Huddersfield Landlords: Will Huddersfield buy-to-let continue to be profitable in the next few years?

 Being a Huddersfield landlord is undoubtedly a challenge. The glory years of making money from ‘any old property’ are certainly in the past. With increased legislation and taxation from Government and the cost-of-living crisis (which will result in some Huddersfield tenants struggling to pay their rent), times are challenging for many landlords.

Then newspapers are full of stories of landlords being pushed into the red as mortgage rates continue to rise. A landlord last summer could have fixed their 5-year buy-to-let rate with a 25% deposit at 1.86%, whilst today the best 5-year deal is with Barclays at 4.36%. This increase will add more than £246 per month to the landlord's mortgage bill for the average UK buy-to-let property. 

Landlords’ mortgages stand at £237.81bn, meaning collectively, landlords could have to pay an additional £7.11 billion per year in mortgage interest payments.

 

Next, the press is reporting in Q2 2022 (when compared to Q2 2021), landlord possession claims for arrears increased from 6,997 to 18,201 properties (a rise of 160%), property orders from 5,431 to 14,319 (an increase of 164%), warrants from 3,786 to 7,728 (a rise of 104%) and landlord repossessions from 1,582 to 4,900 (a rise of 210%).

 

This is on the back of the Section 24 tax changes made a few years ago and ahead of expensive energy efficiency upgrades that the Government is expected to legislate for in the coming 12 months.

 

Doesn’t sound good for landlords.

 

Until you look past the headlines and look at the actual detail.

 

79.93% of UK buy-to-let (BTL) mortgages are interest-only mortgages (compared to 12.29% of homebuyers), meaning the repayments are considerably lower than typical homebuyer mortgages. Therefore, the rise in interest rates won’t hit landlords’ profitability as much as many thought initially.

 

93.21% of all new BTL mortgages agreed in the last two years have been on a fixed rate mortgage, and 73.27% of all existing BTL mortgages are on a fixed rate. So, the increase in mortgage payments will only affect one in four landlords on variable-rate mortgages.

 

Let us not forget that less than one in three landlords have a BTL mortgage, meaning two out of three landlords aren’t affected by these interest rate rises.

 

The average rent of a Huddersfield property is now £849 per month, an impressive rise of 8.3% compared to a year ago.

 

Those possession orders mentioned above look high until you realise that there are 4.4 million properties in the private rented sector. That means only 2.04% of UK rental properties had arrears bad enough for landlords (or agents) to start possession proceedings to evict the tenant. Also, only 0.045% of tenants were evicted through the courts in a calendar year.

 

Talking of arrears, recent studies using statistics from the Government and other letting industry sources show that …

 

landlords who didn't use a letting agent to manage their property were 272.5% more likely to be two months or more in rent arrears in 2021. It pays to use a letting agent!

 

Next, the potential cost of upgrading rental properties' energy efficiency.

 

The proposed changes in the MEES regulations require a minimum energy efficiency (measured by its Energy Performance Certificate (EPC)) to a ‘C’ rating on new tenancies from 2025 and existing tenancies by 2028. That will cost, on average, £10,000+ per property.

 

Yet it cannot be forgotten when the rules changed in 2018 properties had to have a minimum EPC rating of E in England and Wales to be legally compliant. If a landlord of an 'F' or 'G' rated rental property could prove that it would cost more than £3,500 to make those improvements to their EPC rating, then that was the most the landlord had to pay. No doubt something similar will take place in the future proposed legislation.

 

Then there is the profitability of renting. Rental yields are the primary guide to profitability in buy-to-let.

 

Yields are starting to rise as Huddersfield rental growth is beginning

to outstrip Huddersfield house price growth.

The average yields being achieved in Huddersfield today are …

• 1 bed – 6.0% yield
• 2 bed – 5.2% yield
• 3 bed – 4.0% yield
• 4 bed – 3.3% yield
• 5 bed – 2.7% yield

Yet investing in buy-to-let isn't just about the yield.

Demand from tenants plays a massive part in the success or failure of your buy-to-let investment, so other yardsticks, such as void periods, should be considered. There is no point in securing a higher-yielding rental property if that buy-to-let investment remains empty.

