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Has the Bath Property Market Peaked?

Posted on by prateek

Should you buy now or wait for the bargains?

  • Many commentators believe we have seen the peak of the Bath property market.
  • So, should savvy bargain hunters wait for Bath house prices to fall?
  • Or could postponing your house buying for any anticipated price drop be a costly mistake?

Over the last two years, the Bath property market has been a rollercoaster ride of hyperactive demand together with the new sport of getting your offer accepted when you compete with 30 other bidders.

Yet there are clouds on the horizon that the Bath property market could be at its peak.

Bank of England interest rates have increased four times in the last few months to try and combat inflation. Meanwhile, many Bath households are finding it tough to counter the most significant drop in real incomes in a single year since records began in the mid-1950s, all at the same time as gas, oil and electricity prices are predicted to rise again in the autumn.

Hence why some economists are predicting house price drops in the coming 18 to 24 months of 3% to 5%.

So, surely this is not the best time to buy a Bath property – and surely savvy buyers should wait for Bath house values to fall?

Is it realistic to see double-digit national house price growth? Certainly not.

The question is how far the Bath property market will slow and whether the slowing will drop into modest falls.

Let me look at household income first.

At best, the outlook is gloomy as real household disposable income is set to drop by 2.4% in 2022/23, the largest drop since records began in 1956 this is despite the £17.6 billion of financial support for British households revealed in Rishi Sunak’s Spring 2022 Statement with the National Insurance thresholds, energy bill support package and duty cut on petrol. Without these changes announced by the Chancellor, real household disposable income would have fallen by an additional 1% in 2022/23.

Click to enlarge

Secondly, as interest rates increase, mortgage rates will increase in line, increasing mortgage costs, so surely that will curtail demand, meaning Bath house prices will drop, and buyers should wait to catch a bargain?

Finally, with inflation on the rise, the real value of people’s savings will decrease quicker, and the value of their deposits will diminish meaning Bath prices will surely drop, and people should wait to buy?

Surely the Bath property market has peaked and buyers should wait for the bargains?

Well, I don’t think so.

I believe, subject to no significant shocks in the world economy, Bath house price growth will be very slow in the next 18/24 months and go into low single digits (even the odd month dipping ever so slightly into the red), but not the 16% to 19% annual drop we saw in 2008/9.

Let me look at real household income. Every economist predicts growth in real household income in 2023/24 by around 1%.

If the two years are combined, the predicted effect on real household income in the next two years (2022/23/24) is a net loss of 1.4%, whilst in the credit crunch years 2010/11/12, the net loss was 2.7%.

I was looking at the increase in mortgage rates. 79% of owner-occupiers have fixed their mortgage costs and had their affordability stress-tested to Bank of England interest rates of 3% to 4% under the Mortgage Market Review rule changes in 2014. I believe the most significant impact of increasing interest rates will be at the point of taking on a new mortgage by first-time buyers (as opposed to servicing or the porting of an existing mortgage from one house to the next house).

The four successive Bank of England base rate rises, inflation and the rising cost of living are likely to bring more cautiousness over summer and autumn when it comes to people buying a property. Yet, there is still a massive imbalance of demand for property over the number of properties for sale to quench that demand.

The potency of the job market and the ongoing mismatch between the supply of properties (mentioned in last week’s article on the Bath property market) on the market and demand for those properties will support property values.

Finally, the by-product of increasing inflation is that it makes buy-to-let more attractive. If there is a reduction in first-time buyers, this will be counterweighted by more landlords buying again, supporting the current level of Bath properties.

But what if Bath house prices do drop significantly?

So let’s assume that Bath house prices do fall, irrespective of the reasons above, it will not inevitably help Bath buyers.

If we have a house price crash, people tend to find their careers are at risk, and their salaries don’t rise as much. The younger generation (i.e. first-time buyers) often gets hit the toughest by recessions.

If first-time buyers wait until 2024 to buy and Bath property values drop by 10%, that will prove more expensive.

In the last 2008/09 crash, lenders weren’t offering 5% deposit mortgages. The lowest deposit mortgage that first-time buyers could get was with a 10% deposit and even then, they were hard to come by.

When writing this article, first-time buyers can obtain a 5% deposit mortgage for a fixed rate of 2.66% for five years.

The typical terraced house in Bath sells for £485,700.

So, if they were to buy now, on this mortgage deal, the first-time buyer would have to stump up a £24,285 deposit and their mortgage payments would be £1,689.37 per month.

Yet, let’s say property values in Bath do drop by 10% in the next 18 months, the terraced house would now be worth £437,130, so a significant saving. Or is it?

Everyone believes interest rates will rise further, so let’s assume they go to 3% by the autumn of 2023. That means the mortgage rate for a 10% deposit mortgage will be in the early 5%s, so let me assume 5.29% (because the banks tend to increase the gap between the base rate and the mortgage rate in recessions to allow for the extra risk).

The monthly mortgage payment on the 5.29% mortgage would be £2,058.88 per month, and you would need to nearly double your deposit to £43,713.

