The Emergence of Accidental Southampton Landlords in a Slowing Housing Market?

 

A Southampton landlord remarked to me the other day that he felt that there were more 'posher' up-market properties coming up for rent in the last six months compared to a couple of years ago.

I stated that this was the case, and it wasn't all down to the recent rental growth – it was the growth of the upmarket 'accidental landlord'.

With the Southampton housing market showing signs of a slowdown and predictions of further house price declines, I am starting to see the return of the ‘accidental landlord’, but in a somewhat different form to what they were in 2008/9.

An ‘accidental landlord’ becomes a landlord unexpectedly or unintentionally. This often occurs when homeowners rent out their property instead of selling it due to a slowing housing market, a change in personal circumstances, or other unforeseen reasons.

While the sales market in Southampton has experienced a period of strength in recent years, activity has started to slow down from the levels seen in 2021/2. In contrast, there has been soaring demand for Southampton rental properties.

To give you an idea of the growth of rents.

 

The average rent for homes coming on the market in the Southampton area in 2021 was £919 per month, whilst in 2023, it has been £1,128 per month.

 

Some Southampton homeowners, fearing not achieving their desired selling price, might opt to retain ownership of their properties and instead rent them out until market conditions improve.

 

Back in 2008/9, this trend was particularly evident in the middle market segment.

 

However, in 2023, many property commentators are suggesting if ‘accidental landlords’ do start to emerge, it will be in the upper quartile property segment (i.e., the top 25% of properties by value), where many homeowners bought in the post Lockdown race for space of 2021/2. 

Looking at the figures, they could be correct.

The upper quartile rental market (excluding student lets) starts in just over the £1,500 per month range in Southampton.

·        In the first seven months of 2021 (Jan to Jul) in the Southampton area – an average of 49 properties a month came onto the market for rent at £1,500 per month or more.

·        In the first seven months of 2022 (Jan to Jul) in the Southampton area - an average of 66 properties a month came onto the market for rent at £1,500 per month or more.

·        In the first seven months of 2023 (Jan to Jul) in the Southampton area - an average of 79 properties a month came onto the market for rent at £1,500 per month or more.

(Southampton area being SO14 to SO19).

 

Many of these could afford to be patient in pursuit of optimal selling conditions. The rise of ‘accidental landlords’ can be attributed to various factors, such as limited property appreciation, increasing mortgage costs, and robust demand for Southampton rentals, making renting out properties an attractive alternative.

 

‘Accidental landlords’ are also created through other diverse circumstances.

 

Irrespective of what is happening in the economy and Southampton property market, births, deaths and marriages continue. There will always be some new couples who decide to rent out one of their properties after moving into a shared home, while others inherit properties through the passing of parents or grandparents.

The current average tenancy length of 51 months provides these new Southampton landlords with just over four years to allow Southampton property values to recover before re-evaluating the market. However, stepping into the role of an accidental landlord carries specific implications that homeowners need to be mindful of.

 

Understanding the tax implications is a crucial aspect that ‘accidental landlords’ should grasp.

 

Transitioning to landlord status may result in the loss of specific tax benefits, including stamp duty relief, and necessitate payment of income tax on rent. Furthermore, upon selling the Southampton rental property, landlords may become liable for capital gains tax on the profit made from the sale, as it is no longer considered their primary residence and I implore you to take advice from an accountant.

To mitigate the impact of tax changes, some Southampton landlords have chosen to incorporate their properties into Limited Companies. Corporate structures offer potential tax relief on mortgage costs and the opportunity to pay lower Corporation Tax rates than individual income tax rates. However, incorporating properties involves additional expenses, such as stamp duty and capital gains tax on existing properties transferred to the company.

Individual landlords with only one property may find incorporation less advantageous, but it could be a viable option for those planning to expand their buy-to-let portfolios.

 

Investing in property maintenance is a crucial consideration for Southampton's 'accidental landlords'.

 

Well-maintained properties are more likely to retain or increase their value over time. Retrofitting properties to improve energy performance can also benefit tenants and future buyers, helping reduce utility costs and enhance overall comfort.

