio measures up against yield vs capital growth see-saw. Review your mortgage financing and EPC status of your portfolio.

If you would like a no-obligation chat with me to discuss your options as a new potential landlord or an existing landlord with a rental portfolio, then let’s talk.

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.

Amazing Property Transformation – Before & After Pics

Posted on by prateek

One of our landlords recently completed a refurb on a cottage that has been used as a workshop / storage space since the 70s, and had fallen into disrepair. I have to share the before & after pics with you – it’s a real success story! They have done such a complete job of turning the property into a modern, stylish home, and it was a complete joy to find a new tenant for them.

In their own words: “As you will see, the renovations really have been a labour of love! Willow Tree Cottage was originally a home with the most recent known tenant being a Mr Cheeseman, in the 1960s, we think. From around the 1970s, the cottage was used as a garage, workshop and storage rooms. It was very run down when we bought the place. Now we have undertaken the job of turning it back into a warm, inviting and comfortable home again.

“Every part of the house, from the roof down, has been painstakingly repaired, restored or replaced. This included full reconstruction of the roof, new windows, putting in water and electricity connections where there previously were none, new heating and hot water systems, two new bathrooms and a kitchen, replastering including repairing the original lime plaster in many places, full redecoration using specialist paints in Farrow & Ball colours, repointing of the original stonework, structurally reinforcing the old floors, replacing old, rotten lintels. You name it… we did it.

“Although the cottage is fortunately not Listed, our aim was always to enable it to be a comfortable home, with modern conveniences whilst still maintaining its character and beautiful period features such as the fire places, exposed stone walls and original quarry tiled and flagstone floors.

“To help make the cottage as energy efficient as possible, we included a 2.5kw solar pv installation, double glazing, state of the art individually thermostatically controlled clay core radiators, a solar heated water system (that stores excess energy from the solar PV not being used by the electrics in the cottage!) and lots of loft and roof insulation, to the standards of a new build house or above!”

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.

The 6 Reasons Bath Rental Properties Could Inflation-Proof Your Savings

Posted on by prateek

  • Inflation (and recessions) can be nerve racking for people and their hard-earned savings and wealth.
  • Yet there are six reasons which make investing in private rental properties a potentially wise investment in these changeable times.
  • This article looks at how investing in Bath property could help you ‘hedge’ against inflation and protect your savings and wealth against the possible recession.

The cost-of-living predicament is threatening the budgets of many Bath households.

Inflation is running at 7.8%, yet the best savings rates in the market are only 2.75% (because of low Bank of England interest rates). This means that the value of people’s savings is falling fast.

To add insult to injury, the possibility of a recession on the horizon could add another nail in the coffin of people’s wealth and savings.

Looking back at the last recession (ignoring the 2020 Covid recession), the Stock Market (FTSE index) dropped 40.1% during the Credit Crunch (2008/9) — scarcely a soothing thought if you worry about a recession looming in the next couple of years.

A recession can have a catastrophic impact on household budgets, as a weaker economy characteristically means that salaries drop, and people get made redundant.

So, why do I suggest Bath rental properties will help to protect your wealth and hedge against inflation?

Bath rentals aren’t perfect, yet in many ways, they go a long way to help – let me tell you why.

1. One of the most significant benefits of investing in residential property is to hedge against inflation. An ‘inflation hedge’ is an investment that defends against the decreased purchasing power of your money that results from the loss of its worth/value due to inflation.

The last time the UK suffered high and persistent inflation was the 1970s.

In 1973, the average British house was worth £9,942. In 1980, that same house was worth £23,287. If the same £9,942 had been invested instead in the stock market in 1973, it would have been worth £19,384 in 1980.

So how did that compare to inflation?

Neither property nor the stock market beat inflation in those seven years (as the goods and services of that £9,942 in 1973 had risen to £25,897 by 1980).

But investing in the stock market between 1973 and 1980, that stock market investor would have lost 25.2% of their investment in ‘real terms’, compared with only 10.1% for property investors.

However, there was the bonus of seven years’ worth of rent!

To give you some idea of what that would be worth in today’s figures (even if the rent didn’t go up during that time frame) …

The average Bath landlord will earn £136,332 in rent over seven years.

2. Rental properties have repetitive, regular monthly income, whilst dividends from the stock market are dependent on there being profits which, in a recession, can be hit and miss.

3. Existing Bath landlords know that the rents their rental properties achieve don’t historically decline during recessions in the medium term.

In 2008, Bath rents dipped by 5.2%, yet they soon bounced back a year later.

And even if average rents do go down, every rent is fixed at the start of the tenancy. Also, it is infrequent for a tenant to negotiate a reduction in rent mid-tenancy even if average rents did drop.

4. Property prices sometimes fall during recessions.

In the 2008 Credit Crunch recession, Bath and North East Somerset property values dropped 19.34%.

Dropping from £253,777 at the peak in September 2007 to £204,700 in May 2009 (before they started to rise again).

Yet as I stated above, the Stock Market dropped 40.1% with the Credit Crunch. Also previously, the Stock Market dropped 36% on Black Monday before the early 1990’s recession and 55.3% in 1974.

Which sort of drop would you prefer?

5. (Almost) guaranteed rental payments. Insurance can be taken out for rental payments (you can’t get that on stocks and shares). Also, the government will cover most (or all) of the rent when someone is made redundant and needs to apply for social security.

6. For those Bath landlords who take a mortgage, inflation can be a benefit. The first is 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. You will receive a lower interest rate when you re-mortgage in the future because of the lower loan to value percentage.

Also, as the equity in your Bath rental property increases, assuming you fix your mortgage, your payments stay the same.

Finally, inflation also helps Bath buy-to-let landlords 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.

Yet, there are downsides to renting.

Rent arrears can be a worry. However, during 2021, landlords who used a letting agent were, according to an investigation from Denton House Research, 272.5% less likely to be in arrears of two months or more.

One of the biggest reasons is the more stringent tenant referencing that letting agents tend to do compared to landlords who do it themselves. At our agency, we like to reference tenants carefully for job security, stability, and any history of non-payment on rents, always liaising with previous landlords/agents to see they were a good tenant.

That is why many tenants with a poor tenancy record are attracted to properties that are not through agents, as they know most (not all) DIY landlords don’t reference their tenants as thoroughly as letting agents do. Solid referencing is not a 100% guarantee you won’t get rent arrears or have your rental property trashed, yet it will go a long way to mitigate it.

One of the things about investing in Bath rental properties is that buy-to-let investors have more control over their returns than stock market investors do. Buy-to-let provides long-term stability and constant income to counterweight the massive swings seen in the FTSE stock market.

There is something reassuring about touching and feeling your investment – the ‘bricks and mortar’.

You must make your own decision when investing in the private rental market in Bath. If you’d like to chat over the phone for five or ten minutes to discuss where I would be investing in the Bath property market, don’t hesitate to send me a message or pick up the phone.

How are you planning for the spectre of a potential recession?

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.