Landlords, Get The Best From Your Letting Agent By Following These Simple Steps

 If you’re a landlord looking to save time and money (and let’s face it, who isn’t?), a good letting agent can be a game-changer.

They’ll manage your rental property day to day (so you’re free to focus on your other responsibilities), regularly check in with your tenants (to ensure there are no issues) and remind you of your legal obligations.

A top letting agent can also look ahead and, drawing on their industry experience, advise you on your long-term investment strategy.

But, as with all business relationships, communication is key. When there is clarity and mutual understanding, things run more smoothly, and you make better decisions.

So, how can landlords build a strong and successful business relationship with their letting agent?

Here are some tips.

Before you sign up for services, read your agency agreement and be clear about what you’re getting. If there’s anything you’re unsure of, speak up so you start out on the right footing.

Discuss the level of contact you would like with your agent and how involved you want to be with decision-making. For example, some landlords are happy for agents to instruct work on their behalf, while others want to be more involved. 

If you’re given advice that you don’t understand, ask questions. A letting agent will always try to act in the best interests of the landlord and the tenant (remember, happy tenants stay longer). They also understand the law and will make recommendations based on your legal obligations.

Outline your long-term strategy so that your agent can best advise you about issues such as redecoration and refurbishments.

If there have been any past maintenance issues or problems with neighbours, be clear so the agent can be on the lookout for potential problems.

Remember, letting agents are professionals. Don’t expect them to act unreasonably on your behalf. 

Discuss the history of the property. For example, if it’s the home you grew up in and you have a strong personal attachment to it, let the agent know. 

For more information about our property management services, contact us here at 023 8001 8222.

Top Renovation Tips For Southampton Landlords

Planning to renovate your rental? There’s one thing you should know before you start pulling up carpets or ripping out cabinets.

It will help you avoid a costly and avoidable mistake that many landlords make, and it’s this.

Don’t let your emotions cloud your decision-making.

It sounds simple, but you’d be surprised how many landlords lose sight of the fact that they’re supposed to be making business decisions. As a result, they do one or more of these things:

• Spend more than they need to.
• Spend cash in the wrong areas.
• Wind up with a longer void period than necessary.
• Do a sub-standard job that requires repairs.
• Put off doing much-needed work.
• Here are some tips to help you stay on track.

Identify your market – Don’t decorate to your personal tastes. Consider who will most likely rent your property – students, families or professionals – and renovate to suit this demographic. A bespoke kitchen might be justified if you’re targeting wealthy professionals, but not if you’re renting to students.

Neutral tones – If you’re yearning to make a bold interior design statement, do it in your own home, not your rental. Prospective tenants may not share your tastes and could be put off by your aesthetic choices.

Go beyond the cosmetic – Do the locks need fixing? Are the fences wobbly? Does the boiler need replacing? It can be tempting to blow your budget on sexy, eye-catching features, but don’t overlook the basics.

Family matters –If you have a strong emotional attachment to the property (perhaps it was your former family home), don’t let sentiment misguide you. You must separate any nostalgic feelings from your duties as a landlord.

Be practical – A rental will always be subject to wear and tear, so opt for durable products and steer clear of light wall colours and flooring that will get mucky quickly.

Be realistic – Not even the best tenants in the world will treat the property exactly as you would, so look for low-maintenance solutions. This is particularly relevant if you have outdoor space, as garden maintenance is a common cause of disputes.

Avoid false economies – While some landlords go overboard and spend too much, others don’t spend enough. For example, tiles are easy to clean and don’t attract mould, so it can make sense to tile the entire bathroom to prevent issues from arising.

Don’t be a DIY hero – Instead of paying a tradesperson to do work, some landlords consider it a personal challenge to do as much as they can themselves. This means work can take longer than necessary or it isn’t done to a professional standard.

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.

Southampton Property Market Holding up Despite Doom and Gloom in the Newspapers

The Southampton housing market over the last three months is now becoming more ‘normal’ after the last couple of years of insane demand when the lockdowns started a race for space!

Even with the blackening economic doom-mongers forecasting a harsh slowdown in the British property market, the number of people buying and selling their homes is still very good for the time of year.

Whilst many homeowners are reducing their asking prices, it is not the 20% (some even said 30%) drop some property commentators and newspaper journalists had predicted.

Looking at the stats for Southampton for the last three months since the disastrous Truss mini budget – they make good reading.

Of the 943 Southampton properties that have sold (stc) since late September, the average length of time it took to achieve a sale was 42 days.

