I blogged about the increased demand, for rental properties in Brighton at the end of September and promised to post an update when I got to the bottom of what has turned Brighton into this paradise for landlords on the south coast.
These are my conclusions.
First, there are 3,000 properties typically on the market in Brighton & Hove. Usually there is a 50/50 balance between the rental and purchase stock. In September & October, the notional norm of 1,500 available rental properties dropped to 300.
The drop in numbers of available rental properties is primarily as a consequence of
Landlords having sold some or all of their property portfolio to avoid paying the higher rate of Capital Gains Tax
Current renters staying extending their lease instead of buying either because of uncertainty in the purchase market or because they can’t secure a mortgage
So supply is restricted while demand continues to increase. Because of its reputation as a great place to live and work, Brighton continues to attract more and more people. It has also been said that the number of students coming into Brighton to study English as a foreign language is up 25% on last year. Some of these students are quite affluent and have higher aspirations than slumming it in student diggs. This puts further pressure on the £600-£900 per month rental segment, which traditionally has been the target for young professionals.
So, from both a supply and demand perspective, Brighton continues to be a good place to be a landlord.
So what is happening on the For Sale market?
There are still approximately 3,000 properties on the market, but with 300 being up for rent, that means 90% of available properties in the Brighton & Hove area are for sale.
As a consequence of landlords selling, the market for flats in particular has become depressed. I wouldn’t say the market is flooded with apartments for sale, but there are more available than the demand requires. Sale lead times are long and price is often the only differentiator. Flats are also less popular as an investment vehicle because you can do less to improve an apartment and the opportunity for capital appreciation is less – you can redecorate or refresh the kitchen or bathroom but you can’t add an extension or convert a loft like you can in most houses.
The sales of houses, especially larger properties that are well located and maintained, is better, but still sluggish. Houses continue to be the popular choice for families and, with limited new builds, there is less chance of over-supply dragging prices down in the future. If you are thinking of investing in property, houses are where the smart money is going.
The main issue holding back the market is the continuing restriction of mortgage availability, and things do not appear to be getting better any time soon. If you can secure a mortgage, you obtain the best rates with equity or a deposit of 40% (or more) of the property valuation; not many qualify. And in the age of supreme financial caution, housing valuations are very conservative today. The banks are doing everything to protect themselves from mortgage defaults and the threat of negative equity, which in itself is not bad business practice. However, it is in sharp contrast with lending practices between 2000 and 2007 and, in my opinion, it is clear the pendulum has swung back too far.
