Should Southampton Landlords be worried about these new rental regulations?

 

Everyone should be doing their bit to help reduce the UK’s carbon footprint on the globe – yet the question is, is that burden being put too much on the shoulders of Southampton landlords with potential bills of £7,600+ in the next four years?

The background - the UK has obligated itself to a legally binding target to be carbon neutral by 2050. One of the biggest producers of greenhouse gasses is residential homes.

To hit that carbon-neutral target (as one-fifth of the UK's carbon output comes from residential property), every UK home will need to achieve a minimum grade of ‘C’ on their Energy Performance Certificate (EPC) by 2035. Each EPC has a rating between ‘A’ and ‘G’ - 'A' being the best energy rating and 'G' the worst – like an energy rating on a fridge or washing machine.

All UK rental properties are required to have an EPC. Yet, from April 2020, the Minimum Energy Efficiency Standards (MEES) regulations have required all private rental properties (including rental renewals) to have a minimum EPC rating of ‘E’ or above.

Yet new legislation being discussed by the Government’s Climate Change Committee has suggested that landlords should play their part and increase the energy efficiency of their private rented homes. Sounds fair until you dive into the details.

The Government is muting the idea that all new tenancies (i.e. when a new tenant moves in) in private rented properties should be at an EPC rating of 'C' or above by 2025 (and all existing tenancies by 2028). The issue is …

57.33% of all private rented properties in Southampton have an EPC rating of ‘D’ or below.

 

The problem is some Southampton landlords will find it very expensive, neigh impossible, to improve the energy efficiency of their Southampton rented properties, especially those Southampton landlords who hold older housing stock such as terraced properties built in the 1800s. These Victorian terraced houses never perform well on EPC ratings as they have solid walls. 

Now, of course, you can improve the EPC rating of a terraced house by improving roof insulation, boiler replacement, solar heating, and high-grade uPVC windows. Yet, with some terraced houses, there will come the point where you will be unable to get to the haloed 'C' rating without installing external or internal wall insulation, sometimes even floor insulation.

With wall insulation costing between £5k and £15k and floor insulation around £5k …

the bill to improve all Southampton’s private rented properties will be a minimum of £108,044,880.

 

But before I talk about what the options are for Southampton landlords, here’s the weird part of EPC’s. An EPC rating is calculated on the cost of running a property and not the carbon output or energy efficiency, despite its name.

My advice to Southampton landlords - although it’s correct to create a future strategy, all I can say at this point is 'more haste less speed'. These rule changes are only a discussion paper, and it remains open for consultation by any member of the British public until 30^th December 2021. That means the Government's strategies and tactics may change.

Given that 57% of private rented properties are below a ‘C’ EPC grade, it is hard to believe the Government could achieve this without making big cash grants available.

 For example, there is presently a cap of £3,500 for energy improvements that Southampton landlords have to spend to get it to the existing EPC ‘E’ target grade on private rented homes (i.e. if you have a privately rented home at an 'F' or 'G' EPC rating, you only need to spend a maximum of £3,500 as a landlord on improving your EPC rating and still being legal even if those £3,500 don't get you to the current 'E' rating minimum). So, if the current rules allow an exemption to the EPC renting rules, if a Southampton landlord can’t improve their Southampton property enough, conceivably, could this be extended?

So, what are Southampton landlord’s options?

One thing you could do is put your head in the sand and hope it all goes away!

Another thing some savvy Southampton landlords do (be they my client, clients of other letting agents in Southampton or even self-managing landlords) is to sit down and plan a strategy for their Southampton rental portfolio. I print off all the EPC’s of their rental portfolio, look at the recommendations, then discuss a plan to ensure they are covered whatever the Government decides to make the new EPC rules. Like all things in life, plan for the worse and hope for the best.

If your agent isn't offering that service, please drop me a line because I would hate for you to miss out on the advice and opinion that so many Southampton landlords have already had from me. The choice is yours.

 

 

 

Southampton House Prices - The Effect of Rising Inflation

 

House prices tend to rise with inflation, so with the UK annual inflation hitting 4.2% last week, that’s good news, isn’t it? Yes and no – let me explain what it means for Southampton homeowners.

The year-on-year cost of living rose by 4.2% in October, its highest rate in almost a decade. The jump in prices (inflation), pushed mainly by increasing fuel and energy costs, places further pressure on Southampton household budgets.

So, what will this rise in inflation mean to Southampton house prices?

Let me look at the downsides first. The first is the effect inflation has on the true spending power or value of your hard-earned money.

