Why didn’t Southampton House Prices Crash in 2023?

 

As I review the performance of the Southampton property market in 2023, it's evident that despite the challenges, the housing sector in the city has shown remarkable resilience.

At the beginning of the year, many commentators in January 2023 suggested house prices would drop like a stone in 2023. The Halifax thought there would be an 8% drop, Savills suggested 10%, and the respected Nomura Bank 15%, yet according to the Land Registry, they ended 0.5% higher. Looking at the Land Registry figures for Southampton…

Southampton house prices are only 0.1% lower than a year ago.

The final quarter (Q4) of 2023 recorded above average levels of new property sales in the UK, 11.1% higher than the year before (221,996 homes sold stc in Oct/Nov/Dec ’23 in the UK compared to 199,807 for the same three months in 2022).

What was of particular interest was a drop of 25.4% in the number of sale fall throughs (sale fall through being home sales agreed yet cancelled before legal exchange and completion), dropping from 75,033 in Q4 in 2022 to 56,761 in Q4 2023.

Looking at the local figures for Southampton (SO14-SO19) …

In Q4 2022, 821 Southampton properties had a sale agreed on, but 345 property sales fell through, meaning there were 476 net property sales.

Looking at Q4 2023, 887 Southampton properties had a sale agreed on them, yet only 238 property sales fell through, meaning there were 649 net property sales.

This surge in activity is a testament to the enduring value and attraction of homeownership.

Market sentiment has been bolstered by rising incomes and an initial decline in mortgage rates, making property investment increasingly feasible for many.

Demand is also considerably higher, up 19% according to Zoopla's property searches from last year.

Coupled with an increase of 20.7% in available properties for sale (633k in Q4 ’23 vs 524k in Q4 ‘22) compared to last year, the property market has seen an increase in choice, supporting robust sales.

This pricing alignment between buyers and sellers has reduced the downward pressure on values.

So, why didn’t Southampton house prices fall by 8% to 15% as predicted in 2023?

Despite average mortgage rates climbing from just over 2% to over 6% in the last two years, house prices haven't plummeted as anticipated. This defiance against more significant falls is attributed to several key factors:

1. Labour Market & Earnings: The UK's robust labour market and a 7.3% growth in average earnings have provided British households the financial stability needed to sustain mortgage repayments, even amidst rising rates.
2. Lender Restraint: Lenders have adopted policies to support many British households struggling with repayments, effectively reducing the number of forced sellers and maintaining market stability.
3. Mortgage Affordability Testing (Stress Testing): Perhaps the most influential factor has been the introduction of stricter mortgage affordability ‘stress testing’ (the Mortgage Market Review tests) for new borrowers since April 2014.

These ‘stress test’ regulations were designed to prevent British households from taking on excessive levels of mortgages during periods of low mortgage rates. They have been pivotal in preventing a significant housing crash because, like 1988 and 2008, when borrowers borrowed too much in the years before, that caused rapid house price inflation (due to over-borrowing). The added advantage to stress tests is the built in resilience for higher mortgage rates, enabling many households to manage the transition to higher mortgage rates more effectively.

For instance, even though the average rate all new mortgage borrowers have paid has dropped from around 4% in the autumn of 2014 to just under 2% in the autumn of 2021, borrowers have had to prove they could afford a 6.5% to 7% mortgage rate to secure that mortgage during that time frame. As interest rates have risen in the last couple of years, the stress levels have increased to an average of 8.7% (i.e. borrowers now need to prove they can afford to pay a mortgage of 8.7%).

Impact on Southampton's property market in 2024.

As an estate agent witnessing these trends first-hand in Southampton, I've seen our local market reflect this national resilience. The regulatory constraints on buying power, while capping the purchasing ability up to and post-pandemic, have, on reflection, maintained a steady demand for quality homes.

Southampton first-time buyers are still buying plenty of homes yet approaching the market with slightly more caution and greater financial preparedness than a couple of years ago. They are adapting to the current economic climate by opting for smaller Southampton homes to offset the elevated costs associated with borrowing. Interestingly, another reason for higher first-time buyer demand is rising rental prices, which have risen at nearly double-digit annual percentage increases since 2021.

As I anticipate the future, it's crucial to understand that while base rates may start to fall later in 2024, the regulatory constraints on buying power continue to hold. While ensuring market stability, these limitations suggest that house prices are unlikely to rise sharply in 2024 and are more likely to drift slightly downwards by 1% and 3%.

For homeowners and prospective buyers in Southampton, there's an opportunity to plan and navigate your property decisions with a long-term perspective.

As the housing market navigates through fluctuating mortgage rates, there's cautious optimism that a slight ease in these rates might boost buyer confidence. This shift could encourage more individuals to proceed with buying homes.

