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Bath Property Market to Crash in 2022?

Posted on by prateek

  • According to some newspapers and pundits, the property market boom could soon be over with the increasing interest rates and inflation.
  • In this article, I share the 3 fundamental economic reasons why things are different to the last property market crash.
  • The insider’s way to find out if there will be a property crash.
  • …and 4 reasons why buy-to-let landlords are coming back into the Bath rental market to protect their wealth and hedge against inflation.

With inflation and the cost-of-living crisis, some say this could cause property values to drop, by between 10% and 20% in the next 12 to 18 months.

There can be no doubt that the current Bath property market is very interesting.

At the time of writing, there are only 334 properties for sale in Bath (the long-term 15-year average is between 870 and 900), meaning house prices have gone up considerably.

According to the Land Registry…

Bath property prices have increased by 14.5% (or £53,100) in the last 12 months.

So, as Robert Kiyosaki says, ‘the best way to predict the future is to look to the past’. I need to look at what caused the last property crash in 2008 and how that compares to today.

  1. Increase in Interest Rates

One reason mentioned as a possible cause of a crash is the rise in the Bank of England interest rates affecting homeowners’ mortgages.

Higher mortgage rates mean homeowners will have to pay a lot more on their mortgage payments, leaving less for other household essentials. In 2007 (and the 1989 property crash), many Bathonians put their houses up for sale to downsize to try and reduce their mortgage payments.

Yet the newspapers fail to mention that 79% of British people with a mortgage have it on a fixed interest rate
(at an average mortgage rate of 2.03%).

Also, just under 19 out of 20 (93.2%) of all UK house purchases in 2021 fixed their mortgage rate.

So, in the short to medium-term (two to five years), most homeowners won’t see a rise in mortgage payments for many years. Also, 27.8% of all UK house purchases were 100% cash (i.e. no mortgage).

Of the 932,577 house purchases registered since February 2021 in the UK, 259,205 were bought without a mortgage.

Yet some people say it will be a problem when all these homeowners come off their fixed rate. The mortgage lending rules changed in 2014, and every person taking out a mortgage would have been assessed at application as to whether they could afford their mortgage payments at mortgage rates of 5% to 6% rates, not the 2% to 3% they may well be paying now.

No pundit says the Bank of England interest rates will go above 2% with a worst-case scenario of 3%. If the Bank of England did raise interest rates to 3%, homeowners would only be paying 4.5% to 5.5% on their mortgages and thus well within the stress test range made at the time of their mortgage application.

This means the probability of a mass sell-off of Bath properties or Bath repossessions because of interest rate rises (both of which cause house prices to drop) is much lower.

  • House Price / Salary Ratio

Another reason being bandied about by some people for another house price crash is the ratio of average house prices compared to average wages.

The higher the ratio, the less affordable property is. In 2000, the UK average house price to average salary ratio was 5.30 (i.e. the average UK house was 5.3 times more than the average UK salary). At its peak just before the last property crash in 2008, the ratio reached 8.64.

The ratio now is 8.85, so some commentators are beginning to think we’re in line for another house price crash. However, I must disagree with them because mortgage rates are much lower today than in 2007. For example…

The average 5-year fixed-rate mortgage in 2007 was 6.19% (just before the property crash), yet today it’s only 1.79%.

 

So, whilst the house price/salary ratio is the same as the last property crash in 2008, mortgages today are proportionally 71.1% cheaper.

  • Banks’ Reckless Lending

Another reason for a property crash in 2008 was the reckless lending practices in the run-up to that crash.

The first example of reckless lending was self-certified mortgages. A self-certified mortgage is when the lender doesn’t require proof of income.

In 2007, 24.6% of new mortgages were self-certified mortgages.

So, when the economy got a little sticky in 2008, the people that didn’t have the income they said they had to pay for their mortgages (because they were self-certified) promptly put their properties on the market.

The banks’ second aspect of reckless lending was how much they lent buyers to buy their homes. Today, banks want first-time buyers to have at least a 10% deposit and ideally more. There are 95% mortgages available now (meaning the first-time buyer only requires a 5% deposit), yet they are pretty challenging to obtain.