The mid-1970s to mid-1980s was a time of high inflation in the UK, so I think that is an excellent place to start.

 

The average house in Southampton in 1974 was worth £14,306,

and by 1984 it had risen to £44,664

 

So, Southampton property prices had risen by 212.2% in the decade 1974 to 1984. Good news for everyone, then?  Well, as always, the devil is in the detail.

 

Inflation over the same decade rose by 224.2%, meaning your Southampton house was worthless in real terms (i.e. spending power terms).

 

If that same Southampton home had gone up by the inflation rate seen between 1974 and 1984, the house would have been worth £46,387 in 1984

 

That doesn't sound a lot (the difference between £44,664 and £46,387), until you apply that difference to today’s prices; that's a loss of £12,322 in today’s money.

The second is the effect of interest rates.

When inflation rises, the usual weapon of choice to reduce inflation is to increase interest rates. Homebuyers tend not to borrow as much on their mortgage when borrowing money becomes more expensive due to higher interest rates.

When interest rates get high (they were over 15% in 1992) Southampton homebuyers may not even want to borrow any money at all (staying put in their existing home). This would mean fewer Southampton home buyers wanting to buy (decreased demand). However, at the same time, more Southampton houses would be coming onto the market (because existing Southampton homeowners would want to sell and downsize because they have high mortgage payments), meaning higher supply … low demand and high supply does drive house prices in a downward direction.

 

So, does that mean you should hold off buying a Southampton home?

 

Although Southampton house prices did not keep up fully with inflation in the late 1970s and early 1980s, they did a pretty good job (and much better than keeping money in a savings account). You must remember your house is not a pure investment, it's a place you and your family live in. It's a place you call home. So don't worry if it doesn't keep up with inflation in the medium term as your four walls offer a lot more than just a simple investment.

Ok, so let’s look at what does happen when inflation effects property.

When your Southampton house price rises because of inflation, it increases the value of your house, not by the cost/value of your deposit. So, if inflation increases the value of your Southampton home by, say half (50%), it may triple, quadruple, or even quintuple the value of your deposit/equity.

For example, if you buy a Southampton property for £500,000 with a £50,000 deposit and inflation increases the price/value by 50% to £750,000, that means your equity in the property quintuples from £50,000 to £300,000. It also means you go from (in this scenario) owning 10% equity (£50k of £500k) in your home to 40% after inflation (£300k of £750k).

Even better if you take out a fixed-rate mortgage because you would be making a fixed monthly mortgage payment that dropped in real spending power ‘inflation adjusted’ pounds over the time of the fixed rate. You might ask why? Well, you are paying less for the mortgage than you did when you took it out (i.e. inflation erodes the actual value of money, meaning your mortgage debt diminishes in real value terms in line with inflation).

So, holding off moving home could cost you a lot of money.

 

What does this all mean for existing Southampton homeowners?

 

It’s challenging to forecast with any certainty what will happen with UK inflation and interest rates. I believe we will see inflation hover between 3% and 5% in 2022, with it returning to more normal levels of around 2% in 2023 (although I am no economist!).

We know the Bank of England base rate is just 0.1%, meaning it’s unlikely to get any lower.  I have spoken about this in previous articles on the Southampton property market and said the money markets have already priced in an interest rate rise to 0.75% to 1% by the summer of 2022.

So, if you haven’t already, you need to seriously consider taking advantage of these low mortgage rates (can you believe 21% of Southampton homeowners aren’t on a fixed-rate mortgage). The bottom line is, irrespective of what is happening to inflation and Southampton house prices, being able to afford the monthly payments on your Southampton home is what counts for everyone.

Next, if you are worried about the spending power of the equity tied up in your Southampton home, you will have built up a decent buffer if you have been in your house, for example…

 

The average value of a Southampton house has risen by 17.5% in the last five years, yet inflation has only been 11.3%

This means the equity in ‘real spending power terms’ has increased by 6.2% in the last five years.

One final thought for any Southampton homeowners thinking of selling and not buying another home, inflation could eat into the real spending power terms of your equity in your Southampton home – so now might be the best time to sell your home to get maximum bang for your bucks. Then invest the money in other pure investments that consistently tend to beat inflation, such as gold, commodities, or Real Estate Investment Trusts? Again, I am giving you my opinion here, not financial advice. You must take independent advice from someone qualified in these matters and make your own decisions.

 

If you would like a chat about anything in this article, do drop me a line.