Those ready to ascend the property ladder may leverage the buyers' market depending on the type and location of their second or third home in Southampton, presenting offers lower than the asking price in hopes of securing a deal.

Additionally, those looking to relocate would welcome any dips in fixed-rate mortgages. A significant decrease in two-year rates has already been observed, potentially enticing a segment of buyers to re-enter the market.

Buy-to-let Southampton landlords are facing a mixed scenario.

While they may be experiencing notable increases in rental income, the financial pressure from elevated interest rates, insurance costs, and taxation is real. There's plenty of speculation in the press that these factors may lead to a reduction in the number of rental properties as landlords potentially exit the market, which could further impact the availability of rental stock. However, as the number of British landlords selling up has increased by 55% (over the last couple of years) and the number of landlords buying has only decreased by 22% (again in the previous two years), the net numbers of British buy-to-let properties are still very marginally growing!

Final thoughts to Southampton homeowners.

To all Southampton homeowners considering a move in 2024, I encourage you to view this period as an opportune time to evaluate your options. With a comprehensive understanding of the local and national property landscape, I am committed to guiding you through every step of your property journey.

Whether you want to buy or sell or want to discuss your options, I invite you to connect with me. There's no cost or obligation – just a straightforward conversation to help you make informed decisions in a changing market. Let's navigate your future move in the Southampton property market together!

2024, a New Year – Maybe a new Southampton Home?

As we settle into the first few weeks of 2024, you may contemplate moving home. Whether it’s a quest for more bedrooms or reception rooms, a desire for a larger garden, a view, a move closer to the countryside, or downsizing, the New Year symbolises new beginnings.

In navigating this journey, selecting the right Southampton estate agent becomes crucial to help you move.

Begin by consulting those closest to you. Recommendations from friends and family can provide valuable insights, particularly regarding estate agents in Southampton. Their experiences can highlight agents who are communicative, knowledgeable, and efficient, essential qualities in securing a property that meets or exceeds your price expectations.

Next, turn to the wealth of information available online. Reviews on platforms like Facebook and Google offer a window into the experiences of others with various Southampton estate agents. However, approach these reviews with a balanced perspective, recognising that not all feedback may be entirely objective.

Your research should extend to the agents' websites. Compare their services, fees, and property marketing strategies. Assess their engagement with the Southampton community through social media interactions, demonstrating their local area expertise.

Equally important is understanding the different operational models of estate agents in Southampton – from high street offices to internet based and hybrid models. Each comes with its benefits and drawbacks, tailored to individual needs. Please pay close attention to their terms and conditions. How long is their sole agency agreement (this is particularly important)? Do they have any charges if you withdraw your property from them?

As you narrow down your choices, evaluate the agents' performance and ability to meet your specific requirements, whether the number of viewings, website views, proactive outreach to potential Southampton buyers, or achieving a timely offer.

Remember, the right agent should excel in selling properties like yours and possess in-depth knowledge of the Southampton area, ensuring accurate valuations and effective communication with prospective buyers.

Finally, trust your instincts. The right agent for your Southampton property will often resonate with you beyond just the facts and figures.

For personalised, no-obligation advice on selling your home in Southampton, our expert property team at Belvoir Southampton is ready to assist.

Cautious Optimism in the Southampton Property Market

 

As the British and Southampton property market navigates the ongoing economic turmoil, many Southampton homeowners and landlords may feel uncertain about the future.

However, up-to-date data suggests that the 2023 property crash predicted by the many newspapers and the usual clickbait doom-mongers in the lead-up to Christmas on social media, may not be as bad as initially thought, and there are reasons to be cautiously optimistic.

According to property website Rightmove, the average asking price of a home for sale in the UK rose by just £14 in February.

While this might sound like cause for concern, asking prices remaining flat rather than falling could be seen as a positive sign for the year ahead. Remember that they are only what people are asking (and not necessarily achieving).

So, what exactly is happening in the Southampton property market?

Well, it all starts with realistic pricing.

 

Thankfully, most Southampton sellers are heeding their estate agents' advice and being more realistic on price, helping maintain market stability.

If you are realistic with pricing, the property should sell.

The time it takes to get a property to sale agreed upon has increased nationally from 21 days in the summer of 2022 to around 50 days in Q1 2023.

Additionally, despite the turbulent economic conditions, buyer demand is rising. Rightmove also reported in the national press that the number of people contacting estate agents has increased by 11% in the last two weeks compared to the same period in 2019.

The number of sales agreed upon has also rebounded.

 

Nationally, from 1^st January to the 19^th February 2023,

134,886 properties had been sold subject to contract in the UK.

Not a good figure when I compare it with the same year-to-date sale agreed figures from the last couple of years.

