The Headlines…
- Neath rents up by 8.1% in the last 12 months
- Neath house Prices up 16.1% in the last 12 months
- Neath landlords helped by ultra-low mortgage rates and a Land Transaction Tax holiday
- Yet, some landlords in Neath anxious about a possible end to no-fault evictions
- New EPC rules could cost Neath landlords £10,000+ per property
In this article, I will look
at what happened in 2021 in the Neath buy-to-let property market and give you
my opinion as to what lies ahead for Neath landlords in 2022 and beyond.
On a positive note, Neath
house prices have rocketed, rents have risen faster than inflation, at the
start of the year we had the benefit of a Land Transaction Tax holiday and finally,
ultra-low mortgage rates, meaning Neath 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 Neath
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…
Neath Rents
will Continue to Rise in 2022
Neath buy-to-let landlords
have seen the average rent of a Neath rental property rise by 8.1% in the last
12 months.
The number of Neath 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 Neath
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 Neath rental market, in the short term, rents will continue to grow as some
Neath 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 Neath rents continue to rise.
Neath House Price
Growth Will Slow
For those that own property, the
way house prices grew in 2021 surprised most people.
Neath house prices, according
to the Land Registry, grew by 16.1% in 2021, with the typical Neath home
reaching £157,700.
Many local landlords have been
helped by this increase in Neath 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 Neath 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 outweighed 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 Neath 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 Neath 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, Neath 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, the Welsh
Assembly 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, Neath 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 is the same changes
are made south of the border to the court procedure.
New EPC Rules
Could Cost Neath Landlords £10,000+ per Property
The law currently stands that Neath
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 Neath 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 Neath landlords
currently buying properties to add to their rental portfolio should reconsider
their buying strategy? In the past, it has been normal for Neath 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 Neath 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 Neath
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 Neath 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.