Back in 2005/6/7, Northern Rock was allowing first-time buyers to borrow 125% of the value of their home. Yes, first-time buyers got 25% cashback on their mortgage!

In 2007, 9.5% of all mortgages were 95%, and 6.1% of mortgages were 100% to 125%.

Meaning that nearly 1 in 6 mortgages (15.6%) taken out in 2007 had a 95% to 125% mortgage.

When the value of a property goes below what is owed on the mortgage, this is called negative equity. A lot of Bath homeowners with negative equity (or who were getting close to negative equity) in 2008 panicked because of the Credit Crunch and put their houses up for sale.

To give you an idea of what happened last year (2021) regarding mortgage lending, only 2.4% of mortgages were 95%, and 0.2% of mortgages were 100%. This is because the mortgage lending rules were tightened in 2014.

So why did Bath house prices drop in 2008?

Well, in a nutshell, a lot more Bath properties came onto the market at the same time in 2008, flooding the Bath property market with properties to sell.

Meanwhile, mortgages became a lot harder to obtain (because it was the Credit Crunch), so we had reduced demand for Bath property.

Prices will drop when we have an oversupply and reduced demand for something. Bath property prices fell by between 16% and 19% (depending on the property type) between January 2008 and May 2008.

So, what were the numbers of properties for sale in Bath during the last housing market crash?

There were 867 properties for sale in Bath in the summer of 2007 (just before the crash), whilst a year later, when the Credit Crunch hit, that had jumped to 1,708.

This vast jump in supply and the reduction in demand caused Bath house prices to drop in 2008.

Compared with today, there are only 334 properties for sale in Bath, whilst the long term 15-year average is between 870 and 900 properties for sale.

So, what is going to happen to the Bath property market?

The Bath house price explosion since we came out of Lockdown 1 has been caused by a shortage of Bath homes for sale (as mentioned above) and increased demand from buyers (the opposite of 2008).

However, while there are early signs the discrepancy of supply and demand for Bath properties is starting to ease, this takes a while before it has any effect on the property market – so it will be some time before it takes effect.

This will mean buyer demand will ease off whilst the number of properties to buy (i.e. supply) increases. This should gradually bring the Bath property market back in line with long-term levels, rather than the housing market crash.

My advice is to keep an eye on the number of properties for sale in Bath at any one time and only start to worry if it goes beyond the long-term average mentioned above.

But before I go, I need to chat about what inflation and the cost of living will do to the Bath property market.

How will inflation and cost of living affect the Bath property market?

There is no doubt that cost-of-living increases will have a dampening effect on buyer demand. If people have less money, they won’t be able to afford such high mortgages. This will slow Bath house price growth, especially with Bath first-time buyers.

Yet, the reduction in first-time buyers is being balanced out by an increase in landlords’ buying, especially at the lower end of the market.

This, in turn, will stabilise the middle to upper Bath property market. This means the values of such properties (mainly Bath owner-occupiers) will see greater stability and a buyer for their home, should they wish to take the next step on the property ladder.

So why are more Bath landlords looking to extend their buy-to-let portfolios, even in these economic circumstances?

I see new and existing buy-to-let Bath landlords come back into the market to add rental properties to their portfolios. As the competition with first-time buyers is not so great, they’re not being outbid as much.

Yet, more importantly, residential property is a good hedge against inflation.

Firstly, in the medium term, property values tend to keep up with inflation.

Secondly, inflation benefits both landlords and existing homeowners, with the effect of inflation on mortgage debt. As Bath house prices rise over time, it reduces the loan to value percentage of your mortgage debt and increases your equity. When the landlord/homeowner comes to re-mortgage in the future, they will receive a lower interest rate.

Thirdly, as the equity in your Bath property increases, your fixed-rate mortgage payments stay the same.

Finally, inflation also helps Bath buy-to-let landlords. This is because rents tend to increase with inflation. So as rents go up, your fixed-rate buy-to-let mortgage payments stay the same, creating the prospect of more significant profit from your buy-to-let investment.

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

Bath Rental 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.

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?

Click to view full-size image

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.

