Sunday, 20 November 2022

Royal Tunbridge Wells Tenants Face Further Rent Hikes, as the Number of Available Rental Homes Drops by 56%


 

  • The number of properties available to rent in Tunbridge Wells has dropped from 492 to 218 since February 2020.
  • The average rent a tenant has had to pay in Tunbridge Wells has risen from £1,163 to £1,406 since February 2020.
  • Many Tunbridge Wells landlords have cashed in on the post-lockdown property boom of the last two years and sold their properties to owner-occupiers - not fellow landlords.
  • The supply of Tunbridge Wells rental property isn't near what is needed, which is of benefit to Tunbridge Wells landlords rather than Tunbridge Wells renters. 

 

The Tunbridge Wells rental property shortage is currently very evident. In this article, I will investigate why there is such a significant lack of homes available for rent across Tunbridge Wells and what it means for buy-to-let investors.

Anybody who enjoys surfing the property portals (Rightmove, Zoopla and On the Market) will have observed an emerging trend that the number of properties available to rent in Tunbridge Wells has dropped considerably in the last couple of years.

This reduction has been seen all around the UK as well. For example, on 1st November 2020, there were 372,931 properties to rent on portals. By the 1st November 2021, that had dropped to 275,650; by the 1st November 2022, that had fallen to 171,224.

That doesn't mean the number of privately rented homes in the country has dropped by over half. Fewer properties are coming onto the market to rent. I will explain why in this article.

 



 

 

For tenantsespecially over the last 12 months, it has become progressively more challenging to find a Tunbridge Wells rental homethus making the rent they must pay go up. This state of affairs in the property market isn’t showing an indication of getting any easier either, making for a hard time for Tunbridge Wells renters. 

So, what is the reason behind the Tunbridge Wells rental property shortage, and what does this mean for existing Tunbridge Wells landlords or those potential investors considering buying a Tunbridge Wells buy-to-let property soon?

Several different components are making the perfect storm in the UK property market.

Firstlythe number of households in the UK. 

The UK has not been building enough homes for the last 20 years. I appreciate that parts of Tunbridge Wells seem like one huge building site, yet as a country, we are woefully undersupplied with property to live in. This has meant house prices continue to rise due to demand 

The government have known about this issue for decades. The Barker Review of Housing Supply published in 2004stated that the UK had experienced a long-term upward trend of 2.4% in real house prices since the mid-1970s because of a lack of house building. The report stated that 240,000 houses needed to be built each year to keep up with demand. 

The average number of houses built since the mid-1970s has been around 165,000 per year, meaning the UK is short of 3,375,000 houses

(i.e., 45 years multiplied by 75,000 missing homes per year). 

Several years ago, the government set a target to build 300,000 new homes each year to address this issue

However, in 2019/20, the actual number of homes delivered stood at just 243,770. In 2020/21, the number of properties built dropped to only 216,000 new homes. In a nutshellthere are fewer available homes to buy, meaning fewer available homes to rent 

SecondlyTunbridge Wells tenants are staying in their rental homes longer.

Tunbridge Wells first-time buyer's average house deposit is £60,953

(the UK average deposit is £53,935).

The average rent of a Tunbridge Wells property in November 2022 is £1,406 per calendar month (up from £1,163 per calendar month in February 2020) – quite a rise!

These numbers translate into Tunbridge Wells renters not being able to pay the rent and be able to save for a deposit, or if they are saving, it is taking a lot longer to save for a deposit due to the cost-of-living crisis and higher rent costs.

Also, many Tunbridge Wells tenants have decided to stay in their existing rental homes because of the rent rises. Many landlords are less inclined to raise the rent on an existing property when they have a decent tenant who keeps the property in good condition and pays rent on time. Anecdotal evidence also suggests that rent arrears in those properties are dropping as tenants know if they don’t pay the rent, the chances are they will have trouble finding another property, and if they do, they will have to pay a lot for their next rental home.

For Tunbridge Wells landlords, this is all positive news -tenants are staying for longer in their Tunbridge Wells rental properties, arrears are lower, and void periods are less likelyWhen it comes to the market, there is less competition (because of the decrease in the availability of Tunbridge Wells rental properties) so this makes the investment an even better bet.

Thirdlylandlords are selling up on the back of recently increased house prices. 

 It would be difficult for Tunbridge Wells buy-to-let landlords to ignore the rising property prices in recent years

The average property value in Tunbridge Wells in the summer of 2022 was 13.2% higher than in the summer of 2021. 

