New Electrical Safety Regulations could cost each Southampton Landlord an average of £500 in the next 13 months

CLICK HERE TO FIND OUT HOW MUCH YOUR SOUTHAMPTON PROPERTY IS WORTH

Southampton Electricians are going to be very busy in the next 13 months as they will have to test the electrics of every private rented property in Southampton and potentially may have to install new fuse boards and wiring in some circumstances.

New regulations set out in the Housing and Planning Act 2016 gave the Secretary of State of the Ministry of Housing, Communities and Local Government the authority to compel private landlords to test their fixed electrical systems. Currently, these responsibilities only apply to licensable Houses of Multiple Occupancy (where a house is split into individual rooms) yet these new rules will come into force for any new tenancy or renewal of any private rented home from the 1st July this year (2020).

All new tenancies from the 1st July 2020 will need

to have had their electrics tested

The new IET (Institution of Engineering and Technology) electrical regulations enforce a duty on all private landlords to ensure that their electrical installation complies with the 18th edition (from 2018) of the IET wiring regulations. Therefore, any property built before the middle of 2018 will have electrics to 17th edition regulations (or a previous edition). It might not sound a lot, but the 18th edition regulations were a substantial update over the 17th edition which were published in 2008. Now, just because a rental property was built with its electrics up to the prevailing 15th, 16th or 17th regulations at the time of building, it doesn’t necessarily mean it will automatically fail this test.

A qualified electrician will need to test your rental property against the new 18th Regulations (as that is standard practice in the industry), which will cost in the region of £150 plus VAT for a small one bed flat through to £250/£350 plus VAT for a large 4 or 5 bed house (again these are ballpark figures). The Electrician won’t fail a property who complies with a previous regulation (e.g. 16th or 17th) unless there is a good reason to do so. No doubt there will be further clarification notes issued before the implementation date to sort this out – and I will keep you informed in this blog.

Electricians are telling me any property built after 16th Regulations came into force in 1991 (and they deem it to have failed the test) will probably require a new fuse board and other minor works at an average cost of around £355 per property, although it could be as low as £300 and up to £600 per property to upgrade, meaning…

The potential cost of upgrading every Southampton buy to let

Home to 18th edition regulations (if they all failed) could total £8,962,685

Some Southampton landlords might think they can circumnavigate the regulations by renewing the fixed term every 6 months, yet the Government have  protected against that by stating,  irrespective of what tenancy is in place, all rental properties by the 1st April 2021 must have been tested against the 18th Regulations standard.

My concern is all 25,247 rental properties in Southampton will need 

their electrics testing before the Spring of 2021 and unfortunately there are only 62 qualified electrician firms within a 2-mile radius of Southampton to do all these tests and remedial works!!

Southampton landlords must give any new Southampton tenant a copy of the inspection report before they start the tenancy. Also, Southampton landlords must provide a copy of the report to any prospective tenant who asks for it in writing within 28 days of a request during the tenancy itself.

Even with the coronavirus situation, only last week the Government indicated that Landlords should still make every effort to follow these new electrical safety regulations from the 1st of July, yet those same regulations also allow for situations whereby a landlord cannot carry out their obligations. To stay the right side of the law, they must demonstrate they have taken all reasonable steps to comply with the regulations. If they do that, they will not be in breach of the new regulations (including the duty to comply with a remedial notice). My advice would be for landlords to keep copies of all communications they have had with their tenants and with electricians as they tried to arrange the work, including all emails, together with any other evidence they have on the electrics of their rental property.

The local authorities are tasked with policing this – and they too have the right to request to see copies of any Electrical Report and works done. They can force a landlord to comply with the legislation and also may issue a civil penalty up to a maximum of £30,000.