How saleable is your home? Try our saleability scorecard and see

Selling a home might not be an exact science, but there are a number of factors that will make a huge difference to how successful your sale will be.

Our experience has shown us that homes that sell quickly and for a good price tend to have certain key things in common, so we’ve developed a checklist that we can use to analyse the saleability of any home. We rate various elements of your marketing approach across five categories, awarding up to a maximum of five points for each element to give your home an overall ‘Saleability Score’.

Using our scorecard, you’ll be able to see for yourself where there may be room for improvement in your marketing. Once you’ve identified which areas aren’t as strong as they could be, you can discuss those points with your agent and work together to turn things around so that your home makes the right impact on buyers.

 

So, if your home has been on the market for a while and perhaps you haven’t had quite as many viewings as you’d hoped, run through our Saleability Scorecard and see how your marketing stacks up. Set aside a couple of hours, and make sure you have your printed brochure and online listing to hand. Think about every question carefully, and try to look objectively at your marketing materials and how your home is presented. Then give your answers in the form of points, awarding from a minimum of 1 to a maximum of 5 for each bullet point listed under each element below:

1. Your estate agent

Communication and feedback are key to helping you understand how the marketing is going and reassuring you that your agent really is doing their best to sell your home. So:

• Do they call you regularly – at least once a week?
• Do they accompany every viewing?
• Do they give you detailed feedback after each viewing?
• Have they made any suggestions around how you might be able to generate more viewings – other than dropping the price?

 

2. Your brochure

Your brochure needs to convey the quality of your home, setting a standard and value before the prospective buyer sees it in person. And the photographs have got to showcase a desirable lifestyle, grabbing buyers’ attention and enticing them to view.

• Does the brochure fully represent your home – we usually recommend 16–20 glossy pages – and does it have a luxurious feel?
• Are your photographs professional, and do they sell a lifestyle? The features of each room should be shown in crisp detail, and the images should convey an aspirational feel. In a sitting room, for instance, fires and candles should be lit, fresh flowers put out, and lights switched on to ensure the room looks spacious and bright, but cosy and inviting at the same time. A gently bubbling bath with flickering candles is selling a relaxing and luxurious lifestyle, not just a bathroom. And for kitchen photographs, some fresh baking will bring the image of the room to life and stimulate more than just the buyer’s visual senses.
• Is the written description enthusiastic in tone and full of emotive adjectives? The copywriter should be conveying a narrative that really captures the buyer’s imagination and makes them want to experience your home for themselves.
• Does the floorplan include dimensions and the overall floor area and show the orientation of your home?

 

3. Your online advert

This is your virtual shop window, and with the possibility of hundreds of other homes appearing in search results, your listing needs to stand out.

• Does your main photograph grab a buyer’s attention and encourage them to click for more information? We find that a twilight shot with all the interior and exterior lights on can be a particularly striking image and is often the best one to use online.
• Does the listing have a punchy, eye-catching headline?
• Is the description concise, while still selling the best features of your home in a flattering way?
• Is there a good-quality image of the floorplan, and brochure download button available?

 

4. The price

If a home is marketed at too optimistic a price, it tends to sit on the market for longer. So you must make sure your home is advertised at a price that both reflects its true value and attracts buyers.

• Is your asking price a round figure, e.g. £950,000, not £949,999?
• Does your home appear at the top of a search in your price range?
• Do you know how your price per square foot compares to that of other similar homes in the area?
• Have you stuck to your asking price, even if your agent thinks you should drop it?

 

5. Preparing your home for viewings

You must do all you can to make buyers fall in love with your home – from the moment they first see it on the market to the end of their viewing.

• Do you style and tidy the outside – both the garden and your home itself?
• Do you have fresh flowers inside?
• Do you dress all the beds?
• Do you switch on lamps, light candles and have fresh coffee or baking to create a homely and welcoming atmosphere? For more inspiration, take a look at our blog, ‘6 simple steps to prepare your home for viewings’. https://bit.ly/3EoAqww 

Now, add up the points.

If you have a Saleability Score of more than 80, well done – that suggests both you and your agent are on top of your home sale! Just take note of the areas where you might want to make a few tweaks, and if you still find you’re not getting enough viewings, then get in touch with us.

If you’ve scored between 50 and 80, there are probably quite a number of areas that you and your agent could work on. The good news is, this means there’s every likelihood that if you can just make the right improvements to your marketing, you should be able to attract much more interest and start to get some offers coming in.