Accidental landlords must diligently handle this critical area: appropriately protecting tenants' deposits. Please safeguard deposits adequately to avoid significant compensation claims, with landlords potentially losing up to three times the deposit amount. To protect against such risks, landlords must ensure compliance with deposit protection schemes and provide tenants with essential documents, including Energy Performance Certificates, the Government's "How to Rent" guide, and current gas safety certificates.

 

Misunderstandings can inadvertently arise to renting direct to family or friends, leading to legal disputes.

 

Even though you know the tenant, it still could be wise to employ the services of a letting agent to establish clear terms in writing at the outset of a tenancy to avoid potential conflicts and protect the rights of both landlords and tenants. This becomes particularly relevant as the Renters Reform Bill, set to introduce significant changes to the private rental sector, including tenancy length and the process of regaining possession, is awaiting approval.

My overriding message to every Southampton ‘accidental landlord’ is that they must be aware of the tax implications, consider incorporation a potential strategy, invest in property maintenance, protect tenants' deposits, and establish clear terms to avoid disputes. Additionally, there are over 170 pieces of regulations regarding renting your property out. Also, it's essential to stay informed about forthcoming changes in renters' rights introduced by the Renters Reform Bill.

In conclusion, with the Southampton housing market experiencing a slowdown, I suspect an increasing number of Southampton homeowners are considering becoming ‘accidental landlords’ by opting to rent out their properties instead of selling.

 

You must weigh the risks of renting your Southampton home and the potential rewards.

 

I know of many stories of Southampton homeowners who waited five or six years after the Credit Crunch to hit their ‘target price’ for their existing home, only to realise it cost them tens of thousands of pounds in costs and the price they had to pay for their new home. On the other side of the coin, I know plenty of ‘accidental landlords’ in Southampton who used the fact that they became an ‘accidental landlord’ as an opportunity to build an impressive rental portfolio over the last 15 years.

If you are uncertain or do not possess all the facts, don't hesitate to contact me to discuss your plans. Then I can give you appropriate level-headed advice to make the right decision. By taking proactive steps and understanding the risk and rewards of being an ‘accidental landlord’ in Southampton, you can navigate the Southampton property market successfully, even during uncertain times in the housing market.

 

Is Buy-to-Let in Southampton Still Worth the Risk?

Over the last five years, life has become a little trickier for Southampton landlords, with changes to their taxation status, mortgage interest relief and an additional 3% stamp duty for a buy-to-let property, and has made lots of Southampton landlords ask themselves:

‘Is buy-to-let in Southampton still worth the risk?’

Regarding taxation, in 2016, the Government added a 3% supplement in stamp duty on all buy-to-let properties. Then, in 2017, the Government started to reduce mortgage interest by stopping landlords from deducting the interest they paid on their mortgage before paying tax on the rental profits and replacing it with a flat rate tax credit based on 20% of the interest they spent on their mortgage.

There would be no effect if a Southampton landlord were a basic rate 20% taxpayer. Yet Southampton landlords who were higher-rate (40%) or top-rate taxpayers (45%) saw an effect as their tax relief was cut in half.

So, is buy-to-let in Southampton still an advisable investment?

The response to this question is much more significant than the issue of taxation.

To a large degree, as with all investments, it depends on why you are investing and what your final objective is. Let me expand.

The rewards of Southampton buy-to-let.

You can earn money two ways with buy-to-let. The first is the rental income from the property.

The average rent achieved in Southampton is £1,294 pcm,

a rise of 9.8% in the last 12 months.

 

This rent is expressed as a yield and is described as a percentage figure that's calculated using the annual rental income and dividing it by the value of the buy-to-let property.

 

Landlords and buy-to-let investors use rental yield to judge and measure the value of their rental investments and portfolios. E.g. rent is £1,000 per calendar month (pcm), which means the annual rent is 12 x £1,000 = £12,000. If the property is worth £180,000, the rental yield is £12,000 divided by £180,000, which, when expressed as a yield percentage, is 6.67%.

 

The average yield in Southampton is 6.1%.

Some areas in Southampton can easily achieve a 7.6% to 9.0% yield, sometimes even more, depending on your choice of property and type of tenancy you wish to have.

If yield is your number one focus, the highest average yield in the UK can be found in Bradford City Centre, where it is 12%, Hyson Green and Radford in Nottingham at 9.6% and Pontypridd at 8.7%, while other areas in the UK can be as low as 2.2%.