So even if Bath’s house prices did drop by 10%, the first-time buyer would be £4,430 worse off a year in mortgage payments and would have to find double the deposit.

… and then there is the other cost of waiting.

You have two years’ worth of rent to pay. The average rent for a Bath property is £1,636 per month.

If you waited a couple of years for Bath house prices to drop by 10%, you would spend £39,264 in rent.

Choosing to buy a Bath property makes even more economic sense if it is a long-term choice, as homeowners can ride out any house price drops.

Homeowners who plan to stay in a property can generally rely on getting their money back within six to ten years whilst not paying any rent.

Will Bath prices go up, or will they go down?

Remember, George Osbourne said house prices would drop by 18% in May 2016 if we voted to leave the EU, whilst many economists said they would drop by 5% to 10% when Covid hit in March 2020.

And we all know what happened.

If you think you will be better off owning your own Bath home rather than renting one, don’t bother to wait for the suggested house price drop that may never happen. These are my thoughts, what are yours? Let me know in the comments.

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.

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.

86% Drop in Bath Council Houses in the Last 40 Years

Posted on by prateek

  • In 1981, 23.8% of properties in Bath (Bath and the North East Somerset District as a whole) were council houses. Today, that figure stands at 3.4%, a proportional drop of 86%.
  • Why has the number of council houses dropped so much in those 40 years?
  • How has that changed the dynamics of the Bath property market in those 40 years?

The ability of local authorities to build council houses came into law in July 1919 with the 1919 Housing and Town Planning Act. It was one of the most important pieces of domestic legislature passed after WW1 and was the first time in the UK that a nationally public funded system of providing homes was made for the masses. It was paid for mostly by central government and provided by local authorities (councils) and public utility societies (which in later years became today’s housing associations).

Between 1919 and 1979, 6.94 million council houses were built.

Just over 1 million council houses were built between 1920 and 1939, whilst 5,804,150 council houses were built between 1946 and 1979. This is compared to 4,533,440 private homes and 260,910 housing association properties in the same time frame (’46 to ’79).

So, between 1946 and 1979, the council house was the dominant force of British housing. But that all changed in 1979!

Many people believe it was Margaret Thatcher who was the architect of allowing the sitting tenant of a council house to buy their home. Interestingly, council house tenants have been able to buy their council house from as early as the mid 1930s, albeit with little or no discount. Also, as late as 1977, the Labour Housing Minster published a Green Paper extolling the virtues of homeownership and council tenants being able to buy their home at a discount.

But after the General Election of 1979, the new Tory government drafted the Housing Act 1980, which gave the Right to Buy, which became law in the autumn of 1980. Then things really took off!

This new law established a right for most council tenants who had been in their home for three years or more to a discount. The discount started at 33% and increased by 1% for each extra year, up to a maximum of 50%. If the tenant sold the house within the first five years of ownership, a prorated repayment of their discount was required.

Between 1980 and 1989, 970,558 council houses nationally were sold at a discount.

But the issue was that when a council house was sold, it took that house out of the council’s portfolio for future generations. From the start, there were limitations on local authorities’ use of monies from the council house sales as most of it had to be given to central government in London, meaning only 390,560 new council houses were built between 1980 and 1989. Looking at the numbers locally …

In 1981, there were 13,891 council houses in Bath and North East Somerset, today it’s 2,528.

No wonder the country has a housing crisis… but as my regular readers know – the devil is in the detail… and that devil is the humble housing association.

The Tory General Election Manifesto in 1979 had proposed the rights for both council house and housing association tenants to buy their own house under the Right to Buy scheme. The Conservatives argued housing associations, who obtained government funding, should be subject to the same Right to Buy proposals as councils. The Government won the vote in the Commons, yet lost the vote in the Lords, meaning housing association tenants could not buy their homes at a large discount.

At the time, there were only 400,000 housing association properties in the country, so the Government was not that worried. But the significance of housing associations developed in the 1980s and beyond as they were allowed to borrow money from the private sector.

Between 1949 and 1979, the average number of housing association properties built annually was 8,524. Since 1979 to today, it has been 25,062 per year (and 31,606 per year in the 2010s).

Also, the Government encouraged councils to transfer their remaining council houses to housing association schemes from 1986. The advantage to these ‘stock transfers’ was the Government allowed housing associations to access private funding to improve their existing properties and buy new ones (good news for existing tenants complaining that the local authority never upgraded their homes).

Moreover, the Tory Government liked stock transfers, as it allowed them to dismantle council housing from the inside. Interestingly, Labour expanded the ‘Stock Transfer’ process in 1997 and further reduced the eligibility for council tenants’ Right to Buy, meaning the number of council tenants exercising their Right to Buy declined considerably.

Meaning today, even though the provision of council housing has dropped like the proverbial stone…

The number of housing association properties in Bath and North East Somerset has increased from 996 in 1981 to 8,086.

So, how has this changed the dynamic of the Bath property market in the last 40 years?

