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.

 

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?

The Future of the Southampton Buy-To-Let Market in 2022

 

The Headlines...

•    Southampton rents up by 3.4% in the last 12 months
•   Southampton house Prices up 5.1% in the last 12 months
•   Southampton landlords helped by ultra-low mortgage rates and a stamp duty holiday 
•   Yet, some landlords in Southampton anxious about a possible end to no fault evictions
•   New EPC rules could cost Southampton landlords £10,000+ per property 

In this article, I will look at what happened in 2021 in the Southampton buy-to-let property market and give you my opinion as to what lies ahead for Southampton landlords in 2022 and beyond.

On a positive note, Southampton house prices have increased, rents have risen faster than inflation, at the start of the year we had the benefit of a stamp duty holiday and finally, ultra-low mortgage rates, meaning Southampton landlords had lots to be happy about in 2021.  

On a more cautious note, the laws regarding renting are currently being debated in Parliament which will see the end of no-fault tenant evictions and changes in regulations will require Southampton landlords to make their buy-to-let rental properties more eco-friendly at a cost of up to £10,000+ each.

So, let’s have a look at these points…

 

Southampton Rents will Continue to Rise in 2022

Southampton buy-to-let landlords have seen the average rent of a Southampton rental property rise by 3.4% in the last 12 months.  

The number of Southampton properties available to rent on the property portals (e.g. Rightmove etc) at any one time is roughly 35% to 40% below the last decade’s average, meaning there is greater competition for each rental property.

Demand has increased for several reasons.

Firstly, some homeowners cashed in on the high prices, sold up and moved into rented property.

Secondly, some Southampton buy-to-let landlords have also cashed in on the buoyant property market and sold their rental property when their existing tenant handed in their notice.

Finally, the rental sector has an inverse relationship to the state of the general British economy, meaning with the uncertainty in the British economy in the early part of 2021, this meant more people decided to rent rather than tie themselves into a mortgage.

Looking at the supply side of the Southampton rental market, in the short term, rents will continue to grow as some Southampton landlords are abandoning the rental market - some because of the impending regulation changes which I will talk about later and others with the natural flow of people cashing in their investments on retirement.

With increased demand and restricted supply, this will only lead to competition becoming more severe between renters, thus ensuring Southampton rents continue to rise.

 

Southampton House Price Growth Will Slow

For those that own property, the way house prices grew in 2021 surprised most people.

Southampton house prices, according to the Land Registry, grew by 5.1% in 2021, with the typical Southampton home reaching £325,800.

Many local landlords have been helped by this increase in Southampton house prices and will be in a place to cash in on those capital gains by either selling their buy-to-let property (as mentioned in the previous section) or releasing some equity by re-mortgaging.

Whether Southampton house price rises carry on at such a rate in 2022 will mainly depend on whether the imbalance between the number of properties that come on to the market is outweighed by the number of buyers – it’s simple supply and demand!

Most commentators believe that nationally house prices will be between 3% and 5% higher by the end of 2022 and I can see no reason why Southampton house prices won’t be in that range by the end of the year either.

 

Mortgage Rates Will Rise

The reduction in tax relief for Southampton buy-to-let landlords with mortgages in the last five years hit some landlords hard, yet this has been tempered by the inexpensive ultra-low mortgages available to buy-to-let landlords.

Yet even with the Bank of England increase in base rates, Southampton landlords with big deposits of 40% or more can benefit from low rates. For example, at the time of writing, you can get a BTL mortgage at 1.49% fixed for 5 years with a 40% deposit (meaning borrowing £180,000 on a £300,000 purchase would only cost you £719 per month on a 25-year mortgage - or £224 per month on interest only).

However, those with only a 25% deposit must pay slightly more, but only at a mortgage rate of 1.64% - who can remember mortgage rates of 14% to 15% in 1992?

With inflation rising, the Bank of England has already indicated further interest rate rises are on the cards. I suspect they will be around the 1% mark by Christmas 2022. Therefore, if you are one of the one in five landlords on a variable rate mortgage, your margins will be squeezed as your variable rate mortgage will rise in line with the Bank of England interest rate rise.