So indeed, is the best strategy to go for high-yielding properties?

The problem with pursuing high-yielding Southampton buy-to-let properties is that you usually must compromise on the property’s capital growth to attain that high yield.

The second way to earn money with buy-to-let is capital growth as your Southampton property increases in value.

 

SO15 property values are 15% higher than 3 years ago.

 

A reasonable return in anyone's books.

Of course, this all depends on the rent coming in, yet you can buy landlord insurance to cover against loss of rental income, tenant damage and legal costs.

Interestingly, using Government data and Industry data, Denton House Research found that in the first lockdown landlords who managed their rental properties themselves were 272.5% more likely to be in arrears of 2 months or more (compared to those who utilised the services of a letting agent to manage their property).

 

The drawbacks of Southampton buy-to-let.

 

Your tax bill is higher today than a few years ago, but isn't everyone’s?

If Southampton property prices fall, the capital you invested will reduce, yet if it sat in the bank, it would decline in value anyway.

Being a landlord is a big responsibility, with over 170 pieces of legislation and orders to comply with. That's where a suitable letting agent can help you with your rental property to ensure you remain compliant.

I recommend Southampton landlords consider all options to maximise their rental income whilst reducing their outgoings concerning their rental property.

Rents are rising in Southampton (as mentioned above), and many Southampton landlords appreciate the demand-led increases in their rent. And let me ask you, why shouldn’t they, as they have been exposed to many legislative and taxation changes over the last five years?

Ok, last point and the elephant in the room.

Will there be a house price crash, and should Southampton landlords wait for it?

A house price crash conjures up a big event that makes house prices go down, and it certainly happened like that in 1988 with the removal of dual-MIRAS tax relief on mortgages and the Credit Crunch in 2008. Yet this time, it’s different.

As there is more normality and balance in the Southampton property market at the moment (compared to 2021/early 2022), the price that is being paid today on most houses in Southampton is not as extreme or as extravagant as what was being paid in 2021/early2022 (when people were outbidding each other).

Therefore, if you were to look at the house price indexes going into the spring and summer of 2023, then there will be a reduction. The doom-mongers and newspaper editors will call that a house price crash, yet I see it as the market easing back to normality.

 

A massive driver behind landlords and home buyers ‘waiting for a house price crash’ is that they fear they have ‘missed the boat’ when it comes to buying/investing.

 

There is always newspaper (and now social media) attention when house prices explode. This means people quickly feel pressure to enter the 'property market', as everyone is making money, yet they aren't.

The problem is that during the previous boom phases (the late 1980s and early/mid-2000s), house prices increased quicker than some people could save money for their deposit (for a house purchase). They saw their friends and acquaintances snapping up buy-to-let deals and they were missing out on the spoils of house price growth. As a result, many of these excluded house buyers judged that a house price correction was foreseeable, inevitable, and sometimes even needed. Not with any rational economic argument, but classic FOMO (Fear of Missing Out).  

Yet a ‘house price crash’ isn’t the silver bullet that many think it will be.

‘House price crashes’ virtually never drop house prices to reasonable levels, and in fact, they have a lot of additional effects that make house buying even harder.

Investing in buy-to-let is a long-term investment. Remember what I said at the start. It would help if you decided why you're getting into buy-to-let investment and when you will get out (and what you want to get out of it). Buy-to-let has advantages and disadvantages, but it is something tangible and something that investors can understand.

 

The UK needs to build more houses, so the demand for rental properties will only continue to grow.

 

The heady days of the early 2000s, when anybody could make money from any property, though, have gone. With increased legislation and taxation, you need the advice of a great agent to guide you on what to buy (and not to buy) for an excellent yield, incredible capital growth or a balance of the two. That agent should be able to find you a great tenant who will pay the rent on time and look after the property to ensure that when they leave, your investment is returned to you in the best condition possible.

If you would like to pick my brain, whether you are considering becoming a landlord in Southampton, an existing landlord (irrespective of which agent you use) or even a self-managed landlord, do not hesitate to pick up the phone to me.

I will tell you what you need to hear, not necessarily what you want to hear.

 

Southampton Property Market Update: February 2023

 

·       With the Bank of England raising interest rates and inflation high, what is happening in the Southampton property market?