For some Tunbridge Wells buy-to-let landlords, especially those who were classified as ‘accidental landlords’ (an accidental landlord is a landlord who never chose to become a landlord, it was just after the Credit Crunch of 2008/9, they found themselves unable to sell their property, so they temporarily let their own property out), they chose to ‘cash in’ on the higher house prices. This would have also contributed to the lack of available Tunbridge Wells homes for rent.

Yet everything isn’t all sweetness and light for Tunbridge Wells landlords.

Landlords have a few costs to consider before investing in buy-to-let, including everything from regular refurbishment costs, buildings insurance, letting agents’ fees, income tax, and, not forgetting, stamp duty

Talking of costs, one issue some Tunbridge Wells landlords are facing is their failure to plan financially for the recent mortgage interest rate risesSome Tunbridge Wells landlords may have become complacent to the ultra-low Bank of England base rates we have had since 2008 and, therefore, may need to sell their rental property, which, if bought by a first-time buyer, will remove another property from the Private Rented Sector.

Another hurdle to jump is the proposed new regulations requiring better energy efficiency for rental properties. It is proposed all new tenancies must have at least a minimum of a 'C’ rating for their EPC (Energy Performance Certificate)from 2025 (and 2028 for all existing tenancies).

Therefore, as a buy-to-let Tunbridge Wells landlord, it is wise to do your research to make sure the buy-to-let opportunity is correct for your rental portfolio, particularly when it comes to weathering any impending financial storms.  

Landlords need to consider the returns from their

Tunbridge Wells buy-to-let investments. 

Landlords can earn money from their buy-to-let investments in two ways. One is the property's capital growth, and the other is the rental return (often expressed as a yield). In 96% of buy-to-let investments, there is an inverse relationship between capital growth and yield (i.e., properties that tend to go up in value quicker will have lower yields 96% of the time – and vice versa).

Getting the best balance of yield and capital growth depends on your current and future needs from your Tunbridge Wells buy-to-let investment.

If you would like me to review your portfolio and ascertain if your existing portfolio will match your current and future needs for the investment - whether you are a client or not, feel free to drop me a line, and we can have a no-obligation chat and possibly organise a review. 

What does all this mean for the Tunbridge Wells rental market?

The continued shortage of Tunbridge Wells rental properties means it will be more difficult than ever to find a Tunbridge Wells property to rent, and so rents will continue to grow.

Unlike in ScotlandEngland and Wales do not have rent controls, with Westminster ruling out the possibility of introducing rent control here to deal with the cost-of-living crisis.

You would think rent controls would be a no-brainer, yet economists from around the world have proved for the last 75 years that rent controls might help tenants in the short term, yet ultimately it drives landlords to sell their investments in the long term, thus reducing the stock of available properties to rent out (not great for future tenants).

Therefore, it is highly likely that Tunbridge Wells rents

will continue to rise for tenants.

Landlords who persevere with their Tunbridge Wells buy-to-let properties or become a Tunbridge Wells buy-to-let landlord are set to benefit because they have an asset in very high demand. 

The housing shortage, not to mention the other issues discussed above that are affecting the supply of rental properties, is unlikely to be fixed anytime soon!

In conclusionthe Tunbridge Wells rental market is a constantly changing picture. What is known is that the supply of rental properties is far from what is needed, which can only be to the benefit of buy-to-let investors rather than of tenants renting. 

I see buy-to-let as a long-term investment. Everyone reading this knows that the real value in your buy-to-let investment is playing the long game, allowing your Tunbridge Wells buy-to-let investment to grow over time. Like the crypto or stock market, getting sucked in by get-rich-quick schemes that are selling 'apparent quick wins' in property investment is very easy.

I regularly highlight the best buy-to-let deals for Tunbridge Wells landlords with all the estate agents (not just my own). You don't need to be a client of mine either to receive that information. Drop me a line or call (without any cost or obligation) if you are interested in making your first Tunbridge Wells buy-to-let investment or considering adding to your existing Tunbridge Wells portfolio.

 


 


Sunday, 6 November 2022

Waiting for the Royal Tunbridge Wells House Market to Crash will Cost you £63,283


Doom and gloom in the British property market or clickbait doom-mongers?

Newspapers and clickbait 24-7 news websites, desperate for clicks, are peddling a story of a doomsday time for the economy, particularly the property market, as interest rates and inflation create the perfect storm for the UK property market.

So, let us look at what is happening in the British property market and whether house prices will drop.

Yes - Tunbridge Wells house prices will be lower in 24 months.


