- Neath needs 201
additional private rented properties per year to keep up with current and
future demand from Neath tenants.
- Yet over the
last 5 years, Neath has lost 161 private rented homes.
- What are the
5 reasons the supply of private rental properties in Neath are falling? What
does this mean for tenants and landlords in Neath?
There
has been a rise in demand for rental properties and an 8.9% fall in the number
of Neath private rented properties, which has caused Neath rents to rise by 6.8%
in the last year, a new all-time high.
The
National Residential Landlords Association asked the respected economics think
tank Capital Economics, to carry out research on the UK rental market. It found
that if the current trends in the property market in terms of growth of the
population, Brits living longer, the lack of new homes building, the reduction
in social housing (aka council housing), then demand for homes in the private
rented sector needs to increase by 227,000 homes per year.
So,
based on those numbers, Neath needs to have an additional 201 private rented properties
per year.
The
problem is the number of private rental properties in Neath has reduced from 3,013
in 2017 to 2,852 in 2021, a net loss of 161.
So, why has supply of private rented homes in Neath reduced?
- Section 24 Income
Tax
Section
24 was introduced in 2017 to level the playing field on the taxation of
property between homeowners and landlords. Section 24 stops landlords from
offsetting their buy-to-let mortgage costs against the profits from their
rental property. Interestingly, no other kind of UK business is affected by the
Section 24 taxation. In other words, whatever other form of business you might
be in, be it butcher, baker or candlestick maker, every other business can
offset their finance costs against their profits, except buy-to-let.
The
issue caused by Section 24 Tax is that some landlords ended up paying more income
tax than they really made in profit after paying their buy-to-let mortgages.
Meaning on the back of rising Neath house prices in the last five years, some Neath
landlords have sold their buy-to-let investments.
- 3% More Land
Transaction Tax for Landlords
When someone buys a property,
they normally must pay a tax to the Government for the privilege. This tax is
called Land Transaction Tax. Yet landlords must pay an additional 3% land
transaction tax supplement on top of that when they purchase a Neath buy-to-let
property. Evidence suggests some Neath landlords have decided to hold off or
scale back buying additional buy-to-let properties for their portfolio because of
the thousands of extra pounds that landlords have to pay to buy the rental
property.
- Holiday and
AirBnb Lets
Some
Neath landlords are converting their long-term rental properties into short-term
furnished holiday and AirBnB properties. Whilst the hassle, stress and service
levels are much higher, these types of properties do tend to make more money
and aren’t as heavily taxed as normal lets. When properties convert to
short-term lets, it removes another Neath property out of the general supply chain
of long-term rental properties.
- Greater
Legislation for Rental Properties
With
more than 150 pieces of legalisation, and new laws being added each year, the
burden on landlords is huge. On the horizon is the Renters Reform Bill which
will remove the no fault evictions. Also, all rental properties with an Energy
Performance Certificate (EPC) rating of below a ‘C’ will have to be improved (i.e.
money spent on them) by the landlord. This could be more than £10,000 per
property. Hence, why some Neath landlords have been selling their rental
properties with low EPC ratings in the last 18 months.
- Accidental Landlords
Selling Up
There are some Neath landlords who are
classed as ‘Accidental Landlords’. In 2008/9, with a slowing property market
and house price values dropping in the order of 16% to 19% (depending on the
type of property) some Neath homeowners decided to let their home out as
opposed to selling it at a loss. Yet, with the price booms of the last 18
months, many decided to cash in on the higher property prices and sell – again
taking another private rental property out of the system.
So, why is demand of private rented homes in Neath increasing,
even though more people own their home in Neath than 5 years ago?
Even
with better provision of affordable social housing and higher rates of owner
occupation in Neath (rising from 66.24% of homes in Neath being owner occupied
in 2017 to 68.67% in 2021), demand for private rental property continues to
outstrip supply.
There are many reasons behind this including:
- People are living longer, meaning not so many properties are coming back into the mix to be recycled for the younger generation.
- Net migration to the UK has continued at just over a
quarter of a million people a year since 2017, meaning we need an additional
115,000 households to house them alone.
- For the last two years, one in six of the owners of
properties that have been sold have moved into rented accommodation instead of
buying on because of the lack of properties to buy.
So, what is the outcome of the imbalance between supply and demand
on Neath rental properties?
Quite
simply – Neath rents have rocketed. They are 6.8% higher today than the spring of
2020 … and that’s on the back of rents being 5.2% higher in spring 2020,
compared to spring of 2019.
The
severe shortage of housing in the private rented sector is pushing up rents in Neath
as demand continues to grow. Many Neath people are finding it hard work to find
appropriate accommodation at a reasonable rent, and with mounting numbers of tenants
predicted to continue, this situation will only get worse unless more houses
are built.
My
heart goes out to those Neath tenants struggling with the cost-of-living
crisis, only to then be hit by higher rents.
Yet,
these higher rents are now enticing new landlords back into the Neath
buy-to-let market because of the higher returns.
With
higher inflation, property investment has been seen in the past a safe harbour
to invest one’s money in. With the bonus of rising yields (because of the
increase in rents) together with the nervousness of the Bank of England to
increase interest rates too much because of the issues in Eastern Europe, this
could be the start of a second renaissance in the Neath buy-to-let market.
If
you have concerns about the issues in legislation and taxation, then the
advantage of employing a letting agent, with the choice of property, what you
pay for it and how it’s managed, will go a long way to mitigate them.
If
you are considering getting into the Neath buy-to-let market for the first time
or expanding your property portfolio (whether you are a client of mine or not)
please do not hesitate to give me a call and we can discuss these matters
further.
