Huddersfield Rents Set to Rise to £832 pm in Next 5 Years

It’s now been a good 12/18 months since annual rental price inflation in Huddersfield peaked at 2.3%. Since then we have seen increasingly more humble rent increases. In fact, in certain parts of the Huddersfield rental market over the autumn, the rental market saw some slight falls in rents. So, could this be the earliest indication that the trend of high rent increases seen over the last few years, may now be starting to buck that trend?

Well, possibly in the short term, but in the coming few years, it is my opinion Huddersfield rents will regain their upward trend and continue to increase as demand for Huddersfield rental property will outstrip supply, and this is why.

The only counterbalance to that improved rental growth would be to meaningfully increase rental stock (i.e. the number of rental properties in Huddersfield). However, because of the Government’s new taxes on landlords being introduced between 2017 and 2021, that means buy-to-let has (and will) be less attractive in the short term for certain types of landlords (meaning less new properties will be bought to let out).

Interestingly, countless market experts assumed at the start of 2017, that the number of rental properties would in fact drop throughout the year. The assumption being as the new tax rules for landlords started to kick in, landlords looked to kick their tenants out, sell up and invest their capital elsewhere. (Although ironically that would lower supply of rental properties, decreasing the supply, meaning rents would increase again!).

Anecdotal evidence suggests, confirmed by my discussions with fellow property, accountancy and banking professionals in Huddersfield, that Huddersfield landlords are (instead of selling up on masse), actually either (1) re-mortgaging their Huddersfield buy-to-let properties instead or (2) converting their rental portfolios into limited companies to side step the new taxation rules.

The sentiment of many Huddersfield landlords is that property has always weathered the many stock market crashes and runs in the last 50 years. There is something inheritably understandable about bricks and mortar – compared to the voodoo magic of the stock market and other exotic investment vehicles like debentures and crypto-currency (e.g. BitCoin). 

Remarkably, there is some good news for tenants, as Tory’s recently published the draft Tenants’ Fee Bill, which is designed to prohibit the charging of tenants lettings fees on set up of the tenancy. However, looking at evidence in Scotland, I expect rents to rise to compensate landlords, thus hammering faithful tenants looking for long-term tenancy agreements the hardest. This growth will be on top of any usual organic rent growth.  It really is swings and roundabouts!

So, what does this all mean for landlords and tenants in Huddersfield? In my considered opinion,

Rents in Huddersfield over the next 5 years will rise by 8.9%, taking the average rent for a Huddersfield property from £764 per month to £832 per month.

To put all that into perspective though, rents in Huddersfield over the last 12 years have risen by 19.4%. In fact, that rise won’t be a straight-line growth either, because I have to take into account the national and local Huddersfield economy, demand and supply of rental property, interest rates, Brexit and other external factors.

In the past, making money from Huddersfield buy-to-let property was as easy as falling off a log. But with these new tax rules, new rental regulations and the overall changing dynamics of the Huddersfield property market, as a Huddersfield landlord, you are going to need work smarter and have every piece of information, advice and opinion to hand on the Huddersfield, Regional and National property market’s, to enable you to continue to make money.

One place for that information is the Huddersfield Property Market blog https://huddersfieldproperty.blogspot.co.uk/

Increase in Interest Rates to cost Huddersfield Home Owners £180.61 a year

Huddersfield homeowners will be among those affected by the latest rise in the Bank of England interest rates. The first increase in 10 years; they have just been raised from 0.25 percent to 0.5 per cent. This uplift comes as inflation hits a 51-month high of 2.9 per cent whilst the national unemployment rate is at an all-time low of 4.3 per cent.

    

Interestingly, the Governor of the Bank of England has indicated that the interest rate is likely to increase again over the next couple of years, but Mr Carney said mortgages and savings would not be affected in the short term. However, look at all the big banks and just about all of them have increased their standard variable mortgage rate..  

The average Huddersfield mortgage is £72,245

I have to ask by how much Huddersfield homeowners (on variable rate or tracker mortgages) will see their repayments increase?