My research has found that the Huddersfield overall void period average so far is 41.4% lower than 18 months ago, reducing from 29 days in April 2021 to 17 days in September 2022 (the void period being the time it takes from the date of an old tenant moving out until the new tenant moves in).

Finally, buy-to-let investment is also an excellent hedge against inflation compared to other investments. If you would like more information on that, drop me a line, as it's too long to post here.

In conclusion, the days of buying any old Huddersfield buy-to-let property at any price and making loads of money from it as easy as falling off a log are gone!

The next few years will be challenging for everyone. Still, with the advice and opinion of a decent Huddersfield letting agent to guide and support you on your buy-to-let journey, buy-to-let will continue to be a profitable investment.

You need to review your rental portfolio regularly. See how your portfolio measures up against yield vs capital growth see-saw. Review your mortgage financing and EPC status of your portfolio. 

If you would like a no-obligation chat with me to discuss your options as a new potential landlord or an existing landlord with a rental portfolio, then let's talk.

Let us see whether your expectations from buy-to-let match your potential investment in Huddersfield property. I look forward to you picking up the phone or sending me a message for a no-obligation chat.

 

Huddersfield Property Market What will the stamp duty cuts & interest rate rises mean for Huddersfield homeowners & landlords?

 Last week the Bank of England increased interest rates to 2.25% and they are expected to be 3.25% by early next year. This increase will make the monthly mortgage payments more expensive for first-time buyers, an issue dubbed by some as the 'property affordability crunch.'

 

It will also damage the household budgets of homeowners coming off their fixed-rate mortgages in the next 12 months.

 

So how many homeowners are coming off their fixed rates in the next year?

 

Of the 7.97 million homeowners with a mortgage in the UK, 6.1 million of them are on a fixed-rate mortgage at an average rate of 2.04%. Industry statistics show around 1.3 million homeowners are coming off their fixed rate in the next 12 months.

 

The current crop of fixed-rate mortgage deals available today have already had the recent increase in the base rate ‘priced-in’ for weeks.

 

The cheapest 5-year fixed rate today for a 65% Loan to Value re-mortgage (i.e. you are borrowing 65% of the value of your home) is a mortgage rate of 3.8% with Royal Bank of Scotland (RBS).

 

So, what will be the difference in mortgage payments

between a 2.04% mortgage and a 3.8% mortgage?

 

Say an average Huddersfield first-time buyer bought their first home in November 2019 on a 25-year mortgage. They had a 3-year fixed-rate mortgage, and let's assume they fixed it at 2.04% (as mentioned above), meaning their fixed-rate deal finishes next month. They have £260,000 outstanding on their mortgage, and their Huddersfield house is worth £400,000. They would have been paying £1,107 per month for the last three years (assuming they took out a 25-year repayment mortgage).

 

On the RBS deal above, they will have to start paying £1,548 per month from November when they come off their initial rate – a rise of £441 per month in mortgage payments. That’s quite a rise and potential blow to their household budgets.

 

Yet if they pushed back the repayment term from 22 years to, say, 35 years, that reduces the payment to £1,120 per month – something to consider if you are re-mortgaging in the coming 12 months.

 

 

What will the stamp duty changes mean for

Huddersfield property owners?

 

PM Liz Truss and Chancellor Kwasi Kwarteng believe that cutting stamp duty will support economic growth by encouraging more people to move home or jump onto the property ladder.

 

Stamp duty also has other harmful side effects as it decreases labour market elasticity and curtails people from selling up and buying elsewhere, where the jobs are.

 

Also, stamp duty makes mature homeowners stay put in their large homes rather than downsizing. This reduction in stamp duty will encourage those mature homeowners to move, thus freeing up their large family homes for the younger families that need them.

 

The Chancellor doubled the zero-rate stamp duty band from

£125,000 to £250,000, passing a stamp duty tax saving of up

to £2,500 for all English homebuyers.

 

Also, tax savings are even more significant for first-time buyers, particularly in areas with high house prices, such as London and the South East. They can save a maximum of £11,250 in stamp duty – with a new zero-rate band of £425,000, based on a higher £625,000 spend cap (i.e. the house they buy can't be over £625,000 for them to qualify for the tax relief).