Click to view full-size image

What about house prices in Bath in 2022/23?

Increasing energy prices, rising inflation, an increase of sanctions, and a probable drop in consumer confidence and spending in the aftermath of the conflict will knock the post-pandemic recovery globally, which will lead to a recession around the world, including the UK.

A recession is when a country’s GDP drops in two consecutive quarters. For the last 300 years, there has been a direct link between British house prices and GDP (i.e. when GDP drops, UK house prices fall). Yet in 2020, the British GDP dropped by nearly 12%, but house prices went the other way.

Let’s look at what would happen if Bath house prices did drop by the same extent they did in the Global Financial Crisis of 2008/09.

House prices in Bath dropped by 17.2% in the Global Financial Crisis, the biggest drop in house prices over 16 months ever recorded in the UK.

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

Meaning that if Bath’s house prices dropped by the same percentage in the next 16 months, an average home locally would only be worth £331,184.

On the face of it, not good… until you realise that it would only take us back to Bath house prices being achieved in February 2020 – and nobody was complaining about those.

Yes, that means if they do drop in price, the 5.7% of Bath homeowners who moved home since February 2020 would lose out if they sold after that price crash. But how many people move home after only being in their home for a few years? Not many!

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

And all this assumes there will be a crash.

The circumstances of 2009 that caused the property crash are entirely different to 2022 (no lending by the banks, higher interest rates and increasing unemployment compared to today’s increased lending, ultra-low interest rates and low unemployment).

I do believe with all that’s happening in the world we might see a rebalancing of the Bath property market later in 2022, and could see the odd month with little negative growth in house prices… But it will be nothing like 2009.

The expected fall in household spending could be counterbalanced by UK businesses’ plans to invest more in their businesses (with last year’s tax breaks on investing), which will create even more jobs.

Who knows what the future holds? These are just my opinions – what are yours?

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

Bath Rental Market Review: February 2022

Posted on by prateek

Everything you need to know about the Bath rental market in February 2022.

Reside General Manager Toby Martin summarises rental activity over the last month, with the latest facts and figures from the local market.

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

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

Posted on by prateek

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

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

On the face of it, yes, it could be seen as another attack on the humble Bath landlord, having to spend money on their properties and get tangled up with red tape on a register and then having no-fault evictions removed.

Yet, as always, the devil is in the detail…

This ‘Levelling Up Bill’ is a White Paper. White Papers are policy documents created by the existing Government that set out their future proposals for legislation. Many White Papers don’t even make it to the House of Commons to be debated on, and even then, it needs to be voted on by both Houses of Parliament before becoming law. Any changes are at least two or three years away, and that’s assuming it gets debated and subsequently approved.

Many have said the White Paper is supposed to lay out how to resolve the problem of rebalancing the UK economy that is suffering from the highest level of regional inequality than any G8 country. This is a gargantuan challenge…

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

One of the 12 points in the White Paper was focusing on housing, with a plan to introduce a new minimum standard for rental properties, a landlord register and the removal of no-fault evictions (as an aside, there was also a mention of a possible reintroduction of Home Information Packs – remember those from 2009!).

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

Sub Standard Rental Properties

The proposed changes will mean rental homes in the private sector will have to meet two specific standards that the existing 6,848 social housing homes in Bath currently need to meet.

The first is called the ‘Decent Homes Standard’ (DHS) and the second, the Housing, Health and Safety Rating System (HHSRS) evaluation.

Looking at data from the Government, there are 2,114 private rental properties in Bath that are considered substandard under these two measures and each one would cost between £11,000 and £14,000 to bring up to the prescribed standard. That means…

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

Yet both systems of standards (DHS & HHSRS) have been slated by many (even by the Government itself).

The DHS criteria for the standard are as follows:

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

Note how the word ‘reasonable’ is used in three of the four points of the DHS. Reasonable is an arbitrary and very much subjective point of view. It screams loopholes and get out clauses to me.

Looking at the HHSRS, the Government announced just before the pandemic in June 2019 that the HHSRS would be revamped after it was found to be ‘complicated and inefficient to use’.