Interesting when you split it down by price, in Southampton:

·        Under £100k – 102 days

·        £100k to £200k – 54 days

·        £200k to £300k – 34 days

·        £300k to £400k – 41 days

·        £400k to £500k – 44 days

·        £500k to £1m – 55 days

·        £1m and above – 98 days

And by type:

·        Southampton Apartment/Flat – 54 days

·        Southampton Terraced/Townhouse – 34 days

·        Southampton Semi-Detached – 35 days

·        Southampton Detached – 45 days

 

The latest sold price data from the Land Registry shows that Southampton house prices currently remain 11.4% higher than they were 12 months ago; the rate of growth has dropped significantly.

Last month, Southampton house prices only rose by 1.2%; thus we are seeing the first sign that the property market is starting to cool.

With interest rates at 3.5% and further increases likely in 2023, that will undoubtedly spur ongoing cooling in Southampton property values yet it’s doubtful we will see the Southampton property market go into the deep freeze that many doom-mongers were predicting.

As I said in recent articles on the Southampton property market, we will see a 5% to 10% reduction in Southampton house prices over the next 12 to 18 months.

That will only take us back to the prices achieved in mid/late 2021 or early 2022 (depending on the property type).

Landlords have experienced double-digit rent growth in the last 12/18 months with a shortage of rental properties coming onto the market. I cannot see this changing in the short term, so I expect rents to be a further 10% higher by Christmas 2023.

Last week I stated it is not always wise to only focus on house prices but also take reference from the number of property transactions completed that feeds the fire of the British property market.

 

For example, in March 2021, 135,670 properties sold, yet a month later, it dropped to 87,600. A couple of months later, it rose again in June 2021 to 165,290 homes sold (for it to drop to 64,000 in July).

Whilst this is good news for estate agents and removals companies, it can skew the property market and put undue pressure on the property market (pressure which could cause a housing crash if not put under check).

Like most things, slow, steady and consistent is the preferred option for the property market. Throughout 2022, the number of properties selling in the UK has been a steady average of 68,832 per month, ranging from a low of 61,800 in January 2022 to 72,200 in July 2022.

 

This consistency will continue into 2023 and a return to a more 'normal' housing market.

One final thing I have noticed about the Southampton property market in the last six months is the number of larger properties coming onto the market that last sold over 25 years ago.

Homeowners in their 20s, 30s and early 40s tend to move every five or six years, yet when they reach their late 40s and 50s, they tend to stay put for longer. These properties only tend to come on the market when people pass away or must be sold for nursing home fees.

These mature homeowners are downsizing for several reasons. Their children have flown the nest and they are rattling around in homes with accommodation they don’t need. Many are being driven to sell their large homes in light of mounting energy bills, high inflation and never-ending maintenance costs that larger properties demand.

The second reason is that the recent rises in Southampton house prices has meant the money released to downsize has grown, meaning if these mature homeowners sell up and cash in to more manageable properties, the amount of money released is quite impressive.

In conclusion, 2023 is going to be a more 'normal' year, akin to the 2016 to 2019 years. Southampton homeowners need to be realistic with their pricing, yet as over eight out of ten sellers buy another home, the one you buy will be lower.

If you are considering selling your Southampton home in 2023 and would like a chat about your options, feel free to drop me a line or call the office.

55% more Southampton homes are on the market today than a year ago

 

More Southampton homes are now coming up for sale.

This is excellent news for Southampton homebuyers and Southampton landlords because as properties are no longer flying off the shelf as they did last year, the number of properties available to buy is beginning to return to long-term averages.

This means there is greater choice for Southampton buyers and this will reduce the pressure on Southampton house prices and return us to a more normal Southampton housing market for buyers (and sellers).

 

The average UK estate agency now has 25 homes for sale, the highest level of properties on the market since December 2021

(when it was 21 homes for sale). 

 

However, properties per estate agency brand is not the best judge of the property market.

Let’s look at the actual Southampton stats, which tell a slightly different story.

·         Southampton Detached Homes – Dec 2021, 122 available and today, 286 available – a rise of 134%

·         Southampton Semi-Detached Homes – Dec 2021, 124 available and today, 293 available – a rise of 136%

·         Southampton Terraced/Town Houses – Dec 2021, 67 available and today, 164 available – a rise of 145%

·         Southampton Apartments – Dec 2021, 554 available and today, 637 available – a rise of 15%

 

Overall, an increase of 55% - year on year.

(The data for Southampton is calculated by looking at all properties and plots for sale within a 4-mile radius of the centre of Southampton).

This growth in properties for sale has been seen across all areas of the British Isles. This is important because when there is a more significant availability of homes for sale, this diminishes the increasing pressure on house prices.

So how does a low number of properties for sale make such a huge difference?