Remarkably, if the letting/managing agent doesn’t organise the Electrical reports, there is nothing in the legislation which allows a landlord to pass the blame onto their letting/managing agent. That means Southampton landlords could be at significant risk from dishonest or badly organised letting agents who won’t/don’t sort the electrics out, so my advice to all Southampton landlords is to speak to your letting/managing agent right now and plan ahead. Rest assured, we have had plans well in hand for our Southampton landlords since last year. These new regulations only firm up on the law that was already in place i.e. we have always had to ensure that a properties electrics were safe for the tenant, now there is a document to demonstrate this, much like a gas safety record and we welcome this move.

The regulations are obviously important for the safety of tenants and, in essence, these new laws and regulations will mean new accountabilities for the private rented landlords with not much time in which to get prepared and be compliant. If you are worried about these new rules or don’t have ultimate confidence in your current agent, then please do pick up the phone and let’s have an informal chat about how we can help you with this issue, you don’t want to fall the wrong side of the law do you?

CLICK HERE TO FIND OUT HOW MUCH YOUR SOUTHAMPTON PROPERTY IS WORTH

If you would like to pick my brains on the Southampton Property Market – Just drop me a line on social media or email me @ brian.linehan@belvoir.co.uk you can also call me on 023 8001 8222.

If you are looking for an agent that is well established, professional and communicative, then contact me to find out how we can get the best out of your investment property.


Don't forget to visit the links below to view back dated deals and Southampton Property News.

Blog, http://southamptonproperty.blogspot.co.uk/

Facebook, https://www.facebook.com/belvoirsouthampton/

Twitter, https://twitter.com/sotonbelvoir

LinkedIn, https://www.linkedin.com/in/brianlinehan

Website, https://www.belvoir.co.uk/offices/southampton 

                   

What will be the effect of Covid-19 on the Southampton Property Market?

So, we are just over two weeks into the lockdown and things are settling down into a “new normal” as we get used to our new work environments, our daily exercise routine and essential shopping. There is no doubt our thoughts start to turn to when will things get back to life as we knew it before COVID19 and the one question I am getting asked a lot now is “What will be the effect of Covid-19 on the Southampton property market?”

These are obviously unchartered times, yet we can look back at previous health crises to give us clues and more recently, the international markets that have passed the peak of COVID19 such as China and Korea. The Covid-19 situation will affect all aspects of the Southampton and UK property markets, and so in this article, I will be considering its impact on Southampton property prices, transaction numbers (i.e. the number of people that move home), Southampton buy-to-let landlords and finally tenants and the rents they pay.

The Three Issues with the Virus and the Property Market

The first issue has to be the lockdown itself. Limitations on society's ability to go about their normal working life has hinder the house buying/selling process. The practical difficulties of moving home and expediting the property sale; from the viewing itself, the Energy Performance Certificate being carried out, the Surveyor checking the property for the lender etc, and even the ability to book removal companies are all issues. Yet the estate agency and legal industries are coming up with some innovative solutions, from virtual viewings to legally watertight delayed completions, where the old owners stay in the house under licence during the lockdown, and the move will take place after the lockdown period. That has helped buyers and sellers who are well advanced in the sales process but the government guidance for new sellers and buyers is simple - don’t!

Secondly, the UK housing market has never liked uncertainty and this virus will play a part on people’s feelings and sentiment towards moving home (or not).

Thirdly and finally, there is the issue with money. Buyers funds, be that wages, whether they have a job (or not) and their overall affluence, on the back of the 29.4% stock market decreases in the last two months (correct at the time of writing this article), will have a significant bearing on the market going forward.

The Background Economics

The economy drives everything including the housing market – and the overall measure of the economy is the Gross Domestic Product figure or the GDP (the GDP is basically the total value of all the goods and services created by the whole UK economy in one year and it currently stands at £2.15 trillion).

Looking at what has happened in China, most economists believe the UK will experience a short, yetsharp economic shrinkage in Q2 2020 with GDP set to drop by between 4% and 7% in that quarter, depending on the extent of the lockdown. Then GDP is expected to level out in Q3 2020, and then a significant ricochet (how significant depends who you listen to) in Q4 2020/Q1 2021.