Putting aside how one measures the standards, it is a simple fact that there are many Bath rental properties that are substandard. I believe it right the Government have an ambition to halve the number of sub-standard private rentals by 2030. However, would it surprise you that…

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

Also, if you recall in an article I wrote recently (drop me line if you would like me to send it to you), Bath landlords could be faced with bringing their properties up to an energy rating (EPC) of C between 2026 and 2028 in legislation already proposed.

Most of the works to meet that EPC rating requirement will be the same works to meet this new DHS and HHSRS. Also, in that article, I discussed how the Government have suggested that certain allowances will be made for landlords on rental properties that can’t be improved – such as Listed properties.

So, I think Bath landlords should sit tight and let the Government shine more light on this in the coming months before any knee jerk reactions are made.

Landlord Register

To be honest, there are several city/borough registers around the UK for landlords. Experience has shown they seem to add an extra level of bureaucracy and red tape. The register would be for every Bath buy-to-let landlord and rogue landlords would be struck off whilst allowing tenants new redress rights. Another reason to employ the services of a letting agent to sort!

End of No-fault Evictions

Again, I spoke about this a few weeks ago with the proposed removal of Section 21 to evict a tenant (again, if you want a copy, drop me a line). If you recall, I stated that no-fault evictions were removed in Scotland over four years ago and the apocalyptic suggestions it would kill the rental market for Scottish landlords was not forthcoming. Now of course, the Scots strengthened the other grounds to evict a tenant. If the Government strengthen the Section 8 legislation, again, I cannot see this being an issue south of the border. Time will tell once the Government put more meat on the bones of the White Paper.

Conclusion

Many of the announcements made in the Levelling Up White Paper are re-hashed proposed legislation that has been on the books for the last couple of years.

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

Yet, many commentators have cautioned that more landlords with substandard homes will sell up because of these proposed changes, warning the sell up would add to the private rental sector’s shortage of homes, thus pushing up rents.

If that was true, that would increase rental returns on Bath buy-to-let and attract more Bath landlords into the sector, wouldn’t it?

But if you don’t agree other Bath landlords will buy these rental properties that other landlords are selling, who will buy their Bath properties from them? It will be Bath renters, who are now able to buy because the price has come down, meaning equilibrium should return to the market.

This is all theoretical and there are shortages/gluts in specific locations. Let us not forget it was 12/18 months ago that rents were dropped by double digit percentage points in the space of a couple of months in the big cities. Those rent drops weren’t anything to do with landlords buying up City Centre rental properties, but demand plummeted with 20-something tenants moving back in with their parents during the first lockdown and the months that followed. Yet, now rents have bounced back to pre-pandemic levels (and more) with the return of tenants to the cities.

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

Few of them will be left empty because most of them will be bought by other Bath landlords as they will be attracted to the sector as inflation takes hold whilst others will be bought by first-time buyers.

What goes around, comes around. So, let’s see what happens in the coming months. In the meantime, if you’re a Bath landlord and you want to discuss anything in this article, please either drop me a line or send me an email.

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

Bath Rental Market Review: January 2022

Posted on by prateek

Everything you need to know about the Bath rental market in January 2022. This month: just how bad is the Bath property shortage?

Tenant demand has far exceeded property supply for the last 12 months, but just what is the extent of this property shortage? As Reside’s Toby Martin discusses in the above video, the number of rental properties on the market at any one time is currently 35-40% below the average for the last decade.

This month’s round-up also includes news of upcoming smoke and carbon monoxide alarm regulations that landlords should be aware of. Be sure to watch the video for full details.

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 Future of the Bath Buy-To-Let Market in 2022

Posted on by prateek

The headlines…

  • Bath rents up by 6.5% in the last 12 months
  • Bath house prices up 15.3% in the last 12 months
  • Bath landlords helped by ultra-low mortgage rates and a stamp duty holiday
  • Yet, some landlords anxious about a possible end to no fault evictions
  • New EPC rules could cost landlords £10,000+ per property

In this article, I will look at what happened in 2021 in the Bath buy-to-let property market and give you my opinion as to what lies ahead for Bath landlords in 2022 and beyond.