 

·       Are properties selling in Southampton? And if so, what is selling?

 

·       What will happen to the value of your Southampton home?

 

·       Read the article to find out what is happening to the Southampton property market.

 

As we enter February, the Southampton (and British) property market is full of mixed messages.

Whilst the Bank of England increased the base rate nine times in 2022, meaning they are now at 3.5% (3% higher than 12 months ago), mortgage rates are now dropping.

The Southampton property market rocketed over the last few years because of the imbalance of the number of properties for sale versus the demand, with many more people looking to move home than there were properties available.

Now, as we are over the first month of 2023, we are experiencing a steadier Southampton housing market, where homebuyers have the time and opportunity to ensure they find the right home for them.

The days of 50 viewers per property on the first weekend of marketing, frenzied Southampton buyers outbidding each other by increasing their offers by tens of thousands of pounds over the asking price has become the exception and not the norm.

 

I often get asked my thoughts on the Southampton property market (hence these blog articles) and at this time of year, I get asked my forecast for the year ahead.

 

The one big thing I have noticed is the imbalance of what is coming on the market for sale versus what is selling.

For example, 38.2% of properties that came on the market nationally in November and December 2022 had an asking price of £250,000 or less, yet 45.6% of the properties sold subject to contract since 1^st January 2023 have been £250,000 or less.

 

That doesn't sound like a lot, yet it makes a massive difference to the property market. 

However, it’s very easy to look at national averages, regional averages and, of course, Southampton averages. Yet the property market is just one market nationally, as there isn't just one Southampton property market.

However, the same pattern is seen in the higher-priced Southampton properties. These higher-priced properties are selling more slowly than the lower-priced Southampton properties. Therefore, the need for those larger Southampton properties to be more realistic in price is paramount to stand out from the crowd, especially with the next point.

Evidence suggests there is a growth of Southampton buyers, who are looking to find a home before putting theirs onto the market. This was unthinkable last year, yet as the Southampton property market returns to normality, this will be seen more and more.

What are my thoughts?

Firstly, the time scale of how long it will take to sell a Southampton home.

I expect to see the time it takes to sell a Southampton home increase from 43 days in 2022 to a more 'normal' housing market of around 65 days.

Secondly, the imbalance of the Southampton property market.

A greater number of larger homes in Southampton are coming on the market because (as mentioned recently in a previous blog post) of the higher number of mature homeowners looking to downsize. This is because these larger homes have become much more expensive to heat, and as many of the occupants are on fixed incomes with their pensions, they are downsizing to cut costs.

Thirdly, that brings me to talk about energy efficiency.

Many buyers have started to ask about a property's Energy Performance Certificate (EPC) rating. I recommend to Southampton homeowners considering moving in the spring or summer to have an EPC done on their property now, as there may be points that could easily be rectified and improved from one EPC rating band to another.

This would mean you will get a lot more interest and a better price for your property. If you need any help or guidance in organising an EPC on your Southampton property (even if you are not selling for six/twelve months), do not hesitate to me give me a call.

So, what is happening in the Southampton property market in terms of new properties (aka new listings) and what is selling?

 

326 properties have sold (STC) in the Southampton area since 1^st January 2023.

(Southampton being SO14 to SO19).

However, it's essential to look at what is selling in Southampton, and the most active price range is the £250k to £300k range, where 71 properties have been sold subject to contract (representing 21.7% of sales).

Looking at what is coming onto the market in the same time frame …

350 properties have come onto the market in the Southampton area since 1^st January 2023.

Interestingly, the price range with the most listings is the £250k to £300k range.

This means Southampton is bucking the national trend (mentioned above) where nationally, the lower to middle property market is where the sales are, but the properties coming onto the market are slightly higher in price, yet it’s the same in Southampton.

Any Southampton homeowners with properties in price ranges that aren’t selling so well need to be ‘on point’ to stand out from the crowd regarding their marketing, be spot on regarding their pricing (compared to the growing competition of other larger homes for sale) and now more than ever, their EPC rating (especially if they are on the cusp between two EPC bands).

Before I conclude, you might wonder why I have not mentioned Southampton house prices.

Well, what will happen to Southampton house prices in 2023 is something I am not sure of.

(Yes, I know that level of frankness is strange coming from an estate/letting agent).