So, what effect will these stamp duty changes have on the Huddersfield property market? Looking at recent events in the local property market is the best place to start.

Of the 3,155 transactions in the Huddersfield area since June 2021,

2,360 were below £250,000. These would now be tax-free!

 

Unsurprisingly, most housing transactions in Huddersfield were below the £250,000 threshold, yet irrespective of that point, it’s a saving of up to £2,500 for all future Huddersfield homebuyers.

 

Anyone currently buying a house in Huddersfield and not yet completed on their purchase (completion is when you have paid the money for your home and collected the keys) will be in line to make this saving.

 

Huddersfield landlords purchasing buy-to-let properties will also save money with the stamp duty cut (but they will still be liable for their second home stamp duty levy of 3%).

 

Overall, this is a welcome move to help the Huddersfield property market.

 

Yet will the stamp duty threshold rise have the seismic effect that the Rishi Sunak stamp duty holiday did in 2021, where just under 40% more people moved home than the long-term 30-year average?

 

I am sure the stamp duty cut will somewhat offset the cost of rising mortgage rates mentioned in this article and cushion the blow to the property market.

A blow to what you might ask?

Well, many people judge the property market's health by house prices.

The average value of a Huddersfield property stands at £215,894

and has risen 34.2% in the last five years. Not bad, eh?

But I believe there is a better way to judge the health of the local property market, and that is the number of people moving home (i.e. housing transactions).

You might be asking yourself why we should be more concerned about the number of property transactions and not the change in property values.

Many economists believe the number of property transactions is a far more accurate bellwether for the health and potency of the local housing market. A greater number of people moving home is better for the whole economy (i.e. what these changes are being made for) than a smaller number of transactions, whilst the same can’t be said for higher house prices. 

So what is going to happen to Huddersfield house prices?

I believe the growth in Huddersfield house prices achieved in

2021/22 is not sustainable into 2023.

 

In conjunction with the price cap on energy bills, the stamp duty change, the reversal of the rise in National Insurance and the drop in Income Tax will mitigate house price drops. Yet, I foresee a ‘slight’ realignment in the house prices being achieved in 2023, compared to 2022.

The more significant impact these changes will have is the number of people moving home in the next 12 months.

I have been forecasting a 15% to 20% year-on-year drop in Huddersfield property transactions in 2023. Following this stamp duty cut and the measures mentioned above, I believe it will be lower, yet around 5% lower.

To conclude, I predict we will have slightly lower house prices and fewer people moving home in Huddersfield, but not any way a crash that many thought was on the horizon.

Before I go though, let me share some thoughts on whether stamp duty is a fair tax.

 

Now, this is almost a topic for a standalone article itself. Some economists believe that removing stamp duty (which raised £14.1bn in tax in 2021) and replacing that lost income to the Exchequer by increasing council tax on more expensive properties would do a lot more than other intended tax cuts to boost economic growth.

 

According to some commentators, the way UK Government taxes housing is flawed. They suggest instead of taxing an infrequent property transaction particularly harshly (the average stamp duty bill is £10,600), the Government should tax living in a house more, especially those who live in the higher priced properties.

 

So let us see how viable that could be …

 

Even if council tax was frozen for bands A to D (the lower priced properties), and the uplift between the more expensive council tax bands was doubled on each step between band D and H (so a typical band E property owner would see their council tax rise from £2,473 to £3,628 per year and a typical band H see a rise of from £3,435 per year to £5,790 per year), such massive increases in council tax would be political suicide for the wealthy Tory voting homeowners and only raise £5.28bn – a long way from the £14.1bn currently raised.

 

Now, if the £14.1bn tax raise were spread evenly over all council tax bands, the average band D property would need to rise by £490 per year, and even a band A would increase by an extra £382 a year … something that again would be political suicide.

 

Yes, stamp duty is flawed. It's just every other option has more significant flaws.

 

Anyway, these are just my thoughts. Tell me, people of Huddersfield, what are your thoughts on the Budget, the stamp duty changes or whether stamp duty is fit for purpose and what you would do if you were the Chancellor to bolster the British property market?