In the HD1 - HD9 postcodes there are 39,062 homeowners with a mortgage, of which 16,781 have a variable rate mortgage (the remaining have fixed rate mortgages). The total amount owed by those HD1 - HD9 homeowners with those variable rate mortgages is £1,212,340,517, meaning the average monthly mortgage payment for those home owners on variable rate mortgages before the interest rate rise was £563.31 per month and now its £578.36 per month … meaning

The interest rate rise will cost Huddersfield

homeowners on average an extra £180.61 per year

Whilst this is the first raise in interest rates in over 10 years, it must be noted it is at a significantly low level compared to figures in the 1970s and early 1990s. Many of my readers talk of interest rates at 17 per cent when Sir Geoffrey Howe increased them to try and combat the hyperinflation (from the fallout of the financial crisis that hit Britain in the 1970’s) and Norman Lamont in September 1992 with the infamous Black Wednesday crisis, when interest rates were raised from 10% to 15% in just one day.

So, what will this interest rate actually do to the Huddersfield housing market?

Well, if I’m being frank – not a great deal. The proportion of Huddersfield homeowners with variable rate mortgages (and thus directly affected by a Bank of England rate rise) will be smaller than in the past, in part because the vast majority of new mortgages in recent years were taken on fixed interest rates. The proportion of outstanding mortgages on variable rates has fallen to a record low of 42.3 per cent, down from a peak of 72.9 per cent in the autumn of 2011.

If more Huddersfield people are protected from interest rate rises, because they are on a fixed rate mortgage, then there is less chance of those Huddersfield people having to sell their Huddersfield properties because they can’t afford the monthly repayments or even worse case scenario, have them repossessed.

However, and this will be of interest to both Huddersfield homeowners and Huddersfield buy to let landlords …

.. for every 1% increase in the Bank of England interest rate, it will cost the average Huddersfield homeowner on a variable rate mortgage £60.20 per month

So, what next? Because UK inflation levels are at 2.9 per cent (the country’s highest rate since April 2012) and the Bank of England is tasked by HM Government to keep inflation at 2 per cent using various monetary tools (one of which is interest rates) – you can see why interest rate rises might be on the cards in the future as increasing interest rates tends to dampen inflation.

Now of course there is a certain amount of uncertainty with regard to Brexit and the negotiations thereof, but fundamentally the British economy is in decent shape. People will always need housing and as we aren’t building enough houses (as I have mentioned many times in the Huddersfield Property Blog), we might see a slight dip in prices in the short term, but in the medium to long term, the Huddersfield property market will always remain strong for both Huddersfield homeowners and Huddersfield landlords alike.

The Huddersfield House Price Index: 109.33

I had the most interesting conversation the other day with a local Huddersfield accountant, who asked me about my articles on the Huddersfield property market. It was quite humbling to be given praise by such a professional, when he commented enthusiastically on the articles I write. He was particularly interested with the graphs, facts and figures contained within them – so much so he recommended his clients read them, as most of them were either Huddersfield homeowners, Huddersfield landlords and a lot of the time - both. However, one question that kept me on my toes was, “With so many House-Price-Indices, how do you know which one to use and how can you calculate what is exactly happening in Huddersfield?”

To start with, there are indeed a great number of these Indices, including the Land Registry, Office of National Stats, Halifax, Nationwide and LSL to name but a few. The issue occurs when these different house price indices give diverse pictures of the state of the UK housing market. Whilst some indices measure the average value of every property in the UK (sold or unsold), others measure the average ‘price-paid’ of houses that happen to be sold over a fixed time scale… confusing isn’t it!

A lot of the variance between house price indices occurs because of the distinctive ways in which the numerous indices endeavour to beat these issues. You see, the biggest problem in creating a house-price-index when comparing and contrasting with most other indexes (e.g. inflation where the price a ubiquitous tin of Beans can easily be measured over the months and years), is every home is unique and as Huddersfield people are only moving every 19.5 years, it appears the only thing that can be measured is the price of property sold in a given month.

By their very nature, all of the indices are only able to paint a picture of the whole of the UK or, at best, the regional housing market. As I have said many times in my articles on the Huddersfield property market, it is important to look to the medium term when considering house price inflation/deflation. Looking at the month-to-month jumps, many indices look like one of those jumpy lie-detector needles you see in the cold war movies! 

I can guarantee you in the coming few months, on a month-by-month basis, one or more of the indices will say property prices will have dropped. Let me tell you, no property market indices are representative of the housing market in the short term. Many indices have shown a drop around the Christmas and New Year months, even the boom years of 2001 to 2007 and 2013 to 2015.

So, back to the question, how do we work out what is happening in the Huddersfield Property Market and can there be a Huddersfield House Price Index?

