The headlines …
·
Brighouse rents up by 8.2% in
the last 12 months
·
Brighouse house prices up 11.1%
in the last 12 months
·
Brighouse landlords helped by ultra-low
mortgage rates and a stamp duty holiday
·
Yet, some landlords in Brighouse
anxious about a possible end to no fault evictions
·
New EPC rules could cost Brighouse
landlords £10,000+ per property
In this article, I will look
at what happened in 2021 in the Brighouse buy-to-let property market and give
you my opinion as to what lies ahead for Brighouse landlords in 2022 and
beyond.
On a positive note, Brighouse
house prices have rocketed, 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 Brighouse 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 Brighouse
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 …
Brighouse
Rents will Continue to Rise in 2022
Brighouse buy-to-let landlords
have seen the average rent of a Brighouse rental property rise by 8.2% in the
last 12 months.
The number of Brighouse
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 Brighouse
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 Brighouse rental market, in the short term, rents will continue to grow as
some Brighouse 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 making Brighouse rents continue to rise.
Brighouse House
Price Growth Will Slow
For those that own property, the
way house prices grew in 2021 surprised most people.
Brighouse house prices,
according to the Land Registry, grew by 11.1% in 2021, with the typical Brighouse
home reaching £203,500.
Many local landlords have been
helped by this increase in Brighouse 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 Brighouse 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 (supply)
is by the number of buyers (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 Brighouse 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 Brighouse 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, Brighouse 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 repayment 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, Brighouse landlords may be unenthusiastic
about renting and therefore sell up and leave the rental sector altogether. Yet
these 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 is the same changes
are made south of the border to the court procedure.
New EPC Rules
Could Cost Brighouse Landlords £10,000+ per Property
The law currently stands that Brighouse
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 Brighouse 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 trial 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 Brighouse
landlords currently buying properties to add to their rental portfolio should
reconsider their buying strategy? In the past, it has been normal for Brighouse
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 Brighouse 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 do not use a letting agent to help them with their rental portfolio,
considering the cost can be offset against your tax.
Moving forward, the savvy Brighouse
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 the future of the Brighouse 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.