Now putting politics aside, I have been impressed with Boris Johnson’s response with wide-ranging support for the UK economy and businesses, and whilst it’s far from perfect, help has been in the guise of the Bank of England reactivating its Contingent Term Repo Facility increasing liquidity and keeping the money markets going, business grants and Government backed loans, together with telling lenders to take a compassionate line to those unable to make mortgage payments and finally the furloughing of staff, thus allowing a quicker recovery in the economy when restrictions are lifted.

What Will Happen to Southampton Property Values?

There are a few doom-monger economists predicting Armageddon, yet I feel a lot of that is to get column inches in the newspapers. The Southampton property market is less exposed than it was in the previous four historical property crashes in 1972, 1979, 1988 and 2008. This is because of the following reasons…

Before each of the four crashes, there had been a significant upward spike in property values prior to the crash. We have not experienced that over the last 12 months – we have Brexit to thank for that!

Mortgage interest payments as a percentage of household income (nationally) was a massive 32% in 1988, 18% in 2008 – yet now it stands at just under 8% (because interest rates are so low).

This is all assuming we don’t have high unemployment. Yet history has shown that house price falls are not caused by high unemployment. It is in fact, the other way around, a housing downturn can (not always) create unemployment - yet with the Government furloughing program, this shouldn’t be such so much of an issue.

The value of an average Southampton home currently stands at £303,200

As I will explain later, the biggest effect will be on transaction numbers, not on property values. I suspect in the summer there will be some Southampton homeowners who will want to sell at all costs, and sales price will be secondary. Savvy property buyers will swoop on those properties and drive a hard bargain, meaning there will be some short-term localised reductions on those properties that sell in the coming summer months.

Yet, these reductions will artificially affect the property value indexes negatively in the autumn (the ones the newspapers mention when they talk about property value changes) because they will be based on the very low levels of property transactions that will take place in the summer (because there is always a lag). Interestingly we have seen this many times over the years because every spring for the last 20 years, we have seen negative or very subdued figures in the House Price Indexes in the months of January/February. This is because of the lack of property sales on the runup to Christmas a few months before. To give this all some context, property values in Southampton are 36.3% higher than 10 years ago. To give you an idea what that is in pound notes.

The average Southampton home has risen in value by £80,800 in the last 10 years

The swiftness of recovery in the autumn/winter will depend on the state of the wider economy. With the measures (mentioned above) implemented by the Government, household incomes should continue to remain steady, and whilst holidays and luxuries might be shelved for a year, those Southampton people who have been locked up in their Southampton homes for weeks on end,(and now realise they need a bigger house and garden!) might just consider making that move later in 2020, taking advantage of the ultra-low interest rates. This in turn ought to encourage a return to sturdier levels of house-price growth in the medium term (2021/2 onwards) if transaction levels rebound.

The Number of People Moving Home in Southampton Will Significantly Drop in 2020

I foresee the number of people moving home (i.e. the number of household transactions) in Southampton will significantly drop in 2020.

Even with virtual viewings and creative legal work, the number of property transactions will be considerably obstructed over the next couple of months. Interestingly, in the Chinese cities that removed the lockdown first (in the middle of March) I have read in the press the number of property transactions has already bounced back to around the half of the medium-term average after only three weeks!

Worse case scenarios suggested by economists state transactions will drop to 20% of the normal 10 year average number of transactions until the end of Q3 2020, return to 65% by Q1 2021, increase to 100% by the end of Q2 2021 and then 120% in 2022, yet most sensible economists (and often those that stay out of the limelight and don’t go chasing headlines), believe transactions will reduce to 45% to 50% of the 10 year average until the end of Q3 2020, improve to 80% in Q4 2020 and 100% by Q2 2021 with potential for higher transactions numbers in the order of 110% to 130% in 2022.

It all sounds rather grim – doesn’t it … until you dig deeper.

Remarkably, it must be stated that the number of property transactions over the last 12 months in Southampton are only at 59.9% of the 10-year Southampton average… and this was before Covid-19.