Yet the reductions in what I believe a property will sell for in the next couple of years compared to the doom-mongers is wildly different.

The doom-mongers are saying the 2022 property market will be like the crash years of 1988 and 2008.

I'm afraid I have to disagree, let me explain what the difference is this time compared to the previous house price crashes.

To start with …

56.25% of homeowners don’t have a mortgage, whilst in 1988, that was 35.8%. These people are shielded from the interest rate rises.

The next point is negative equity.

Yes, negative equity was an issue after 1988 when everyone had an endowment mortgage, so they never paid any of the capital off their mortgage. Therefore, when house prices dropped, negative equity was a massive issue as people owed more than what their house was worth.

By 2008, nobody was taking out endowment mortgages, yet still, 1 in 2 were interest-only mortgages (meaning the capital wasn’t being paid off). Today, 17 out of 20 homeowners are on repayment mortgages - so they have more home equity, so negative equity isn't so much an issue.

The issue is the increasing interest rates. Yes, they are rising … albeit from artificially low rates.

In 1988, nearly everyone was on a variable rate mortgage and an average mortgage interest rate was 10.8%, and they rose to 16.4% by 1990. That hurt, yet most survived.

In 2008, 6 out of 10 homeowners had learned their lesson and were on fixed rates at an average rate of 6.07%. Today 17 out of 20 homeowners have long-term fixed rates with an average of 2.14%.

Also, it must be noted that homebuyers have been stress tested for 6% to 7% mortgage rates since 2014 because of the Bank of England MMR rule changes. It will be challenging, and lifestyle choices will need to be made, yet we should not see the dumping of houses on the market as we did in 2008/9.

The next issue is the number of mortgages being pulled. Yes, around 1,000 mortgage deals have been removed in the last week - yet there are still 3,000+ deals out there … and most are still fixed rates.

Also, let’s not forget that 1 in 5 people rent today and are protected from all this, yet in 1988, only 1 in 14 rented. 

Therefore, the economic conditions surrounding the house price crash in 1988 and 2008 are not there now.

Don’t get me wrong, those homeowners coming off their fixed rates of around 2% in the coming years will have to make tough choices as they will see their monthly mortgage payments rise substantially.

Yet, as I have discussed in other articles, extending your mortgage term can significantly affect your monthly mortgage payments and there are things that homeowners should be doing now to mitigate the issue in the coming few years.

But back to the question, should people wait to move, and what will happen to Tunbridge Wells property prices?

I believe that subject to nothing seismic happening in the world, Tunbridge Wells property values will be broadly neutral and slowly drift downwards over the next 24 months. I believe they will drift because of the issues of inflation and mortgage affordability, yet we won’t have a crash for the points made in the first part of this article. I believe Tunbridge Wells property will be selling for sums of 4% to 6% less in a couple of years compared to today.

This means if we achieve prices of 4% to 6% less, homeowners will still be getting the same prices the property market was getting in the summer of 2021 – again – nobody was complaining about those!

However, let us assume I am wrong with my thoughts, and we see a significant house price crash; what then?

Well, let me look at the last two house price crashes first.

  • The housing crash of 1988 saw the average house in the UK drop from £63,784 to £50,167, a drop of 20.09%.

  • The housing crash of 2008 saw the average house in the UK drop from £184,132 to £154,065, a drop of 16.33%.

So, let’s assume that Tunbridge Wells house prices fall by 18% - surprisingly, it will not help Tunbridge Wells buyers.

In previous house price crashes, people tend to find their careers are more at risk, and in turn, their wages don't rise as much. It is the younger generation (i.e., first-time buyers age range) that often gets hit the toughest by these recessions.

Let me look at Tunbridge Wells first-time buyers.

If Tunbridge Wells first-time buyers wait until 2024 to buy and Tunbridge Wells property values drop by 18%, that will prove more expensive. Let me explain why …

In the last property crash of 2008, lenders withdrew 5% deposit mortgages. The smallest mortgage that first-time buyers could obtain was with a 10% deposit, and even those were hard to come by.

When writing this article, first-time buyers can obtain a 5% deposit mortgage for a fixed rate of 3.92% for five years.

The typical first-time buyer terraced house in Tunbridge Wells sells for £434,566.

If first-time buyers were to buy now, on this mortgage deal, they would have to find a £21,728 deposit, and their monthly mortgage payments would be £1,808.18 per month.

So, let’s say property values in Tunbridge Wells do drop by 18% in the next 24 months; the terraced house would now be worth £356,344, a significant saving in the purchase price.