Maybe it’s time to consider fixing your mortgage?

 

The End of No-fault Evictions?

The Renters' Reform Bill in England and The Renting Homes Act in Wales are both set to abolish Section 21 (no fault eviction). Section 21 laws allow landlords to take back possession of their rental properties without having to prove fault by the tenant.

Yet in 2022, Westminster will issue plans for a change of this law which will probably incorporate the eradication of Section 21, which would signify a major change in the balance of power between the landlord and tenant. 

Some doom mongers are worried that with the abolition of Section 21, Southampton landlords may be unenthusiastic about renting and therefore sell up and leave the rental sector altogether. Yet those people said the same when tax relief for landlords was changed five years ago.

The Scottish equivalent of Section 21 was abolished at the end of 2017.

At the time, there was some anxiety about how this would affect the Scottish rental market, as anxious landlords and letting agents felt that they could lose control of their rental properties under this new law. Nonetheless, just over four years later, the rental sector has not collapsed in Scotland. The buy-to-let market remains upbeat, and there are signs that a Scottish landlords’ right to evict their tenant has been reinforced by these changes in the law.

The reason the Scottish changes worked was the new grounds for repossessing rental properties was clear and wide-ranging. The Scots sped up the slow and unwieldy eviction process where the landlord had a legal and genuine reason to re-claim their property.

All I hope for is that the same changes are made south of the border to the court procedure.

 

New EPC Rules Could Cost Southampton Landlords £10,000+ per Property 

The law currently stands that Southampton landlords need an Energy Performance Certificate (EPC) with at least a rating of E.

Westminster is anticipated to increase the EPC requirement for private rental properties in England and Wales to an EPC rating of C for all new rental tenancies by 2025/6, and for all existing tenancies by 2028, whilst Scottish landlords are also expected to see energy efficiency measures in their new proposed Housing Bill.

The problem is 1,959,045 of the 2,965,455 registered rental properties on the EPC database have an energy rating of D or below. 

To take a property from an EPC D rating to a C rating might only cost a few hundred pounds, yet the average for all rental D and E rated properties has been calculated at just over £10,000 per property.

My advice to every Southampton landlord is to look at the full EPC report of their rental property (and if you haven’t got it, contact me and I will send it to you -whether you are a client or not) as that will tell you whether this will be a big or small job.

Renovating the UK’s rental stock to meet the Government's carbon neutral targets will be a big task for landlords. There is talk of exemptions, as there currently is for the existing minimum EPC E rating - yet only time will tell on that front.

Maybe those Southampton landlords currently buying properties to add to their rental portfolio should reconsider their buying strategy? In the past, it has been normal for Southampton buy-to-let investors to be attracted to the inexpensive older properties that need an overhaul. However, with the potential energy efficiency laws coming into the game, it's rational to suggest that buy-to-let landlords will be more predisposed to buying slightly newer properties rather than have the cost for the upgrades to meet the potential energy targets.

 

Conclusion

Roll the clock back 20 years and making money from buy-to-let in Southampton was as easy as falling off a log. Yet with increased legislation and regulation, together with the changing dynamics of the British economy and the requirements tenants want in a rental property, making money won’t be as easy over the next 20 years.

It amazes me that 11 out of 20 landlords still do not use a letting agent to help them with their rental portfolio, considering the cost can be offset against your tax and more importantly the liability to you if you get it wrong is massive (there are very large fines and even prison! If you don’t comply with the 170 pieces of legislation and regulations).

Moving forward, the savvy Southampton landlords will more and more utilise their letting agent not only to collect the rent and manage the property but also build up their portfolio to withstand the regulatory and demographic changes on the horizon and to ensure that their investment is fit for purpose in the medium to long-term.

If your existing letting agent does not offer such advice, or you are a self-managing landlord, let’s have a chat about future of the Southampton rental market.

Whether you are a client of mine or not, if you would like me to look at your rental portfolio and see where you stand, then drop me a line and maybe we can meet for a coffee (or we can meet virtually over Zoom) to discuss the matter – all at no charge.