I know the prices being achieved for homes in Southampton in the spring of 2022 (when everyone was out bidding each other) are not being achieved today. It all depends how you look at it.

Are Southampton house prices dropping or are they just returning to normal? I would say the latter.

However, looking at house prices as a ‘bellwether’ for the health of the Southampton property market has flaws.  

Many economists and property market commentators believe transaction numbers (the number of properties sold) give a more accurate and truthful indicator of the property market's health than just house values alone.

The reason is three-fold.

Firstly, most people also buy a home when they sell their own, so if Southampton property values drop by 10% or rise by 10% on the one you are selling, it will do the same on the one you are buying - meaning to judge the health of a property market on house prices is very one dimensional.  

Secondly, as most people move up market when they do move home, if the price of the one they’re selling might not be as much as they would've achieved in 2022 (if they drop), the price that they will pay on the one they want to buy will be lower. Thus, it will cost them less to move upmarket!

E.g. Last year, your Southampton home was worth £400,000, and the one you wanted to buy would have been £750,000. Let’s say Southampton house prices did drop 10% in 2023 (which I don’t know if they will); your home would be only worth £360,000. Yet the one you want to buy would now be worth £675,000. So last year, it would have cost £350k to move, but if Southampton house prices drop 10%, the move would cost £315k, saving you £35,000.

Third and finally, moving home is a human thing. Property habitually delivers a robust emotional connection with homeowners - a connection that few would attribute to their other investments like their stock market investments or building society savings passbook.  

Moving home could be described as a human journey, moving from one chapter of one’s life to another.  

Therefore, when people do move home, it shows they are moving forward in their lives, which gives a great indicator of the property market's health.

 

It’s going to be an interesting year for the 2023 Southampton property market.

My opinion. Do what is suitable for you, your family and your finances.

Ignore the newspapers and look at the facts in hand and if you want a frank chat about the Southampton property market, irrespective of whether you want to sell or not, call me. I might not tell you what you want to hear, but I will tell you what you need to hear

𝐃𝐞𝐩𝐨𝐬𝐢𝐭 𝐃𝐞𝐝𝐮𝐜𝐭𝐢𝐨𝐧𝐬: 𝐖𝐡𝐚𝐭 𝐒𝐨𝐮𝐭𝐡𝐚𝐦𝐩𝐭𝐨𝐧 𝐋𝐚𝐧𝐝𝐥𝐨𝐫𝐝𝐬 𝐒𝐡𝐨𝐮𝐥𝐝 𝐊𝐧𝐨𝐰

The end of a tenancy agreement can be stressful for landlords. You need to make sure the property isn’t vacant for long and there may be a need for repairs and maintenance. Then there’s the deposit release process and decisions about whether you need to make any deductions.

Landlords have a bad rap when it comes to deposits. Many tenants think they have made unfair deductions or that their landlord is wrong to keep anything back.

Thankfully, services such as the Tenancy Deposit Scheme (TDS) and Deposit Protection Service (DPS) have reduced the controversy around returning deposits. There’s a formal dispute resolution process that both landlords and tenants can apply to if there are disagreements. However, as a landlord, it’s still worth knowing what you can and can’t make deductions for.

In this three-minute read, we look at the dos and don’ts of deposit deductions.

𝐑𝐞𝐚𝐬𝐨𝐧𝐚𝐛𝐥𝐞 𝐝𝐞𝐩𝐨𝐬𝐢𝐭 𝐝𝐞𝐝𝐮𝐜𝐭𝐢𝐨𝐧𝐬

Your property should be returned to you in the condition that it was found in (excluding fair wear and tear), and your expectations should have been set out in your original tenancy agreement. For example, if the property was handed over after being professionally cleaned, it is reasonable that it’s cleaned to the same standard on the way out.

Reasonable deductions can also be made for the following:

- Unpaid rent or bills

- Damage caused by tenants

- Missing items (in the case of furnished properties)

- Gardening

𝐅𝐚𝐢𝐫 𝐰𝐞𝐚𝐫 𝐚𝐧𝐝 𝐭𝐞𝐚𝐫

An area that causes trouble when it comes to returning deposits is the concept of ‘fair wear and tear’. This is anything that could be caused by everyday living. For example, scuff marks on the walls can occur quite easily and would fall into the category of ‘fair wear and tear’. However, a dent in the wall or broken window could be seen as beyond the usual level of wear and tear and therefore be deductible.