However, if you have under 50 points, it’s probably time to consider a full marketing makeover. And if your current agent hasn’t already addressed the various challenges, it could be time to switch to one that’s more proactive and professional in their approach. We would be more than happy to discuss how we can help you with this, so please feel free to get in touch with us at any time.

 

And if you’re feeling a little disheartened by your result, be encouraged by the fact that there are plenty of things you can do to make your home much more saleable – with the right agent on board. The important thing is that you take action right away. If you don’t, your home will simply sit on the market, leaving it at risk of possibly going ‘stale’, which is likely to reduce your chance of getting a good sale price. When buyers see the same home being advertised in the same way, week after week, it gives the impression that something isn’t quite right. So it’s time to grab the bull by the horns!

The first port of call is to speak to your agent, show them our Saleability Scorecard and find out whether they agree with your ratings. It may be that they have their own ideas about the kinds of changes that could be made and are keen to work with you to turn things around.

However, if you don’t get the response you were hoping for, give us a call – we can review your marketing ourselves and give you our expert opinion on what needs to be done to secure a successful sale. Then, once we’ve visited your home to appraise it fully, we’ll come up with a bespoke marketing strategy that focuses on promoting all the best features of your home and relaunch it onto the market in style!

If you’d like to discuss your current situation and find out how we can help you and your home get the sale you deserve, just give us a call on 02380018222 – or email brian.linehan@belvoir.co.uk – and we’ll get right back to you.

Southampton Homeowners to Face Post-Lockdown Mortgage Rate Rise of £853 a Year

With grocery, energy and other household prices/costs rising and hitting everyone’s back pocket, inflation (rising prices) may feel like an unimportant issue when it comes to the cost of keeping a roof over your head.

Yet nothing could be further from the truth for many Southampton homeowners and Southampton landlords.

Because inflation over the long-term is bad for the economy, the normal weapon of choice to reduce inflation is to increase interest rates. The Bank of England (BoE) is in charge of interest rates.

Should inflation continue to rise, there will come a point later in the year when the BoE will need to raise it’s Base Rate from its 300-year record low of 0.1%, and probably continue to do so with a series of further increases in 2022.

When interest rates go up, the cost of mortgages go up. When the cost of mortgages go up, that hits the affordability of what people can borrow to buy their homes (and landlords to finance their buy-to -let properties). In essence ...

 

could it be the end of the Southampton house price boom?

 

The danger of a base rate rise by the BoE on the back of a rise in inflation over the last few months has alarmed banks and building societies into increasing the mortgage rates for both home buyers and landlords.

 

In the last week alone, lenders have increased the rates (i.e. prices) of their mortgages, some mortgages by more than one whole percentage point. That doesn’t sound a lot, until you punch the numbers into a calculator (more of that later).

Southampton property buyers (be they landlords or homebuyers) have relished months of cut-price cheap mortgages rates.

 

Mortgage lenders have played the big game in the last 12/16 months to capture the mortgage business of 1 million+ Brits that have moved home since the end of Lockdown-1 plus the many millions of re-mortgages, with the cheapest mortgage rates falling below 1%.

 

Yet, the money markets have already priced into their calculations that the BoE will increase the base to 0.25% by December, up from the existing 0.1%. They also anticipate a further two quarter point (i.e. 0.25%) rise in the spring of 2022, meaning they believe the base rate will be 0.75% by the end of summer 2022.

So why is this an issue for the homeowners of Southampton? Looking at the combined totals of the SO14-SO20 postcode districts …

30,465 Southampton property owners have mortgages totaling £3.99bn (up from £3.26bn in 2013).

Yet, 6,398 of those Southampton homeowners with mortgages are on variable rate mortgages, with their mortgage payments rising and falling based on how the BoE interest rate shifts. That will cause instant pain if mortgage providers pass on increased mortgage repayment costs. So how much will that be?

The average size of mortgage for a Southampton homeowner is £131,155.59.

If the base rate were to rise to 0.75%, the average Southampton homeowner (with a variable rate mortgage) would be £71 per month worse off (£853 per year).

The mortgage price war the banks and building societies have been fighting recently has resulted in falls in the month-on-month average mortgage rates available to borrowers. The economy is awash with cash looking for a home (mainly down to the Government’s and BoE’s intervention to keep the UK economy going during lockdown). For those with large deposits, this has meant mortgages have been available at less than 1%.

However, with reports of a potential BoE interest rate rise happening soon, those Southampton homeowners who are on a variable rate mortgage are probably going to be the first who would feel the influence of any Base Rate increase.