2022 - 173,607 properties sold stc

2021 - 193,607 properties sold stc

But the last couple of years have been extraordinary for the UK property market and should be taken with a pinch of salt in some respect. We must compare 2023 with more normal years, like 2017/18/19/20. This tells a different story.

2020 - 151,694 properties sold stc

2019 - 143,504 properties sold stc

2018 - 138,665 properties sold stc

2017 - 134,503 properties sold stc

 

The picture looks similar when we look closer to home in Southampton.

In Southampton (SO14 to SO19), in the first seven weeks up to the 19^th February 2022, 688 properties sold subject to contract.

This year, from the exact 1^st January to the 19^th February timeline, 557 properties have sold stc, which is lower, yet in the same ballpark as 2017, 2018 and 2019.

Yet it is all terrific selling a house (subject to contract); it is still only sold subject to contract, meaning the sale could fall through (as it is not legally binding).

As an agent who likes to delve deeper into statistics, I considered the 'net property sales'. (Net Property Sales being the gross number of properties sold that week less the sale fall throughs in the same week).

In the three months leading up to the Mini-Budget in September 2022, there was an average of 17,801 ‘net property sales’ per week in the UK. That dropped by 34.7% two months after the Autumn Mini-Budget to an average of 11,624 ‘net property sales’ per week in the UK.

 

In the last five weeks, that has rebounded to 17,050

‘net property sales’ per week.

 

And when you consider the average for the same five weeks in 2017/18/19 was 18,330 'net property sales' per week, we are close to what many considered a normal market.

Improving market conditions has been supported by a reduction in average mortgage rates. Homebuyers taking out a five-year fixed-rate mortgage with a 15% deposit can expect a rate of 4.39% (correct at the time of writing with HSBC), down from an average of 6.1% in early October. This reduction in mortgage rates may have contributed to the recent increase in buyer demand.

 

These positive signs in the market have led some experts to suggest that a ‘softer landing’ for the UK property market than initially expected could be on the horizon.

The combination of sellers being more realistic on price and an improving picture of the number of agreed-upon sales suggests a more positive outlook for the property market.

I advise Southampton homeowners coming to market in the upcoming spring season to use their agent's expertise and get the price right the first time to find the right buyer more quickly. If you do wish to chance a higher asking price, only do so for no more than two weeks. If you haven't sold by then, take the agent's advice and realign your asking price.

 

428 Southampton homeowners have realigned their

asking prices since 1^st January 2023.

 

While it's true that some first-time buyers may still be priced out of their original plans and may need to look for a cheaper property, save a bigger deposit, or factor higher monthly mortgage repayments into their budgets, there is still cause for optimism.

There is still a considerable demand for buying property in Southampton - renting is becoming increasingly unattractive for many people as rents are increasing by double digits percentages.

It is important to remember that purchasing a property always involves a trade-off between what one desires and what is affordable, regardless of the market conditions. For example, while a four-bed detached house may be out of reach, a larger and older three-bed semi-detached property may be a more realistic option (and probably have similar square footage).

 

Southampton landlords looking to invest in buy-to-let homes – now may be a good time, as rising rents could offer attractive returns.

 

Of the 1,134 properties let in Southampton since the 1^st January 2023, the average rent achieved has been £1,174 per month. This is a significant drop in the number of properties let in the same first seven weeks of the years of 2017/18/19 and a massive increase in rents.

Finally, the newspapers will be full of news about house price drops in the coming months. All the indexes report house sales where the sale agreed price was offered nine to eleven months ago and completed (i.e., monies and keys handed over) three or four months ago. This peculiar time lag means the house price data is nearly a year old before publication.

So, if you decide to buy a home on that information, you are using old property data. In late 2021/early 2022, there were 30+ viewings per property, and people paid way over the asking price to secure a property. Now there is more 'normality' in the Southampton housing market; today's prices are also more normal (at or slightly below the realistic asking price). So yes, the house price indexes will show a reduction in house prices. The newspapers will say house prices are crashing, yet when it is explained I have above ... whilst it is not a newspaper clickbait title - it is the truth and it’s more of a return to more 'normal house prices'.

 

So, prepare for clickbait newspaper headlines of a house price crash (because ‘bad news sells newspapers’ as the saying goes).

 

Also, prepare for the doom-mongers to quote the bad news of the earnings-to-house prices ratio at one of its highest levels ever.

Earnings-to-house price ratios are a poor measurement of health in the UK property market. Instead, I believe Nationwide's measure of first-time buyer mortgage payments as a percentage of take-home pay is better (as it is actual pound notes out of actual pay packets).

The Nationwide measure of first-time buyer mortgage payments as a percentage of take-home pay has grown for first-time buyers from 30.4% in Q4 2021 to 39.4% in Q4 2022 … a massive rise! Yet mortgage interest rates have dropped since then (so that percentage will fall). Also, to give some context, let us not forget that percentage in 1989 was 48.4%.