Would it surprise you to learn that the number of people who own their own home in Bath today is very similar to what it was 20 years ago before the property boom started? It’s just that even though we’ve had a large drop in the number of council houses and an increase in the number of housing association properties, the number of people owning their own home has remained relatively the same (in some areas of Bath this has actually increased), the significant issue is the growth of the private rented sector.

It’s almost as if people who used to rent from the council now rent from a private landlord.

The question is, is it right for private individuals to make money from tenants who rent from them as opposed to the local authority? Or are private landlords providing better types, choices and quality of accommodation for these tenants, albeit at a higher rental rate than if they rented a council house?

I really do believe if it wasn’t for the growth of the buy-to-let landlord, which began in the early 2000s, we would have an even bigger housing crisis on our hands than the one we have currently.

Both local and central government have had their hands tied behind their backs since 2008 with a lack of funding, and it’s the private landlord who has stepped up and supplied in excess of 2.3 million additional rental properties since 2001, housing nearly 5,520,000 Brits.

What are your thoughts on this matter?

Why does it take 112 days to get the keys when you buy a house in Bath?

Posted on by prateek

  • 1,467 properties have sold in the Bath area in the last 12 months.
  • It only takes 65 days to sell a Bath home, so why does it take 112 days from the sold board going up to the buyer getting the keys?
  • With a shortage of solicitors and a sub-standard conveyancing system, this article discusses what Bath house sellers (and buyers) can do to speed up the house buying process.

Nationally, the average length of time it takes from agreeing the sale of a property to the keys being handed over is 111 days (down from 117 days last year). In Bath, we are just above the national average at 112 days.

So why does it take 16 weeks, when all that is required is for lawyers to look at some paperwork and get a mortgage? Also, what can Bath homebuyers and sellers do to speed this up?

The legal process to buy and sell a UK property is called conveyancing. The conveyancing system itself hasn’t really changed in hundreds of years. After the housing market was reopened after the first lockdown in the spring of 2020, the property market returned with a bang, helped on by the stamp duty holiday.

In 2021, the number of properties selling in Bath skyrocketed, e.g. by 96% in June 2021 and by 65% in March 2021. Many conveyancers and solicitors had to sort the legal paperwork out for upwards of 120 to 150 properties each at any one time.

This glut of sold properties that needed legal work to be sorted exacerbated a problem already present in the conveyancing industry.

For years, conveyancers have complained of overwork and underpay. Conveyancing is seen as the Cinderella of the legal profession. This workload was the straw that broke the camel’s back, making many conveyancers leave the profession and go into better paid legal work, like corporate law.

Also, the legal process of conveyancing has built-in inefficiencies, and the conveyancing profession has been relatively slow to innovate. However, there are some excellent tech solutions that are being slowly rolled out across the industry to make the process more efficient and effective.

What can Bath home buyers and sellers do to speed up their property sale?

If you are buying or selling your Bath property as we speak, you won’t be able to wait for the conveyancing profession to be revamped, yet you can be as pre-emptive as possible to get your Bath house sale through earlier.

In a nutshell, make sure you have all the paperwork sorted on your home before you put it on the market. Next, get the ball rolling on your mortgage. If you receive some paperwork, read it, check it, sign it and send it back in a day; do not leave it a week. Finally, always communicate frequently with your estate agent and conveyancer.

When you instruct a solicitor, most will request money to start the ball rolling for searches and disbursements. They won’t lift a finger until that is paid.

You will have to prove who you are in the conveyancing process, so your conveyancer will ask you to show them proof of ID and address. If you are buying, they will need to prove you have the funds/deposit to buy the home (and if your deposit is coming from family/friends, then they are required to write a letter to that effect).

How can the house buying and selling process be improved?

A couple of years ago, the Government set up the Home Buying and Selling Group to find the answer to this problem. Chaired by the well-known property guru Kate Faulkner, it is looking at an amalgamated Seller’s Information Pack (SIPs) and an IT-based single platform to share and communicate that SIP between buyers, sellers, their conveyancers, the estate agent, mortgage providers and brokers and finally surveyors.

The advantage of the SIP is that it can be created before the buyer has been found, meaning property buyers would be more knowledgeable when making an offer. Also, once the sale has been agreed upon, the SIP could be sent straightaway electronically to the buyer’s legal team (from the seller’s legal team) to start the procedure of asking for searches and raising inquiries.

The bottom line is the conveyancing process is not fit for purpose in the 21st Century and change is on the horizon.

So, before the SIP becomes mandatory, there are things everyone can do to ensure they secure the home of their dreams quicker.

I recommend that the seller, the agent and the conveyancer start to liaise with each other to get the key information on the property being sold as quickly as possible. Then once a buyer is found, I believe it is vital that the agent regularly communicates with all the stakeholders in the chain to ensure everyone is playing their part to expedite the sale.

In the future, utilising technology and every agent/conveyancer preparing information upfront with the SIP will drastically reduce the time it takes between agreeing a sale and the keys/monies handed over.

The conveyancing process will have to change to meet the needs of the 21st Century, but how long that will take is the big question.

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.