Whats makes the perfect Southampton buy 2 let property?

One of the questions I consistently get asked by Landlords is what makes a good buy to let in the Southampton Property Market, well as you would imagine there are a lot of factors to consider:

-         What are your investment goals and time frame; short or long term? And is capital growth more important than monthly rental income?

-         Your budget, freehold houses will be c£150k+ so if your budget is less it will be leasehold flats

-         A successful buy to let needs to be in an area of high rental demand, in Southampton we would draw that area with three reference points namely the General Hospital, Southampton University and the Red Funnel Terminal in the City core. Clearly each corner brings a different tenant pool, but demand will be strong. But some areas are street specific and even block specific on certain streets!

-         Move outside this area too much and your voids will be bigger and your overall return lower. Clearly there is a good market to the east of the Itchen and I can discuss that in another issue.

-         Size is everything. A 1 bed flat at 330 sq.ft will only be taken by someone who needs accommodation now and it will be a short let, they will not renew – there will be no storage for a vacuum cleaner, ironing board or the dirty laundry basket. People often say don’t get emotional with buy to let property and I agree when it comes to running the numbers, but when you look at the interior do get involved – could I live her, would my son or daughter like to live here? If the answer is no, your tenants aren’t going to like it either! – keep looking.

-         For apartments have a hard look at the common areas, are they clean and tidy, are bikes and rubbish left in the corridors? Service charge can really damage your return and limit capital growth – we like to see it less than 1.5 times monthly rental income. Also take note of who the block management company is, there are really good ones and some not so!

-          Don’t forget parking (off or on road), ensuites, balconies and gardens. They do impact your rental levels, quality of tenant and length of lease.

-          When you run your numbers do allow for some voids and maintenance cost. Having some debt on your buy to let investment will make you cash input work harder and will increase your return on investment. But where interest rates are at the moment I would definitely chat to your advisor about fixing your mortgage rate and locking in that cost.

So what is the ideal buy to let in the Southampton market, well I would go for a 2 bed terrace house with an upstairs bathroom, nice garden and off road parking. It will rent for £900pcm and should give a Gross Yield of c5.75%, but believe me they are hard to get!

Is there a crisis in the Southampton Property Market?

I don’t know about you, but if you watch Sky News every waking hour or read the newspapers, it always seems we as a Country, Europe or the World seem to lurch from one crisis to another. Another week, another crisis averted. It was only last summer the soothsayers were predicting the end of the world over the supposed house price bubble that many believed was developing in the South. Property prices were rising at 20%+ per annum in London, only for things to ease as the property market in the Capital showed a controlled slowdown and cooling in activity with price growth easing to a more realistic 8% to 9% per annum. Interestingly, there was no panic when some modest price drops were seen in some of London’s highest priced suburbs. 

However, this month’s crisis is the buy to let boom and as George Osborne always likes to be topical, in the July emergency budget, he declared that he will start to scale back, from 2017, the tax relief that those high income tax rate landlords with a mortgage have benefited from. The Daily Mail ran headlines stating it was the end of the private landlord; predicting many landlords will give up on buy to let altogether and we will be inundated with rental properties up for sale as landlords feel squeezed from the market.

Even Mr Carney, the Governor of the Bank of England, recently cautioned that the buy to let property market could destabilise the whole UK property market. He was concerned landlords who bought with high loan to value mortgages could be spooked if there is a property crash, they would panic because of negative equity, sell cheaply, which would worsen house price falls.

End of the world then?  - This week, yes probably, but next week, that’s another story!  Before we all go and live like a hermit in the Scottish highlands, let me explain to you my perspective on the whole subject. As I mentioned a few weeks ago, two thirds of buy to let properties bought in the last eight years have been bought mortgage free – so they won’t be affected by the Chancellors’ tax changes.  Also, something I feel is often overlooked but very important, is the fact that landlords historically have only been able to normally borrow up to 75% of the value of the rental property.  In the last property crash of 2008, property values dropped by the not so insignificant figure of 17.29% in Southampton, but even then, when we had the credit crunch and the world’s banking sector was on the brink, no landlord would have been in negative equity in Southampton.

I believe we have a case of ‘bad news selling newspapers’ and I believe that buy to let, and the property market as a whole, will carry on relatively intact. Its true reducing tax relief will hit landlords who pay the higher rate of income tax and this may slightly diminish buy to let as an investment vehicle, but I doubt people will sell. Many landlords have been lazy with their investments, buying with their heart, not their head. You would never dream of investing in the stock market without doing your homework and talking to people in the know. If you want to make money in the Southampton property market as a buy to let landlord, it’s all about having the right property and as you grow, the right portfolio mix to offer a balanced investment that will give you both yield and capital growth.

The Southampton buy to let market still offers good investment opportunities to new and old alike. Those who have bought in the last twelve to eighteen months have reaped the benefit from buying in Southampton, because the city offered a combination of reasonable house prices with subsequently increasing rents.  Property values have risen by 7.71% in the last eighteen months in Southampton, whilst looking at rents, in Q2 2015, average rental values for new tenancies were 11% higher than Q2 2014, which is particularly interesting as they only rose by 4.5% between Q2 2013 and Q2 2014.

Government confirms October 1 introduction of Section 21 regulations

The government has confirmed that new Section 21 regulations under the Deregulation Act will come into effect on the intended date of October 1. 

This is despite a 'major drafting error' in the legislation, which was queried by the Residential Landlords Association.

There were doubts that the October 1 deadline – the same day Smoke and Carbon Monoxide Alarm (England) Regulations 2015 are being introduced – would have to be pushed back but the government says amendments have now been made to the wording of the legislation, and a new Section 21 form has been circulated for last minute comments from the industry and consumer bodies.

This means that, as intended, from October 1 at the start of a new tenancy a landlord or agent acting on their behalf must provide tenants with a valid Energy Performance Certificate, an annual Gas Safety Certificate and a copy of the government's How To Rent guide.

Failure to do this means the agent or landlord cannot serve a section 21 eviction notice.

The government's guidance on the new rules can be viewed here
https://www.landlordtoday.co.uk/breaking-news/2015/9/government-confirms-october-1-introduction-of-section-21-regulations