Ultimately, Southampton homeowners and landlords should decide, based on their unique circumstances, rather than being swayed by newspaper headlines or general market trends. Anyone uncertain about the property market's future should contact me for my opinion, advice and guidance.

50% of Southampton house sellers in 2022 had only been in their old home on average 4 years and 33 weeks

 

The share of Brits moving each year has been declining since the late 1980s (when at one stage, people moved every eight years), yet since the pandemic's beginning, something has appeared to upset that trend.

Newspaper stories and social media posts painted a picture of homeowners moving from the city centres to its suburbs, from the suburbs to the towns and countryside around the UK. Areas like the Cotswolds and coastal towns around the country got swamped by the 'race for space', significantly affecting housing markets (including Southampton).

But how many Brits moved? And how long had they been in their homes before they moved?

In Great Britain, there are 28.3 million households, of which 19.3 million are owner-occupied and 4.43m owned by private buy-to-let landlords.

 

There is £7,035 trillion of residential property in private hands.

Eight years before the initial lockdown in 2020, an average of 79,646 properties were sold each month in the UK, meaning just under a million UK households move home annually.

 

Therefore, in those 8 years, the average British homeowner moved every 20 years and 4 months.

So, what uplift was there in people moving home after the first lockdown in 2020?

In 2021 and early 2022, an average of 102,021 people moved home monthly, taking the average move time to once every 16 years. So even though there was an uplift in people moving home, it was nothing like the 1980s.

It shows that in the 21^st Century, once you have succeeded in buying a property you can call home, there isn't much enthusiasm to move again.

 

What is happening in the Southampton property market now?

We love our homes in Southampton, but most of us (including myself) still want to 'better our lives' with a larger house, better area etc., which typically requires us to climb up the Southampton property ladder.

 

Yet, with Southampton house prices having risen by 378.1% in the last 25 years, the cost of going up the next rung on the Southampton property ladder has become prohibitive.

Everyone remembers back to the 1980s, when we had an upbeat booming property market as a backdrop, and British homeowners moved home every eight years; so now, with the average move time in the mid to late teens (in years), this equates to each homeowner only moving around three to four times in their adult lifetime.

Or could it be something else?

 

We all know the phrase, “lies, damn lies and statistics".

The home moving statistics above hide some great details about the British property market.

When British homeowners get into their 50s, 60s and beyond, their inclination to move home drops like the proverbial stone.

The average time a homeowner without a mortgage moves home is 24 years and 27 weeks (and just over 7 out of 10 outright homeowners, i.e. without a mortgage, are 65 or older). 

Homeowners with a mortgage tend to be younger to middle-aged.

 

Homeowners with a mortgage move on average every 10 years and 11 weeks.

So, whilst I cannot determine which house seller has a mortgage and which doesn't, I can look at how quickly people move home in Southampton. 

Therefore, I have taken a look at the last 50 property sales in Southampton and found some interesting results.

 

The average Southampton homeowner had only been in their home on average 12 years and 9 weeks before they sold.

 

Yet the devil is in the detail.

There appears to be a two-speed Southampton property market …

 

50% of Southampton house sellers in 2022 had only been in their old home on average 4 years and 33 weeks.

 

Then, let's split the findings into quarters.

·      

When looking at the properties that fall into the slower time bands (i.e., the ones that don’t move/sell so often), they tend to be the larger properties where the homeowners have lived often for 30 or 40 years.

Maybe, the one lesson from these statistics is that once homeowners get into their 60’s and 70’s, their tendency and inclination to move home declines significantly.

This means the homes on the lower rungs of the Southampton property ladder are selling quickly (as younger aged homeowners occupy them) ... yet once Southampton people tend to get older, their tendency to move diminishes.

This obstructs the younger generation of Southampton homeowners from wanting to buy the bigger Southampton properties these mature Southampton homeowners live in.

What is holding the older generation back from selling and downsizing to free up family homes for families that desperately need them? Some will be apathy, and some will be wanting to hold on to the homes they brought their families up in, yet the bottom line is …

 

as a country, we must reconsider how we can encourage (not force) older homeowners to sell their large homes to release them to the younger families that desperately need them.

Some recent articles I have written suggested tax breaks, yet the government doesn't have the money to give massive tax breaks.

One thing I do know we, as a country, have seen (and will continue to see) a lot of demographic change together with an increasingly ageing population, so it’s not just about how many households we build but whether we are constructing the right kind of homes for the older generation?

Thought-provoking times are ahead for the Southampton property market!

If you have a Southampton property to sell in the coming months or years and want to know how this and other factors will affect you and your property ... without obligation, don't hesitate to call me.

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.