It’s also important to be fair. So, if one kitchen cupboard has been broken, it wouldn’t be fair to try and reduce the deposit by the cost of replacing an entire kitchen. Additionally, the level of wear and tear differs depending on the number of tenants in a property and the length of time they’ve been there. You might experience more damage after a family with young children move out rather than a couple.

𝐇𝐨𝐰 𝐭𝐨 𝐚𝐯𝐨𝐢𝐝 𝐝𝐞𝐩𝐨𝐬𝐢𝐭 𝐝𝐢𝐬𝐩𝐮𝐭𝐞𝐬

The best way to avoid deposit disputes is to pay for a thorough inventory before a tenant moves in and after they leave. Using a third party to assess a property and take photographs offers a fair and balanced approach to any potential deposit disputes that may arise. An inventory will be vital evidence should a deposit matter be taken to arbitration.

𝐖𝐡𝐚𝐭 𝐭𝐨 𝐝𝐨 𝐢𝐟 𝐲𝐨𝐮’𝐫𝐞 𝐮𝐧𝐬𝐮𝐫𝐞

Your letting agent can be a great source of help if you’re unsure whether to make a deposit deduction. They have the experience of viewing and assessing hundreds of rental properties and will be able to ascertain whether an issue is classed as damage or fair wear and tear.

Our lettings team Belvoir are here to help if you’re looking for new tenants. Call us today on 02380018222 to start the tenant-finding process.

Southampton Tenants Face Further Rent Hikes, as the Number of Available Rental Homes Drops by 36%

 

• The number of properties available to rent in Southampton has dropped from 3,519 to 2,267 since February 2020.

• The average rent a tenant has had to pay in Southampton has risen from £932 to £1,716 since February 2020.
• 
  
•     Many Southampton landlords have cashed in on the post-lockdown property boom of the last two years and sold their properties to owner-occupiers - not fellow landlords.

• The supply of Southampton rental property isn't near what is needed, which is of benefit to Southampton landlords rather than Southampton renters. 

 

The Southampton rental property shortage is currently very evident. In this article, I will investigate why there is such a significant lack of homes available for rent across Southampton and what it means for buy-to-let investors.

Anybody who enjoys surfing the property portals (Rightmove, Zoopla and On the Market) will have observed an emerging trend that the number of properties available to rent in Southampton has dropped considerably in the last couple of years.

This reduction has been seen all around the UK as well. For example, on 1^st November 2020, there were 372,931 properties to rent on portals. By the 1^st November 2021, that had dropped to 275,650; by the 1^st November 2022, that had fallen to 171,224.

That doesn't mean the number of privately rented homes in the country has dropped by over half. Fewer properties are coming onto the market to rent. I will explain why in this article.

 

For tenants, especially over the last 12 months, it has become progressively more challenging to find a Southampton rental home, thus making the rent they must pay go up. This state of affairs in the property market isn’t showing an indication of getting any easier either, making for a hard time for Southampton renters.

So, what is the reason behind the Southampton rental property shortage, and what does this mean for existing Southampton landlords or those potential investors considering buying a Southampton buy-to-let property soon?

 

Several different components are making the perfect storm in the UK property market.

Firstly, the number of households in the UK.

The UK has not been building enough homes for the last 20 years. I appreciate that parts of Southampton seem like one huge building site, yet as a country, we are woefully undersupplied with property to live in. This has meant house prices continue to rise due to demand. 

The government have known about this issue for decades. The Barker Review of Housing Supply published in 2004 stated that the UK had experienced a long-term upward trend of 2.4% in real house prices since the mid-1970s because of a lack of house building. The report stated that 240,000 houses needed to be built each year to keep up with demand.

 

The average number of houses built since the mid-1970s has been around 165,000 per year, meaning the UK is short of 3,375,000 houses

(i.e., 45 years multiplied by 75,000 missing homes per year).

 

Several years ago, the government set a target to build 300,000 new homes each year to address this issue.