To calculate what I consider is a fair and proper House Price Index for Huddersfield, I initially needed to decide on a starting place for the index. I have chosen 2008 as far enough away, but still gives us a medium/long term view. Next, I split all the house sales into their types (Detached/Semi/House /Apartment) to give us an indication of what is actually selling by postcode district. So, for example, below is a table for the HD3 postcode district (the sample shows 2008, 2016 and 2017.

	2008	2016	Proj 2017
Detached	15.6%	16.3%	14.4%
Semi Det	28.7%	30.3%	32.4%
Terraced	39.3%	44.5%	43.2%
Apartment	16.4%	8.8%	9.9%

Then I look at the actual numbers of properties sold in the HD3 postcode district. Below is the graph with the numbers for the years already mentioned.

Next, I have looked at the prices paid for those types for every year since 2008, again in this example using the sample years of 2008, 2016 and 2017 for the HD3 postcode.

Finally, I amalgamated the same data points for the other postcode districts covered by Huddersfield and the surrounding villages, weighted it accordingly, to produce the Huddersfield House Price Index ... which after all that work, currently stands at for Q4 2017 at 109.33 (Q4 2008 = 100).

I hope you found that of interest and over the coming months and seasons, I shall refer back to Huddersfield House Price Index in my Huddersfield Property Blog https://huddersfieldproperty.blogspot.co.uk/ give you a flavour of what is really happening in the Huddersfield Property Market.

One in 29 rental properties in the Huddersfield area will be illegal in 2018

As the winter months draw in and the temperature starts to drop, keeping one’s home warm is vital. Yet, with the price of gas and electricity rising quicker than a Saturn V rocket and gas, oil and electricity taking on average 4.4% of a typical Brit’s pay packet (and for those Brit’s with the lowest 10% of incomes, that rockets to an eye watering 9.7%), whether you are a tenant or homeowner, keeping your energy costs as low as possible is vital for the household budget and the environment as a whole.

For the last 10 years, every private rental property must have an Energy-Performance-Certificate (EPC) rating.  The property is given an energy rating, very similar to those on washing machines and fridges with the rainbow coloured graph, of between A to G (A being the most efficient and G the worst). New legislation comes in to force next spring (2018) for English and Welsh private landlords making it illegal to let a property that does not meet a certain energy rating. After the 1^st of April next year, any new tenant moving into a private rented property or an existing tenant renewing their tenancy must have property with an energy performance rating of E or above on the property’s EPC and the new law will apply for all prevailing tenancies in the spring of 2020. After April 2018, if a landlord lets a property in the ‘F’ and ‘G’ ratings (i.e. those properties with the worst energy ratings) Trading Standards could fine the landlord up to £4,000.

Personally, I have grave apprehensions that many Huddersfield landlords may be totally unaware that their Huddersfield rental properties could fall below these new legal minimum requirements for energy efficiency benchmarks. Whilst some households may require substantial works to get their Huddersfield property from an F/G rating to an E rating or above, my experience is most properties may only need some minor work to lift them from illegal to legal. By planning and acting now, it will mitigate the need to find tradespeople in the spring when every other Huddersfield landlord will be panicking and paying top dollar for work to comply.

Whilst there is money and effort involved in upgrading the energy efficiency of rental property, a property that is energy efficient will have greater appeal to tenants and other buy-to-let landlords/investors and this will enable you to obtain higher rents and sale price (when you come to sell your investment).

So, how many properties are there in the area that are F and G rated .. well quite a few in fact. Looking at the whole of the Kirklees Metropolitan Borough Council area, of the 26,941 privately rented properties, there are ..

707 rental properties in the F banding

210 rental properties in the G banding

That means just over one in 29 rental properties in the Huddersfield and surrounding area has an Energy Performance Certificate (EPC) rating of F or G. From April next year it will be illegal to rent out those homes rated F and G homes with a new tenancy.

Talking with the Energy Assessors that carry out our EPC’s, they tell me most of a building’s heat is lost through draughty windows/doors or poor insulation in the roof and walls. So why not look at your EPC and see what the assessor suggested to improve the efficiency of your property? I can find the EPC of every rental property in Huddersfield, so irrespective of whether you are a client of mine or not, don’t hesitate to contact me via email (or phone) if you need some guidance on finding out the EPC rating or need a trustworthy contractor that can help you out?