Coming into the early spring of 2022, the levels of properties for sale were low (as seen from the low December 2021 stats above). It was ‘Hobson's choice’ for buyers, so they had to pay top dollar to secure their Southampton home.

 

The value of Southampton properties that had gone sale agreed in the early spring of 2022 (and completed their sale in September 2022) is 10.9% higher than those Southampton properties that had gone sale agreed in the spring of 2021.

 

The number of properties estate agents have to offer buyers is increasing; this will boost the choice for Southampton buyers, meaning we will move into a more balanced Southampton housing market. 

Nevertheless, it's vital that Southampton sellers place their properties, when they go onto the market, in line with what Southampton homebuyers are prepared to pay, given the current hit to their buying power initiated by higher interest rates.

 

Southampton house prices are not expected to crash in 2023,

however they will be lower than in 2022.

If you are buying and selling in the same property market, it doesn't matter what happens to property prices.

Also, some might say waiting for Southampton house prices to drop will enable them to grab a bargain.

Well, sorry to 'rain on your parade’, but you should read my recent article that discusses what would happen if Southampton first-time buyers waited for Southampton house prices to drop. If they waited, because interest rates are rising, the extra mortgage payments would cost them a lot more than the savings made on the purchase price. (Send me a message if you want a copy of it).

What has an effect on the value of your Southampton home is the number of properties for sale at any one time compared to the number of buyers. When there is an over-supply of homes for sale, prices go down, and with reduced demand, house prices will go down. So how do the stock levels of properties for sale compare to the past?

If you recall at the start of the article, I stated the average UK estate agency had 25 properties on their books now. In 2018/9, that average was 36 properties for sale (and for added comparison, the long-term average, since records began in 2016, is 49 homes for sale).

As you can see, whilst stock levels have grown, we are a long way off the long-term average.

A great way to determine what will happen to the property market is by measuring that stock level (i.e. the number of properties for sale). Check once a month and see how many properties are for sale. Let me break that down for Southampton specifically and how you can judge the market from your sofa.

 

There are 1,441 properties and plots for sale in Southampton now. To give context, the long-term 16-year average is 1,897 properties and plots for sale, yet in the credit crunch of 2008, it reached 4,462 properties and plots for sale at one point.

I envisage some component of scarcity to persist in the Southampton property market, meaning whilst the house prices that were being achieved in the spring of 2022 won't be replicated in 2023, it also won't fall dramatically next year. 

The incentives and impetuses to move home have changed in the last six months and will continue to do so into 2023. 

As I have written before, there are a larger number of mature homeowners in their 60s and 70s downsizing to help with heating bills, whilst the desire for more space means younger families will continue to look for new homes to live in, in 2023. 

If younger 20-somethings can access the Bank of Mum and Dad for mortgage deposits, they will also carry on buying. This is especially true because double-digit rental inflation makes renting quite expensive compared to buying (even with the increased interest rates).

These are my thoughts on the Southampton property market this week. Do put in the comments (or send me a message) your thoughts on the matter discussed and any other property-related topic you want some advice and opinion on.

 

Thank you in advance ...

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?

Has the Southampton Property Market Peaked?

Should you buy now or wait for the bargains?

• Many commentators believe we have seen the peak of the Southampton property market.

• So, should savvy bargain hunters wait for Southampton house prices to fall?

• Or could postponing your house buying for any anticipated Southampton house price drop be a costly mistake?

Over the last two years, the Southampton property market has been a rollercoaster ride of hyperactive demand together with the new sport of getting your offer accepted when you compete with 30 other bidders.

 Yet there are clouds on the horizon that the Southampton property market could be at its peak.

Bank of England interest rates have increased four times in the last few months to try and combat inflation. Meanwhile many Southampton households are finding it tough to counter the most significant drop in real incomes in a single year since records began in the mid-1950s, all at the same time as gas, heating oil and electricity prices are predicted to rise again in the autumn.

Hence why some economists are predicting house price drops in the coming 18 to 24 months of 3% to 5%.

So, surely this is not the best time to buy a Southampton property – and surely savvy buyers should wait for Southampton house values to fall?

Is it realistic to see continued double-digit national house price growth? Certainly not.

The question is how far the Southampton property market will slow and whether the slowing will drop into modest falls.

Let me look at household income first.

At best, the outlook is gloomy as real household disposable income is set to drop by 2.4% in 2022/23, the largest drop since records began in 1956. This is despite the £17.6 billion of financial support for British households revealed in Rishi Sunak’s Spring 2022 Statement with the National Insurance thresholds, energy bill support package and duty cut on petrol. Without these changes announced by the Chancellor, real household disposable income would have fallen by an additional 1% in 2022/23.