However, in 2019/20, the actual number of homes delivered stood at just 243,770. In 2020/21, the number of properties built dropped to only 216,000 new homes. In a nutshell, there are fewer available homes to buy, meaning fewer available homes to rent. 

Secondly, Southampton tenants are staying in their rental homes longer.

A Southampton first-time buyer's average house deposit is £60,953

(the UK average deposit is £53,935).

The average rent of a Southampton property in November 2022 is £1,716 per calendar month (up from £932 per calendar month in February 2020) – quite a rise!

These numbers translate into Southampton renters not being able to pay the rent and be able to save for a deposit, or if they are saving, it is taking a lot longer to save for a deposit due to the cost-of-living crisis and higher rent costs.

Also, many Southampton tenants have decided to stay in their existing rental homes because of the rent rises. Many landlords are less inclined to raise the rent on an existing property when they have a decent tenant who keeps the property in good condition and pays rent on time. Anecdotal evidence also suggests that rent arrears in those properties are dropping as tenants know if they don’t pay the rent, the chances are they will have trouble finding another property, and if they do, they will have to pay a lot for their next rental home.

For Southampton landlords, this is all positive news - tenants are staying for longer in their Southampton rental properties, arrears are lower, and void periods are less likely. When it comes to the market, there is less competition (because of the decrease in the availability of Southampton rental properties) so this makes the investment an even better bet.

Thirdly, landlords are selling up on the back of recently increased house prices.

It would be difficult for Southampton buy-to-let landlords to ignore the rising property prices in recent years.

The average property value in Southampton in the summer of 2022 was 11.0% higher than in the summer of 2021.

 

For some Southampton buy-to-let landlords, especially those who were classified as ‘accidental landlords’ (an accidental landlord is a landlord who never chose to become a landlord, it was just after the Credit Crunch of 2008/9, they found themselves unable to sell their property, so they temporarily let their own property out), they chose to ‘cash in’ on the higher house prices. This would have also contributed to the lack of available Southampton homes for rent.

 

Yet everything isn’t all sweetness and light for Southampton landlords.

Landlords have a few costs to consider before investing in buy-to-let, including everything from regular refurbishment costs, buildings insurance, letting agents’ fees, income tax, and, not forgetting, stamp duty.

Talking of costs, one issue some Southampton landlords are facing is their failure to plan financially for the recent mortgage interest rate rises. Some Southampton landlords may have become complacent to the ultra-low Bank of England base rates we have had since 2008 and, therefore, may need to sell their rental property, which, if bought by a first-time buyer, will remove another property from the Private Rented Sector.

Another hurdle to jump is the proposed new regulations requiring better energy efficiency for rental properties. It is proposed all new tenancies must have at least a minimum of a 'C’ rating for their EPC (Energy Performance Certificate) from 2025 (and 2028 for all existing tenancies).

Therefore, as a buy-to-let Southampton landlord, it is wise to do your research to make sure the buy-to-let opportunity is correct for your rental portfolio, particularly when it comes to weathering any impending financial storms. 

Landlords need to consider the returns from their

Southampton buy-to-let investments.

Landlords can earn money from their buy-to-let investments in two ways. One is the property's capital growth, and the other is the rental return (often expressed as a yield). In 96% of buy-to-let investments, there is an inverse relationship between capital growth and yield (i.e., properties that tend to go up in value quicker will have lower yields 96% of the time – and vice versa).

Getting the best balance of yield and capital growth depends on your current and future needs from your Southampton buy-to-let investment.

If you would like me to review your portfolio and ascertain if your existing portfolio will match your current and future needs for the investment - whether you are a client or not, feel free to drop me a line, and we can have a no-obligation chat and possibly organise a review.

 

What does all this mean for the Southampton rental market?

 

The continued shortage of Southampton rental properties means it will be more difficult than ever to find a Southampton property to rent, and so rents will continue to grow.

Unlike in Scotland, England and Wales do not have rent controls, with Westminster ruling out the possibility of introducing rent control here to deal with the cost-of-living crisis.

You would think rent controls would be a no-brainer, yet economists from around the world have proved for the last 75 years that rent controls might help tenants in the short term, yet ultimately it drives landlords to sell their investments in the long term, thus reducing the stock of available properties to rent out (not great for future tenants).

Therefore, it is highly likely that Southampton rents

will continue to rise for tenants.