On a positive note, Bath house prices have rocketed, rents have risen faster than inflation, at the start of the year we had the benefit of a stamp duty holiday and finally, ultra-low mortgage rates, meaning Bath landlords had lots to be happy about in 2021.

On a more cautious note, the laws regarding renting are currently being debated in Parliament which will see the end of no-fault tenant evictions, and changes in regulations will require landlords to make their buy-to-let rental properties more eco-friendly at a cost of up to £10,000+ each.

So, let’s have a look at these points …

Bath Rents will Continue to Rise in 2022

Bath buy-to-let landlords have seen the average rent of a Bath rental property rise by 6.5% in the last 12 months.

The number of Bath properties available to rent on the property portals (e.g. Rightmove, etc.) at any one time is roughly 35% to 40% below the last decade’s average, meaning there is greater competition for each rental property.

Demand has increased for several reasons.

Firstly, some homeowners cashed in on the high prices, sold up and moved into rented property.

Secondly, some Bath buy-to-let landlords have also cashed in on the buoyant property market and sold their rental property when their existing tenant handed in their notice.

Finally, the rental sector has an inverse relationship to the state of the general British economy, meaning with the uncertainty in the British economy in the early part of 2021, this meant more people decided to rent rather than tie themselves into a mortgage.

Looking at the supply side of the Bath rental market, in the short term, rents will continue to grow as some Bath landlords are abandoning the rental market – some because of the impending regulation changes which I will talk about later, and others with the natural flow of people cashing in their investments on retirement.

With increased demand and restricted supply, this will only lead to competition becoming more severe between renters, thus making Bath rents continue to rise.

Bath House Price Growth Will Slow

Bath house prices grew by 15.3% in 2021, but slower growth is anticipated during 2022

For those that own property, the way house prices grew in 2021 surprised most people.

Bath house prices, according to the Land Registry, grew by 15.3% in 2021, with the typical Bath home reaching £425,500.

Many local landlords have been helped by this increase in Bath house prices and will be in a place to cash in on those capital gains by either selling their buy-to-let property (as mentioned in the previous section) or releasing some equity by re-mortgaging.

Whether Bath house price rises carry on at such a rate in 2022 will mainly depend on whether the imbalance between the number of properties that come on to the market (supply) is by the number of buyers (demand).

Most commentators believe that nationally house prices will be between 3% and 5% higher by the end of 2022 and I can see no reason why Bath house prices won’t be in that range by the end of the year either.

Mortgage Rates Will Rise

The reduction in tax relief for Bath buy-to-let landlords with mortgages in the last five years hit some landlords hard, yet this has been tempered by the inexpensive ultra-low mortgages available to buy-to-let landlords.

Yet even with the Bank of England increase in base rates, landlords with big deposits of 40% or more can benefit from low rates. For example, at the time of writing, you can get a BTL mortgage at 1.49% fixed for 5 years with a 40% deposit (meaning borrowing £180,000 on a £300,000 purchase would only cost you £719 per month on a 25-year mortgage – or £224 per month on interest only).

However, those with only a 25% deposit must pay slightly more, but only at a mortgage rate of 1.64%… Who can remember mortgage rates of 14% to 15% in 1992?

With inflation rising, the Bank of England has already indicated further interest rate rises are on the cards. I suspect they will be around the 1% mark by Christmas 2022. Therefore, if you are one of the one in five landlords on a variable rate mortgage, your margins will be squeezed as your variable rate mortgage will rise in line with the Bank of England interest rate rise.

Maybe it’s time to consider fixing your mortgage?

The End of No-fault Evictions?

The Renters’ Reform Bill in England and The Renting Homes Act in Wales are both set to abolish Section 21 (no fault eviction). Section 21 laws allow landlords to take back possession of their rental properties without having to prove fault by the tenant.

Yet in 2022, Westminster will issue plans for a change of this law which will probably incorporate the eradication of Section 21, which would signify a major change in the balance of power between the landlord and tenant.

Some doom mongers are worried that with the abolition of Section 21, landlords may be unenthusiastic about renting and therefore sell up and leave the rental sector altogether. Yet these people said the same when tax relief for landlords was changed five years ago.