If the BoE Base Rate rose to 3%, the average annual mortgage payment of those Southampton homeowners on variable rate mortgages would rise by £3,935 per year.

This could mean homeowners with variable rate mortgages would be spending half their salary on their mortgage should interest rates get up to these levels.

Now the BoE won’t increase rates by that amount over night, as that would spook the market. They will probably increase every few months by a quarter of one percent each time.

Thankfully, over the last 4 or 5 years, over 90% of new mortgages have been fixed rate, yet they are only fixed for a certain length of time. If you have less than one/two years left on your mortgage, you seriously need to take advice now from a qualified mortgage broker, as any penalty to change might now be considerably smaller compared to the mortgage rates you might be paying when your deal finishes in the next 12/24 months. Again, I am not giving you advice in this article – just making a suggestion.

A further message to the 1 in 5 (ish) of Southampton homeowners on a variable rate – please take some advice from a qualified mortgage advisor as well. Mortgage rates can’t get any lower and all the signs are showing they will be going up. The mortgage market is still extremely competitive, there is opportunity for borrowers to lock in ultra-low mortgage rates before any likely Base Rate increases filter through.

Will an interest rate hike crash the Southampton housing market like the early 1990s?

The early 1990s saw repossessions go through the roof as homeowners defaulted on their mortgage payments because of the increased mortgage rates. Also, in the run up to the Credit Crunch in 2008, Northern Rock were lending 125% of the value of the property (we all know what happened to them!). Other banks were recklessly lending 8 or 9 times a person’s income, without the person having to prove that income. Both scenarios were significant contributory factors in the housing market crash.

Thankfully in 2014, the BoE implemented the recommendations of its own Mortgage Market Review (MMR). The MMR forced banks and building societies to stress test mortgage borrowers against potential increases of the base rate of up to 3%. Thankfully, even the most hardened monetary doom-mongers aren’t contemplating base rates of those levels (although I won’t apologise for highlighting what it could cost earlier in the article).

Fundamentally, as we go into 2022, the housing market is built on decent foundations, unlike 2007 with the poor lending practices by the lenders. Yet the increase in base rates will have another influence.

The psychological factor of a perceived increase in mortgage costs, might be enough to cool the enthusiasm and excitement of many buyers to pay top dollar for their next Southampton home, and that might not be a bad thing. If I am being frank, we could do with something that takes a bit of fizz out of the Southampton housing market.

Many Southampton homeowners have been wary of putting their house on the market because they are scared they won’t be able to find another home. A slight increase in Base Rates will take the frothiness out of the Southampton property market and return it to some form of normality. I would even go as far as to say house prices might ease back ever so slightly in the coming 12 to 18 months.

 

So don’t be alarmed if house prices in Southampton do drift slightly over the coming years like they did in the mid 1990s.

 

It’s just the property market settling down and coming back into some form of equilibrium, which is good for everyone.

My final thoughts ...

The mortgage lenders have already priced in the potential BoE rate rises, so even if rates do rise, let’s not panic. And even if they did rise to 3%, that would still leave them at levels that look exceedingly cheap at any other time in history. Many homeowners in their 50’s and 60’s can remember mortgage rates of 15% in 1992, so take advice from your family. (Interestingly, the 50-year BoE Base Rate average is 7.2%).

Buying your Southampton home is a long-term venture. It is a huge financial decision that can give you peace of mind and a superb place to live.

But it is not an investment. I am not saying you should avoid homeownership, however, if you are considering buying because you think you are making a clever investment choice, think again.

The idea that your Southampton family home can be an investment too comes from the fact that, historically Southampton property prices have risen. We all have stories of someone in the family, somewhere in the UK, who bought a house for £500 many years ago, for it to be worth 300%/500%/1000% more today!

If you read some of my past articles on the Southampton property market, I have proven many times over that there are much better ways to invest your money e.g. buying buy-to-let properties or stocks and shares.

But if you want to bring your family up in a home that is yours, the bottom line is this. Even if interest rates rise to 3% (if not a little more), you will still be able to get on the property ladder with a small deposit (using the Governments 5% deposit mortgages) and you will still find it’s cheaper to buy than rent.

If you would like to chat to me about anything in this article, do drop me a line. In the meantime, please do give me your thoughts on the matters raised in the article. I would love to know.

 

Thanks in advance.

Are Southampton House Prices Set to Fall this Autumn?

The stamp duty tax holiday is over, furlough finished at the end of September, unemployment is due to rise and inflation is rife … is this the end of the post lockdown Southampton property boom?