Or is it?

Everyone believes the Bank of England will raise interest rates further, so let's assume they go to 5.5% by the autumn of 2024. That will mean the rate for a 10% deposit first-time buyer mortgage will be in the early 7%’s, so let me assume 7.19% (because the lenders have in the past increased the gap between the Bank of England base rate and the mortgage rate in more challenging economic times to allow for the extra risk).

The monthly mortgage payment in two years on the 7.19% mortgage would be £2,091.75 per month, and in those two years, you would have had to have saved an additional £13,906 to make up your 10% deposit of £35,634.

So even if Tunbridge Wells house prices did drop by 18%, the first-time buyer would be £3,403 worse off a year in mortgage payments (and would have to save many thousands extra for their deposit) 

... and then there is the other cost of waiting.

You have two years’ worth of rent to pay. The average rent for a Tunbridge Wells property is £1,632 per month.

If you waited a couple of years for Tunbridge Wells house prices to drop by 18%, you would spend £39,168 in rent plus have higher mortgage payments in 2024/5/6 and with the extra deposit mentioned above it would add up to an additional £63,283 over the next five years.

Yes, the price you paid for your Tunbridge Wells home would be lower if you waited two years. Yet, you would only benefit from that when you sold on versus the economic pain of two years of extra renting, the higher deposit and higher mortgage payments in a couple of years.

This doesn't even consider the emotional cost of putting your life on hold for two years, and there is no guarantee that the mortgage lending criteria in two years would allow you to step onto the property ladder.

So, now I have shown that waiting will cost you financially and emotionally, what are your thoughts on the matter?

Tunbridge Wells house prices will drop, yet did you realise it will cost you more, even if house prices are falling?

Do you believe the doom-mongers, or do you believe in the robust nature of the British economy?

Don’t forget, George Osbourne said house prices would drop by 18% in May 2016 if we voted to leave the European Union, whilst many economists said house prices would fall by 5% to 10% when Covid hit in March 2020.

And we all know what happened to those predictions now.

If you believe you will be better off owning your own Tunbridge Wells home rather than renting one, don't bother to wait for the suggested house price crash that may never happen.

These are my thoughts - what are yours? Let me know in the comments.

What Will Rishi Sunak as PM Mean for Royal Tunbridge Wells House Prices?


I often get asked what is going to happen to Tunbridge Wells house prices.

Many things affect house prices, and it comes down to simple supply and demand.

On the supply side of the equation, in the short-term, the number of people wanting to sell their property at any one time has a massive effect on house prices. 

In 2007, the number of properties that came onto the market in Tunbridge Wells jumped drastically. In January 2007, 873 properties were available for sale in Tunbridge Wells and by October in the same year, that had risen to 1,268 properties.

This flooded the market with houses to buy whilst, at the same time, the banks almost stopped lending money because of the Credit Crunch, thus causing the house price crash of 2008.

Also, on the supply side of the equation is the total number of houses in the whole country (irrespective of whether they are on the market or not). This is an essential factor in house prices, although that has a longer-term effect

Governments can control the number of properties being built with changes in planning regulations, incentives for builders and the buyer schemes such as the Help to Buy plan.

On the demand side of the equation, property values typically rise if homeowners believe they will be wealthier in the future.

Typically, that occurs when the whole country’s economy is performing well as more Brits are in work and salaries are higher.The opposite is also the case when the economy goes into recession; people tighten their spending, lose their jobs, and thus, house prices drop. Inflation will affect British household budgets (because if more of the household budget is going on increased bills, there is less available for mortgage payments).

Another factor on the demand side for housing is when the population increases (through people living longer or increasing net migration) or when the divorce rate increases (making one family household into two single-person households). As always, rising demand typically means higher house prices.

One aspect of the demand side of housing that the Government can control is the taxation of moving home. In the late spring of 2020, the Government vastly reduced the tax (Stamp Duty) paid to buy a house, saving many home buyers thousands of pounds. 

Also, on the demand side, property values usually increase if more homebuyers can borrow more money with a mortgage to buy their home.

The more banks and building societies can offer mortgages, the more homebuyers can buy their future home, thus raising house prices.

However, the constraint is the amount a home buyer can borrow on a mortgage.

What someone can borrow depends on what they earn and if they can afford the monthly mortgage payments. The level of mortgage payments is dependent on three things. 

1. How much you borrow
2. The interest rate charged
3. The length of the mortgage

The lower the interest rates are, the lower the cost of borrowing to pay for your house is and thus more people can afford to borrow money with a mortgage to buy a home, meaning house prices tend to go up.