The Scottish equivalent of Section 21 was abolished at the end of 2017.

At the time, there was some anxiety about how this would affect the Scottish rental market, as anxious landlords and letting agents felt that they could lose control of their rental properties under this new law. Nonetheless, just over four years later, the rental sector has not collapsed in Scotland. The buy-to-let market remains upbeat, and there are signs that a Scottish landlord’s right to evict their tenant has been reinforced by these changes in the law.

The reason the Scottish changes worked was because the new grounds for repossessing rental properties was clear and wide-ranging. The Scots sped up the slow and unwieldy eviction process where the landlord had a legal and genuine reason to re-claim their property.

All I hope is the same changes to court procedures are made south of the border.

New EPC Rules Could Cost Bath Landlords £10,000+ per Property

The law currently stands that landlords need an Energy Performance Certificate (EPC) with at least a rating of E.

Westminster is anticipated to increase the EPC requirement for private rental properties in England and Wales to an EPC rating of C for all new rental tenancies by 2025/6, and for all existing tenancies by 2028, whilst Scottish landlords are also expected to see energy efficiency measures in their new proposed Housing Bill.

The problem is 1,959,045 of the 2,965,455 registered rental properties on the EPC database have an energy rating of D or below.

To take a property from an EPC D rating to a C rating might only cost a few hundred pounds, yet the average for all rental D and E rated properties has been calculated at just over £10,000 per property.

My advice to every Bath landlord is to look at the full EPC report of their rental property (and if you haven’t got it, contact me and I will send it to you – whether you are a client or not) as that will tell you whether this will be a big or small job.

Renovating the UK’s rental stock to meet the Government’s carbon neutral targets will be a big trial for landlords. There is talk of exemptions, which may apply to a great many Listed buildings, as there currently is for the existing minimum EPC E rating – yet only time will tell on that front.

Maybe those landlords currently buying properties to add to their rental portfolio should reconsider their buying strategy? In the past, it has been normal for Bath buy-to-let investors to be attracted to the inexpensive older properties that need an overhaul. However, with the potential energy efficiency laws coming into the game, it’s rational to suggest that buy-to-let landlords will be more predisposed to buying slightly newer properties rather than have the cost for the upgrades to meet the potential energy targets.

Conclusion

Roll the clock back 20 years and making money from buy-to-let in Bath was as easy as falling off a log. Yet with increased legislation and regulation, together with the changing dynamics of the British economy and the requirements tenants want in a rental property, making money won’t be as easy over the next 20 years.

It amazes me that 11 out of 20 landlords do not use a letting agent to help them with their rental portfolio, considering the cost can be offset against your tax.

Moving forward, savvy landlords will increasingly utilise their letting agent not only to collect the rent and manage the property, but also build up their portfolio to withstand the regulatory and demographic changes on the horizon, and to ensure that their investment is fit for purpose in the medium to long-term.

If your existing letting agent does not offer such advice, or you are a self-managing landlord, let’s have a chat about the future of the Bath rental market.

Whether you are a Reside client or not, if you would like me to look at your rental portfolio and see where you stand, then drop me a line and maybe we can meet for a coffee (or we can meet virtually over Zoom) to discuss the matter – all at no charge.

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.

My 11 Rules To Buying A Bath Property

Posted on by prateek

Finding your next Bath property, be that as a buy-to-let landlord or for yourself to live in, can sometimes be a scary task. You are possibly making one of the biggest purchases of your life, and you want to ensure you make the right choice.

Buying your next property is all about finding a Bath property with the features that match your requirements. However, what might be important to you as a homebuyer, might not be as important to other homebuyers.

Some features will be red line must haves, whilst other features might be more negotiable, yet understanding what your requirements need to be, will make it easier to find the home of your dreams.

Let’s look at my top 11 rules you need to consider when buying a property in Bath.

1. Location, Location, Location

You can change many things within a property, but location isn’t one. They say you should buy a property for the things you can change. From Lansdown to Combe Down, Newbridge to Larkhall, go and visit the different neighbourhoods of Bath. Don’t just drive through them, walk through them at different times of the day. Look at weekdays as well as weekends. Think about transport links with access to bus routes, arterial roads. If you have children (or your tenants may have), think about school catchment areas for primary / secondary schools.