Surely, we are heading for house price correction?

Forecasting what will happen in the Southampton property market this Autumn may not be as simple as it first appears.

It’s true the Southampton property market is starting to settle down after an all-time number of property deals were completed in June.

More Southampton people will have moved home in 2021 than in any year since 2007, with an estimated 1.5 million home buyers nationally having bought a property.

Roll the clock back to last Christmas, and the Government’s Office for Budget Responsibility, projected that national house prices would drop between 6% and 8%.

By Christmas, the price of the average home in Southampton will be about £319,900 up 3.9% on last Christmas.

Let us not forget there were so many ambiguities at the start of 2021. We were about to start a 5-month lockdown, hospitals were bursting at the seams with patients, the vaccines hadn’t started, 4 in 10 employers had furloughed their staff and we had just had Brexit ... things didn’t look good.

Yet, nothing could be further from the truth 10 months later - the Southampton property market has been on fire. But after a heated summer in the Southampton property market, things certainly can’t carry on as they have been since the end of lockdown.

So, where are we with the Southampton property market as it stands? Taking reference from historical data on the website The Advisory (I would certainly recommend you check it out)…

 

67% of properties on the market today in Southampton

are sold subject to contract (stc).

How does this compare to October 2019 and October 2017?

In October 2017, 56% of Southampton properties were sold stc, whilst in October 2019, 44% of properties were sold stc.

Yet how does that compare to the national picture?

In 2017, 39.72% of the country’s properties for sale were sold stc whilst in 2019, that figure was 38.11%.

Now I love a good league table, so then decided to compare our locality to the rest of the country

So, I chose to look at the SO18 postcode specifically. For information, there are 2,234 postcode districts in the country.

 

The 2021 sold stats put SO18 in at 327^th place in

the country, 22^nd in 2017 and 168^th in 2019.

As we enter the last 3 months of the year, there are not so many uncertainties as there were at the start of 2021. On the good news front, 49 million Brits have had at least one jab (45m two jabs) and the UK will be the world’s fastest growing advanced economy this year according to the IMF.

Conversely, the furlough scheme ended at the end of September and with energy prices going through the roof, a real shortage of homes for sale (as I have discussed a number of times in recent blogs) and rising inflation on the back of a shortage of raw materials and trained staff, forecasting this and what will happen to Southampton house prices might not be as easy as it seems.

Post stamp duty holiday, it is now recognised that the majority of the demand for people moving home is focused by a profound unhappiness and frustration with the homes we live in, revealed during the first lockdown in 2020.

Buyers (and tenants – so take note Southampton buy-to-let landlords) want space ... in fact, three types of space … and they will pay handsomely for them!

 

·         Office space (be that bedroom or study)

·         Outside space (gardens or proximity to green areas)

·         Broadband with ‘outa-space’ download speeds

 

And whilst there is a shortage of properties coming on to the market, demand and supply economics mean…

 

Southampton house prices should remain relatively stable

 going into 2022.

 

The number of properties coming onto the market in Southampton is slowly improving, yet not enough to diminish house values.

Also, don’t forget Southampton first-time buyers still have stamp duty relief all to themselves again and mortgages are cheap. At the beginning of the 2020 lockdown (spring 2020), mortgage providers removed their higher risk 5% deposit mortgages for fear of a housing market crash. Currently, the vast majority of these low 5% deposit mortgages are back, together with the Governments own 5% deposit mortgages.

 

Yet many Southampton homeowners are concerned about inflation

and its effect on their mortgage payments.

 

Inflation is important because if inflation gets too high, the Bank of England will need to raise interest rates to reduce inflation. Because mortgages payments are based on the bank of England interest rate, higher mortgage payments will affect what people can afford. Normally the higher the mortgage rate, the less likely house prices are to increase (and in fact if interest rates are too high, house prices will fall).

Whilst I can’t give you advice, with the Bank of England base rate at a 300-year historic low of 0.1%, I’m still surprised that nearly 3 in 10 Southampton homeowners with mortgages are not on a fixed rate mortgage. There has never been a better time to get a fixed rate mortgage, as there are deals out there with interest rates as low as 1%. This means even if interest rates do go up in the short term, you will be protected from higher mortgage costs. Anyway, back to inflation.

 

Inflation did rise quite quickly and steeply in 2008/9

but came back down within a year.