Landlords who persevere with their Southampton buy-to-let properties or become a Southampton buy-to-let landlord are set to benefit because they have an asset in very high demand.

The housing shortage, not to mention the other issues discussed above that are affecting the supply of rental properties, is unlikely to be fixed anytime soon!

In conclusion, the Southampton rental market is a constantly changing picture. What is known is that the supply of rental properties is far from what is needed, which can only be to the benefit of buy-to-let investors rather than of tenants renting.

I see buy-to-let as a long-term investment. Everyone reading this knows that the real value in your buy-to-let investment is playing the long game, allowing your Southampton buy-to-let investment to grow over time. Like the crypto or stock market, getting sucked in by get-rich-quick schemes that are selling 'apparent quick wins' in property investment is very easy.

I regularly highlight the best buy-to-let deals for Southampton landlords with all the estate agents (not just my own). You don't need to be a client of mine either to receive that information. Drop me a line or call (without any cost or obligation) if you are interested in making your first Southampton buy-to-let investment or considering adding to your existing Southampton portfolio.

Southampton Tenants' Spiralling Energy Bills are About to Become Southampton Landlords’ Problem

 

As gas and electric bills rocket for Southampton tenants, Southampton landlords who do not start to make energy efficiency upgrades face lengthy void periods and will have to discount their rents. This is irrespective of the Government's plans to change the rules on renting properties with low Energy Performance Certificate (EPC) ratings.

Until six months ago, out of the thousands of tenants I have shown around Southampton properties in all my years as an agent, I can count the number of tenants who have requested to see the EPC of the rental property on the one hand. Now, it’s the first question tenants ask.

The better the EPC rating, the lower the gas and electric bills.

Southampton tenants are leaving their poor EPC-rated properties which are too expensive to run and moving into higher-rated EPC rental properties.

The average heating bill for the 25,247 Southampton tenants will rise from £67.61 per month to £175.78 per month. 

And their hot water bill will rise by £37.47 per month and lighting by £24.02 per month. Each Southampton tenant will have to find an extra £169.67 per month for their gas and electric bills.

To give you an idea of the extent of the money being spent by Southampton tenants on heating alone (ignoring hot water or lighting), last year it was £20,482,820.46, and by 2023, it will be £53,255,333.20 a year.

Yet these stats don’t tell the whole story.

It is a legal requirement for every rented property to have an EPC which rates a property on its energy performance (like those washing machine or fridge ratings, albeit for a property). A is the best rating, and G is the worst.

Whilst the law states property cannot be rented with an EPC rating lower than an E in England and Wales, there are exceptions to this, meaning Southampton rental properties are still being let legally with an F and G rating. Although legislation for a minimum E rating EPC requirement in Scotland was scheduled in 2020, it never passed through the Scottish Parliament because of the pandemic. 

Let me show you the average saving in energy bills between the EPC rating of an average Southampton rental property.

 

·      A Southampton rental property with a D rating will cost £38.50 more per month than a C-rated property

·      A Southampton rental property with an E rating will cost £67.66 more per month than a D-rated property

·      A Southampton rental property with an F rating will cost £97.16 more per month than an E-rated property

 

Both Westminster and Holyrood governments now propose introducing a minimum EPC of band C for all new tenancies from 2025 (and 2028 for existing tenancies).

Irrespective of this new potential legislation, those Southampton landlords with low EPC ratings will now need to seriously consider making those energy efficiency upgrades to ensure their Southampton rental properties continue to appeal to tenants.

I can see Southampton rental property’s energy efficiency ratings filtering into rental prices over the winter months.

Southampton rental properties with low EPC ratings will probably rent for between 4% to 10% less than higher energy proficient properties.

This means Southampton landlords could have to accept between £54.80 and £137.00 per month less for an average Southampton property with a low EPC rating compared to a high-rated EPC rental property.

Any Southampton rental property with a lower EPC rating will also take longer to find a tenant, especially during the winter. This means some Southampton landlords will have the prospect of void periods early next year.

I have seen more Southampton rental properties coming onto the market in July and August, so if this trend continues, this will give Southampton tenants much more choice. With the increased supply of rental properties, I certainly believe some tenants could decide to offer less on Southampton rental properties with low EPC ratings.

So, what are the options?