2. Bath Bedrooms

Did you know there are 107,751 bedrooms in Bath?

Well, you do now! Anyway, the number of bedrooms is a very significant consideration when buying your new home. If you need bedrooms for your children, the location of the bedrooms could be an issue. Depending on the age of any children, you might not want them to be a long way from the master bedroom, or if the children are teenagers, the opposite could be true. Bedroom size is also important. Is there enough space for children to study or have wardrobes? Do you need bedrooms for an office? If office space is required, you might want to consider a property with one less bedroom and one more reception room – and it will probably be a little cheaper. All things to consider.

3. Potential Future House Price Growth

The type of house you buy will determine how it increases in value in the future. Now this shouldn’t be the main consideration, yet it’s important to consider.

Since 2001, the different types of property in Bath have risen by different percentages.

  • Bath detached properties have risen by 156.7%
  • Bath semi-detached properties have risen by 166.2%
  • Bath town houses / terraced properties have risen by 191.7%
  • Bath apartments / flats have risen by 148.4%

On a standalone point for Bath landlords, the level of rent and yield are important considerations for your Return on Investment (ROI). There tends to be an inverse relationship between capital growth and yield (i.e. Bath properties with higher capital growth tend to have lower rental yields).

I am regularly sent Rightmove links by Bath landlords, keen to know a prospective purchase’s rental worth so that they can calculate their yield. Please feel free to email me a link to the property you are thinking of purchasing; I will be able to give you a very quick estimate of its rental value, completely free of charge and obligation.

4. The Overall Interior Size of Your Future Property

On average a person only views five houses before they buy a house and only spends around 20 minutes in each on a viewing. Therefore, I would advise that you have a good idea about the size of home you require before you start your search. If you have a big family you are going to need a bigger house obviously, yet you still need the budget to afford to buy the bigger home.

One great idea is to calculate the square metreage of your potential home. Ask to view the full copy of the Energy Performance Certificate, as it has the size of the property in square metres.

Bigger houses tend to cost more money to run with utility bills and council tax.

A final thought on size is the question of whether your family is likely to grow in the next decade? Will you have more children or is a parent coming to live with you?

5. The Price You Will Have to Pay For Your Next Bath Home

In the last 12 months, the Bath property market has remained buoyant as Bathonians were forced to spend more time at home. Therefore, they looked for more space… but what did they have to pay for that privilege?

  • 303 Bath detached properties have sold for an average £692,100
  • 333 Bath semi-detached properties have sold for an average £420,400
  • 503 Bath town house / terraced properties have sold for an average £447,700
  • 211 Bath apartment / flats have sold for an average £343,300

Look at the property portals (e.g. Rightmove, Boomin, Zoopla and OnTheMarket) and search for Bath property that is both available and sold subject to contract. Get a feel for asking prices of the properties that are sold subject to contract as these will give you a good idea what they roughly sold for. Again, if you are not sure, pick up the phone or drop me a line.

6. Bathroom(s)

Check the bathroom for water leaks. Do the toilets flush OK, do the taps drip? Is there any mould? And do you need more than one?

7. The Lounge / Living Room

You will undoubtedly be spending a lot of time in the lounge / living room, so it needs to meet your requirements. Do you need a dining area? Does the design and arrangement of the room suit your lifestyle (or your tenant’s). Will you need new furniture? Are there enough electrical sockets? What are the carpets like? That goes for all rooms.

8. Central Heating for your Property

What type of central heating system is present, and does it meet the requirements of you and the home? The Energy Performance Certificate (EPC) will tell you how energy efficient the property is and how much it will cost to run. You would be amazed how few buyers ask to see the full copy of the EPC – yet you have the right to view it – always ask the estate agent for a copy or download it for free from the Government website.

9. The Outside

The outside space of your future Bath home is also something you need to reflect on before you start your search. What sort of back garden do you want? Do you want low maintenance? Do you want a bigger garden?  You also need to ensure the outside of your next home is in great condition. Yet, if it’s a ‘do’er-upper’, does the price allow for those works to be done?