 

This was because of a shortage of staff and raw materials during the Credit Crunch of 2008/9, the very same issues we’re experiencing at the moment in Q4 2021. The type of inflation (yes, there are types of inflation!) in 2008/9 was called ‘push inflation’. Whilst inflation is not great, ‘push inflation’ could be described the better type of inflation (as long as is it doesn’t go on for too long).

The economic crippling hyper-inflation seen in the 1970s was ‘pull inflation’. The circumstances that create ‘pull inflation’ are not being experienced at the moment in the UK. This is good news because ‘pull inflation’ is bad inflation, which in turn would create massive problems to the UK economy as a whole.

Therefore, whilst inflation will probably rise to 4-5% by Christmas, I don’t believe the Bank of England will raise interest rates substantially as the message we are hearing from them is they see this as a short-term blip.

 

Opportunities for Southampton buy-to-let landlords?

 

Ultra-low mortgage rates and a booming rental market is encouraging more Southampton buy-to-let landlords to expand their rental portfolios, yet their strategy is changing. Yields are increasing as there is a shortage of rental properties, driving up rents. Also, there are Southampton landlords looking to exit the rental market, often because they want to liquidate their portfolio for retirement. These portfolios don’t make it onto Rightmove and get sold ‘off market’.

Therefore, if you are a serious Southampton buy-to-let landlord and you’re looking to expand your own portfolio, it’s really important to put yourselves on the mailing list of estate agents and also build up great one-to-one relationships with the same agents to ensure that you’re at the front of the queue for these off market rental portfolios and not at the back.

To conclude, nobody knows the answer to what will happen to the property market in Southampton as we go into 2022. There are many factors that could affect the market in a positive and negative way, yet buying property is always a long-term investment (be it for yourself or to rent), so if you need any advice or opinion on what you should do, drop me a line or pop into the office and we can discuss the options you have over a cup of coffee.

Has Buy-to-Let Changed the Southampton Property Market?

 

The ‘Buy-To-Let’ Mortgage is celebrating its Silver Anniversary (25 years) this autumn.

Isn’t it fascinating that a decision between a group of letting agents and bankers all that time ago to offer ‘Buy-To-Let’ (BTL) mortgages has changed the face of the Southampton (and national) property market?

But has it been a good thing? Or has it ruined the dreams of many 20 somethings wanting to get on to the property ladder in the last couple of decades?

Let’s look deeper at the whole story, then I will let you, the reader, decide.

As soon as the BTL mortgage was launched, it was clear there was an enthusiasm and a need for this mortgage product. So much so the size of the Southampton private rented sector has grown exponentially.

According to my analysis…

there are 25,247 private rented homes in Southampton, worth £7,967,095,000.

So now we are in 2021, it seems farcical that banks and building societies once thought that properties rented out to private tenants would not create a steady income or increase in value, yet this thought was conventional back in the 1990s.

 It’s no wonder BTL landlords have been given a hard time, with numbers like this.

Yet before we burn every landlord at the stake, let’s just look at the background story.

The Conservatives introduced the right of a council house tenant to buy their own council house in the early 1980s. Fantastic news for council tenants, yet when a council tenant bought their home, that meant that council housing was taken away from future generations to rent and therefore eroding the council housing stock available. Meaning from the mid 1990s /early 2000s, people who would normally be eligible to rent from the council, yet who couldn’t buy, had only one option … rent from a private landlord.

Meanwhile, in the early/mid 1990s we had 15% mortgage interest rates, unemployment rates of 9% and the 1989 housing crash fresh in people’s memories. Repossessions were rife, making home ownership not the most attractive prospect for 20 somethings.

Southampton house prices dropped by 30.7% between 1989 and 1993.

This meant as we entered the mid 1990s, the Southampton property market entered a period of stagnation. There were many Southampton homeowners that bought their home in the property boom of the late 1980s who were disinclined to sell their home for a loss. They were in negative equity (i.e. they owed more than what the house was worth) yet needed to move because of their growing families.

Renting their home out could have allowed them to buy another home for their growing family, but most banks and building societies were still mostly unreceptive to the notion of these homeowners becoming accidental landlords. Most mortgage terms and conditions usually included clauses that prohibited homeowners from renting out their homes.

So, with growing demand from potential tenants, supply reduced from the sale of council houses and many homeowners in negative equity, all bound up by the semi-deregulation of the private rented sector with the Housing Act 1988 – you can see that the BTL mortgage came along at the right time.

Early take up of BTL mortgages was slow in the first couple of years.

By the Millennium, according to the Council of Mortgage Lenders, there were just over 120,000 BTL mortgages, with a total value of £9.1 billion.

