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 tenants, especially over the last 12 months, it has become progressively more challenging to find a Tunbridge Wells rental home, thus 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.

Firstly, the 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 nutshell, there are fewer available homes to buy, meaning fewer available homes to rent.  

Secondly, Tunbridge Wells tenants are staying in their rental homes longer.

A 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 likely. When 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.

Thirdly, landlords 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 rises. Some 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 Scotland, England 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 conclusion, the 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.

 

 

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?

What will the stamp duty cuts and interest rate rises mean for Tunbridge Wells homeowners and landlords?

Recently, 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 Tunbridge Wells 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 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

 property owners?

 

Previous PM Liz Truss and Chancellor Kwasi Kwarteng believed that cutting stamp duty would 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 property market? Looking at recent events in the local property market is the best place to start.

 

Of the 1,926 transactions in the  area since June 2021, 336 were below £250,000. These would now be tax-free!

 

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

 

Anyone currently buying a house 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. 

 

 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 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 rising costs in 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 Tunbridge Wells property stands at £556,301 and has risen 20.9% 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 house prices?

 

I believe the growth in Tunbridge Wells 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 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 Tunbridge Wells, 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, 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?