In the last 12 months, there have been 3,916 property transactions in Southampton, compared to a 10-year average of 6,030 per year

Yet, let’s not forget, these predictions are from the 10-year long term average, and as it can quite clearly be seen, transaction levels are already low, even without Covid-19 and the market functioned at those levels.

With a reduction in the number of Southampton people on the move, I would anticipate seeing a build-up of supressed demand for Southampton property from Covid-19, on top of the pent-up demand from Brexit, especially with many Southampton families realising their Southampton homes aren’t larger enough to contain them as the lockdown experience will push many Southampton households to move in late 2020 or possibly 2021 …and as every economics student knows, when demand outstrips supply (because we can’t all of a sudden build more houses), prices will increase.

How Will This Affect Southampton First Time Buyers, Those Trading up, Downsizers and Landlords & Tenants?

FIRST TIME BUYERS - I believe the banks will be a little more wary when lending money to first time buyers with their need for large mortgages. The demand for the Help-to-Buy Scheme has been increasing year-on-year, yet its pace of growth has been declining in the last couple of years – I foresee demand accelerating in the later parts of 2020. There could be some good deals to be had from new homes builders looking to release cash in Q3 and Q4 later in the year as they approach their financial year ends! Maybe the Bank of Mum and Dad might be able to help, yet they too will be stretched, although they might be able to release equity down the generations to their children and grandchildren (see the downsizers section).

TRADING UP – Many Southampton homeowners in their starter homes will be going stir-crazy in their smaller homes, and with interest rates at ultralow levels, some Southampton homeowners might forgo holidays and entertaining, and consider putting their weight and finances into moving up market in Southampton. That might also be easier, if the Southampton downsizers start to move as well.

DOWNSIZERS – There are many Southampton retired people, rattling around their large Southampton home, with their children having flown the nest and possibly moved away years ago. These Southampton people don’t need to move, and so are considered ‘optional home-movers’ – yet the Covid-19 crisis could be the catalyst to make them finally move to be nearer their family around the UK – releasing good sized Southampton family homes onto the property market for the ‘Trading Uppers’ to buy.

LANDLORDS & TENANTS – I suspect there won’t be many Southampton tenants moving in the next three to four months. The Government has advised tenants to stay put until restrictions are lifted. Tenants also have the peace of mind with a cessation on evictions until the summer and buy-to-let mortgage payment holidays for buy-to-let landlords whose tenants are in financial difficulty (note the tenants have to give proof to their landlord that they are unable to pay with their applications to Universal Credit etc., etc.,). There might be a small reduction in average rents, as some Southampton landlords undertake to help their tenants in these chastened financial times, yet for most people, rents will continue to be paid making no major impression on rental prices in 2020.

Let’s not forget, the level of average rents is directly related to tenants wages and I can’t see why this relationship between rents and tenants wages should break after Covid-19, so as wages are held back in the latter parts of 2020 the growth in rents over the next year will be flat. Finally, those Southampton buy-to-let landlords sitting on cash might be able to bag a bargain in the summer from a desperate seller, before normality returns in Q3 and Q4 2020.

Conclusion

We are in unchartered territory, yet for the reasons explained above and, assuming there are no other seismic shocks in the coming weeks and months – in a few years’ time – transactions levels will have fully rebounded and the property market will move on again – it is all part of the roller coaster ride of the UK and Southampton property markets.

 If you are looking for an agent that is well established, professional and communicative, then contact us to find out how we can get the best out of your investment property.

Email me on brian.linehan@belvoir.co.uk or call on 023 8001 8222.

Don't forget to visit the links below to view back dated deals and Southampton Property News.

Blog, http://southamptonproperty.blogspot.co.uk/

Facebook, https://www.facebook.com/belvoirsouthampton/

Twitter, https://twitter.com/sotonbelvoir

LinkedIn, https://www.linkedin.com/in/brianlinehan

Website, https://www.belvoir.co.uk/offices/southampton