Yet as we entered the 2000s, they really took off, with every man and his dog jumping onto the BTL bandwagon. So much so that today in the UK, there are…

4.4m private rented homes, 2.1m of them with BTL mortgages totaling £234.1bn, which is 11.9% of the UK’s GDP!

That’s more than a 1,650% increase in the number of BTL mortgages to landlords and a 2,470% increase in the value of those BTL mortgages.

Since 2001, the number of privately rented households in the UK has grown from 8.3% to 19%.

On the face of it, you could say with the growth of these BTL landlords with their cheap BTL mortgages and often unkempt properties, it has pushed potential homebuyers into squalor. Yet, let’s look a little deeper.

Most Southampton landlords are very fair with their Southampton tenants providing them with clean, well presented and affordable housing. Of course, there are the rogue landlords but with TV shows such as ‘Landlords from Hell’, the British public are given a distorted and uneven view of private landlords as a whole.

Private sector landlords have played a critical role in providing homes to millions of Brits in this country, let me expand.

The UK population has grown by 405,000 people per year (for the last 20 years), yet only 22,750 council/social houses have been built per year in the same time frame.

If it wasn’t for the rented sector, who would have housed all the extra people in the country over the last 20 years? 

What about the exorbitant rents? Would it surprise you that rents have risen below inflation between 2008 and 2019?

Also there has been a drive to tax BTL landlords more comprehensively and regulate the private rented sector to develop better housing conditions for tenants.

Unlike owner-occupier homes, tenants get the benefit of new regulations from Gas Safety Checks and Electrical Safety Reports. Also, BTL landlords will need to improve their Energy Performance Certificate Rating to at least a C rating by the end of 2025 for all new tenancies, and by end of 2028 for all existing tenancies, all at no cost to the tenant and directly saving them money on their heating costs – something that is very important considering the recent rises in gas prices.

 Southampton landlords have also had to pay more tax on their Southampton BTL properties, paying 3% Stamp Duty tax supplement for the last 5 years, and higher rate tax relief on mortgage interest was taken away four years ago.

Landlords have also had to deal with the financial fallout of the pandemic. It is estimated 1 in 5 tenants in the private rented sector have some form of rent arrears.

Interestingly landlords that don’t use a letting agent to manage their property are 272.5% more likely to be 2 months or more in arrears.

Also, evictions for rent arrears were banned during the pandemic, meaning some tenants ran up arrears of 12 months or more. According to the National Residential Landlords Association (NRLA), this has left around 210,000 private tenants in the country facing a court order for rent arrears. That would equate to…

1,355 Southampton private rented households with a court order for arrears.

The idea that Southampton landlords are middle-class establishment types who are out to take advantage of Southampton tenants who can’t afford to buy their own Southampton homes is, in my opinion, just wrong.

Of course, there are some rogue Southampton landlords, yet there are plenty of rogue tenants. Just because you are a Southampton landlord, it doesn’t mean you are quaffing champagne and rolling in cash.

 4,534 Southampton landlords own just one BTL property.

And just under half of those use their rental income to supplement their pensions, and according to the NRLA, a third of landlords have a gross income (excluding income from the BTL property) of less than £20k per annum.

It’s hard work being a Southampton BTL landlord and I still believe the burden of housing just under a fifth of the UK population isn’t appreciated or taken seriously by Government.

Notwithstanding the challenges, most Southampton BTL landlords are in it for the long run. BTL mortgages can be secured for less than 1% and demand is on the rise (with rents rising at the highest rate for 10+ years). Of course, Brexit caused a few issues with some Southampton landlords losing some Eastern European migrants. Yet once things settle down, we will have an influx of people coming from Hong Kong and Afghanistan, wanting to settle down, get jobs and ultimately require a home to live in, which will be a private rented house.

I know the Stamp Duty tax holiday has cleared out the Southampton landlords who were on the fence for staying in the private rented sector or selling up, but those Southampton landlords that are left will be more professional and will run their BTL portfolio as a business, not a hobby.

My final piece of advice to anyone thinking of becoming a BTL landlord in Southampton for the first time is that you have to have a strategy and plan ahead. Those who stumbled into the BTL market in the early 2000s made a lot of money without any strategy or tactics. 

Moving forward you need the guidance and support of an agent who can tell you the best places for investment, be that for better yield or better capital growth.

They will also be able to tell you what tenants demand to ensure that you attract the right sort of tenants who won’t trash the place and leave you in arrears. If you would like some advice, do not hesitate to drop me a line or pick up the phone.