Second, as interest rates increase, mortgage rates will increase in line, increasing mortgage costs, so surely that will curtail demand, meaning Southampton house prices will drop, and buyers should wait to catch a bargain?

Finally, with inflation on the rise, the real value of people’s savings will decrease quicker, and the value of their deposits will diminish, meaning Southampton prices will surely drop, and people should wait to buy?

 

Surely the Southampton property market has peaked and

buyers should wait for the bargains?

Well, I don't think so, and these are my reasons why.

I believe, subject to no significant shocks in the world economy, Southampton house price growth will be very slow in the next 18/24 months and go into low single digits (even the odd month dipping ever so slightly into the red), but not the 16% to 19% annual drop we saw in 2008/9.

 

Let me look at real household income. Every economist predicts growth in real household income in 2023/24 by around 1%.

If the two years are combined, the predicted effect on real household income in the next two years is a net loss of 1.4%, whilst in the credit crunch years 2010/11/12, the net loss was 2.7%.

I was looking at the increase in mortgage rates. 79% of owner-occupiers have fixed their mortgage costs and had their affordability stress-tested to Bank of England interest rates of 3% to 4% under the Mortgage Market Review rule changes in 2014. I believe the most significant impact of increasing interest rates will be at the point of taking on a new mortgage by first-time buyers (as opposed to servicing or the porting of an existing mortgage from one house to the next house).

The four successive Bank of England base rate rises, inflation and the rising cost of living are likely to bring more cautiousness over summer and autumn when it comes to people buying a property. Yet, there is still a massive imbalance of demand for property over the number of properties for sale to quench that demand.

The potency of the job market and the ongoing mismatch between the supply of properties (mentioned in last week’s article on the Southampton property market) on the market and demand for those properties will support property values.

Finally, the by-product of increasing inflation is that it makes buy-to-let more attractive. If there is a reduction in first-time buyers, this will be counterweighted by more landlords buying again, supporting the current level of Southampton properties.

 

But what if Southampton house prices do drop significantly?

So let’s assume that Southampton house prices do fall, irrespective of the reasons above, it will not inevitably help Southampton buyers.

If we have a house price crash, people tend to find their careers are at risk, and their salaries don’t rise as much. The younger generation (i.e. first-time buyers age range) often gets hit the toughest by recessions.

If first-time buyers wait until 2024 to buy and Southampton property values drop by 10%, that will prove more expensive.

In the last 2008/09 crash, lenders weren't offering 5% deposit mortgages. The lowest deposit mortgage that first-time buyers could get was with a 10% deposit and even then, they were hard to come by.

When writing this article, first-time buyers can obtain a 5% deposit mortgage for a fixed rate of 2.66% for five years.

 

The typical first-time buyer terraced house in Southampton

sells for £273,900.

 

So, if they were to buy now, on this mortgage deal, the first-time buyer would have to stump up a £13,695 deposit and their mortgage payments would be £952.68 per month.

Yet, let’s say property values in Southampton do drop by 10% in the next 18 months, the terraced house would now be worth £246,510, so a significant saving. Or is it?

Everyone believes interest rates will rise further, so let’s assume they go to 3% by the autumn of 2023. That means the mortgage rate for a 10% deposit mortgage will be in the early 5%’s, so let me assume 5.29% (because the banks tend to increase the gap between the base rate and the mortgage rate in recessions to allow for the extra risk).

The monthly mortgage payment on the 5.29% mortgage would be £1,161.06 per month, and you would need to double your deposit to £24,651.

So even if Southampton's house prices did drop by 10%, the first-time buyer would be £2,500 worse off a year in mortgage payments and would have to find double the deposit.

 

...and then there is the other cost of waiting.

You have two years’ worth of rent to pay. The average rent for a Southampton property is £1,167 per month.

If you waited a couple of years for Southampton house prices to drop by 10%, you would spend £28,008 in rent.

Choosing to buy a Southampton property makes even more economic sense if it is a long-term choice, as homeowners can ride out any house price drops.

Homeowners who plan to stay in a property can generally rely on getting their money back within six to ten years whilst not paying any rent.

Will Southampton prices go up, or will they go down?

Remember, George Osbourne said house prices would drop by 18% in May 2016 if we voted to leave the EU, whilst many economists said they would drop by 5% to 10% when Covid hit in March 2020.

And we all know what happened.

If you think you will be better off owning your own Southampton home rather than renting one, don't bother to wait for the suggested house price drop that may never happen.

These are my thoughts, what are yours? Let me know in the comments.