10. The Loft & Vault

Another aspect to consider when buying a property is the loft (or even the vault / basement if it has one). In both, look for water damage that could mean problems in the future whilst in vaults / basements, a musty smell could be poor ventilation meaning dry damp could be an issue. Also check for insulation in the loft (the Energy Performance Certificate will tell you if it’s up to standard).

11. Garage / Off Road Parking Space

How many cars do you have in your family? Can you park them all on your drive? Visit the property during the day, the evening, and weekends to see how the parking provision changes. If the property has a garage, can it be used for something else?

These are my top 11 rules – please let me know if you have others I haven’t considered.

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 Bath Landlord Compliance Health Check: are you compliant?

Posted on by prateek

You may have seen recent reports detailing how one of the most prominent estate agents in the UK had left its landlords open to fines of between £9million and £30million in the last few days.

This is because they allegedly failed to send some paperwork to their tenants when their tenancy started.

This has had many Bath landlords picking up the phone to me to ensure they are compliant with their Bath rental property. So, what should every Bath landlord consider to ensure they are compliant and won’t be fined?

To start, there are nearly 170 pieces of legislation to comply with; these are some important ones that Bath landlords should consider.

Registering your Bath tenant’s deposit

Every Bath landlord (or their agent) needs to register the tenant’s deposit. It is believed that one in six tenants’ deposits are not registered, leaving the landlord (not the agent) liable to a fine three times the amount of the deposit, plus making it very difficult to evict them.

When your Bath tenant pays their deposit, it has to be protected in one of the government-approved schemes within 30 days.

Yet even if you do register the deposit, you must also give your tenant proof of being in the scheme. That must include information on which of the three schemes (The Deposit Protection Service, MyDeposits or the Tenancy Deposit Scheme) protects their deposit and how your tenant can get their deposit back at the end of the tenancy.

Gas Safety Certificates

Every Bath landlord must offer a safe rental home for their tenants. Every Bath rental property must have an annual Gas Safety Certificate. The certificate, issued by a qualified and registered Gas Safe engineer, is only valid for 12 months. All certificates must be retained for 24 months, and give your tenant a copy of the existing certificate.

EPC for your Bath rental property

The Energy Performance Certificate (EPC) is just like the colour-coded energy rating diagrams you see on fridges and washing machines, albeit it’s for your rental property. If you don’t have an EPC, you can’t rent your property. Also, since this summer, rental properties have had to achieve a minimum energy efficiency rating of ‘E’. If your property doesn’t meet this requirement, you’ll be unable to rent it out (although there are a handful of exemptions). Again, you also must give your tenant a copy of the up-to-date EPC certificate.

Right to rent checks

Every Bath landlord can only let their property to a tenant who has the legal right to rent in the UK. You have the legal responsibility of checking the prospective tenant’s identification and confirming that the tenant is legally in the British Isles. If you let your property to someone in the UK illegally, you might face a substantial fine.

Anything else Bath landlords should be aware of?

How about…

  • Smoke alarms
  • Licensing
  • Health and Safety
  • Client Money Protection
  • Homes (Fitness for Human Habitation) Act 2018
  • Fire safety risk assessment
  • Legionella risk appraisal
  • Electrical Safety checks

That’s just the tip of the iceberg. The list goes on…

As you can see, there are many things a Bath landlord must consider when it comes to being legal. Yet, apart from a logistical nuisance there are actual financial penalties involved if you do not observe with all your landlord obligations.

Final Thought for all Bath Landlords

Bath landlords can make sure they are fully compliant by having a free Bath Landlord Compliance Health Check with us at Reside. We can, within a couple of days, give you peace of mind that you are compliant, be you a landlord that manages your own Bath property or even with another agent (because being with one of the most prominent estate agents in the UK was not a guarantee the landlords would be safe from prosecution).

Call me, Toby Martin, on 01225 445777, and let’s have a no-obligation chat. What have you got to lose, versus you potentially losing thousands of pounds… the choice is 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.