Tunbridge Wells house prices have risen by 85.86% between 2010 and today, mainly fuelled by low interest rates.

So, looking at everything above, apart from Stamp Duty and the incentives for buyers (which historically have made a minimal difference), the Government in the short-term, irrespective of who the Prime Minister is, makes little difference directly to house prices.

The most significant short-term factor which directly affects house prices is interest rates.

However, the Bank of England (not the Government) sets the interest rate for the UK economy. That means the Government (and Rishi as PM) cannot directly make any differences in house prices (apart from the points raised above).

Yetindirectly, as seen with the Liz Truss / Kwasi Kwarteng Mini-Budget catastrophe only a few weeks ago, what the Prime Minister (and their Government) does can make a massive difference to interest rates and, thus, the property market and house prices.

Since December 2021, the Bank of England has been slowly raising interest rates to combat inflation. Unfortunately, the downside is that it increases the mortgage rates homebuyers must pay if they are on a variable-rate mortgage or coming off a fixed-rate deal secured a few years ago.

As 17 out of 20 homebuyers have a fixed-rate mortgage, when a bank or building society calculates a 5-year or 10-year fixed-rate deal, they consider what the Bank of England interest rate is today, but they also consider something equally important, something called the 'swap rate'.

As Tunbridge Wells homeowners and landlords, it is vital you should be aware of the swap rates as they are based on what the global money markets think future UK interest rates will be.

If the swap rate rises, then mortgage lenders will increase their rates on the mortgages they offer, and by doing so, (as discussed previously in this article), increased mortgage rates will affect affordability and, thus, house prices.

So, what affects UK swap rates? Mainly one thing, the price of government debt in the form of gilt yields.

Given the vast increase of planned government debt originally announced in that mini-budget by Truss/Kwarteng, the money markets who would be lending the Government the billions of pounds to fund those tax cuts got worried the Government wouldn’t be able to pay back such a rise in borrowing, so wanted a higher rate of return on the money they were lending the Government.  

That return is measured in the 'gilt yield rate', and the gilt yield rate directly drives the 'swap rate.'

That rise in the gilt yield rate/swap rate was the main reason mortgage rates rocketed after the mini-budget and helped in the collapse of Liz Truss's Prime Ministership.

So, what can Tunbridge Wells homeowners expect in the coming weeks and months with gilt/swap rates?

Rishi Sunak’s first job was to re-establish confidence in the money markets for UK plc. During the summer, the 5-year gilt rate rose steadily from 1.6% to 3.5%, in line with the general rise in Bank of England base rates. Yet when the mini-budget was delivered on the 23rd of September 2022, that rose almost straight away to 4.6%. 

That meant every mortgage rate jumped in price by 1 to 1.5% almost overnight.

At the time of writing, the 5-year British gilt yield has dropped to 3.5%, and the others have either dropped below their pre-mini-budget rate or were moving in that direction, depending on the gilt type.

The gilt rate (which directly affects the swap rate, which in turn, directly affects mortgage interest rates) could drop further, subject to what Rishi Sunak and his Chancellor Jeremy Hunt have planned in the budget (and supplementary report from the Office for Budget Responsibility) on the 17th of November 2022.

A drop in the gilt/swap rate is vital for any Tunbridge Wells homebuyer buying a house or homeowner re-mortgaging to a new mortgage deal. Why? Because...

with the average local home worth £570,244 (a rise of 7.33% over the past year), each 1% extra in the mortgage rate would cost every Tunbridge Wells homeowner an additional £475.20 per month.

So, what does this all mean for house prices, then?

Greater certainty will keep the volume of housing transactions ticking over, yet not inescapably Tunbridge Wells house prices.

In my blog articles on the property market in the area, I believe Tunbridge Wells house prices will be lower in 12 months, and I expect prices to return to where they were in the late spring/early summer of 2021. 

And why is that? Unlike the 2008 Credit Crunch house price crash, today, the country has very low levels of unemployment and very well-capitalised banks (because the Bank of England subsequently forced them to keep lots of cash in their banks to cover downturns). Therefore, I don’anticipate the kind of double-digit house price decreases seen 14 years ago.

If you would like to pick my brain about the property market, be you a potential first-time buyer, a homeowner looking at your options on re-mortgaging or selling, or, in fact, anyone with questions, don't hesitate to drop me a line. I will gladly share my thoughts and opinions without cost or obligation.