A Goodbye To All That Buy To Let

[spyguy]

43 minutes ago, Si1 said:

Because retraining as a landscape gardener at the age of 40 whilst simultaneously going balls deep into BTL is clearly a carefully researched sensible life strategy.

 

"Lewis, retraining to be a landscape gardener, already has one other buy-to-let property – an end-of- terrace two-bedroom house in Bradford. He says: 'It's frustrating that we are always being told to fend for ourselves and build investment portfolios to fund our retirement.

'But when we oblige, the Government changes the rules and makes it harder for us to build wealth.'"

Investment??

Did he buy that Bradford house for cash then?

[Arpeggio]

52 minutes ago, Si1 said:

Because retraining as a landscape gardener at the age of 40 whilst simultaneously going balls deep into BTL is clearly a carefully researched sensible life strategy.

How ironic

Due to things like BTL, HPI and high rents the UK housing situation doesn't grant many with much of a garden......let alone having any funds left to pay a gardener.

https://www.payscale.com/research/UK/Job=Landscape_Gardener/Hourly_Rate

Edited February 8, 2018 by Arpeggio

[Si1]

25 minutes ago, spyguy said:

Investment??

Did he buy that Bradford house for cash then?

Phrases like 'building investment portfolios' and 'build wealth' tells me he's been reading BTL books or going on seminars.

[rollover]

Tax and mortgage crackdown cuts buy-to-let investment by 80pc

Figures released yesterday by IMLA, the mortgage broker trade body, show that the value of new money raised to invest in buy-to-let properties has fallen by 80pc, from £25bn in 2015 to just £5bn in 2017.

Yahoo

[thewig]

there can only be 80% less tenants for this to happen.

simple supply and demand in action again

 

edit; or 80% more rental props

Edited February 9, 2018 by thewig

[Bland Unsight]

TL;DR version

• Growth in CML/UK Finance 12-month rolling totals of BTL loans for purchase was positive throughout Q1 2011 to Q3 2016
• Since Q3 2016 it has been negative
• Given current size of the stock of buy-to-let mortgages as the rate of purchases drops it doesn't take a large proportion of sellers from the stock to turn the BTL sector into a net seller
• If the rate of purchases as of December 2017 persists you only need about 3% of the stock of BTL borrowers to become sellers in order to turn the BTL sector in aggregate into a net seller

The grim detail

The CML are very stingy with the buy-to-let data that they put in the public domain, hence apologies for stitching together an apparently random collection of data and graphs.

Back in July 2015, just after the Summer Budget where Osborne announced section 24 the CML published this chart:

CML Buy-to-let activity, rolling year totals, % change year-on-year

Source

You can roll forward that chart to more recently with this chart

UK Finance 12-month rolling totals growth rate for house purchases

Source

 

In April 2015 they published this chart

CML Number of buy-to-let loans advanced for house purchase and remortgage per month

Source

Today UK Finance (which is the CML amalgamated with some other finance pimps and re-branded) released its  latest News in Brief, titled "First-time buyers in 2017 reach decade-high but market cools in December"

Quote

There were 5,300 new Buy to Let (BTL) house purchase mortgages completed in December, some 17.2 per cent fewer than in the same month a year earlier. By value this was £0.8bn of lending in the month, 11.1 per cent down year-on-year.

Source

Putting that all together, by eye-balling the chart of the number of loans you can see that there were about 85,000 loans for purchase in the year to January 2015.

Using the chart of rolling total growth rate you can see that there were 20% more in the year to January 2016, so call it 102,000 (being suitably sceptical about the third significant figure - and cautious with the second) and then by January 2017 it's down 20% again so now 82,000.

Doing some very dull grunt work with the data that UK Finance does publish I can infer their monthly BTL loans for purchase for 10 of the 12 months to December 2017 and get an average of 6,100/month indicating about 73,000 purchase in the year to December 2017.

We're now 18-month down the line from the distortion that followed from the SDLT hike on additional residential property and annual BTL lending volumes for purchase are still shrinking.

The CML were saying the same thing themselves back in September 2017 based on the figures for the year to July 2017

Source

 

Edited February 13, 2018 by Beary McBearface

[Patient London FTB]

59 minutes ago, Beary McBearface said:

 

• If the rate of purchases as of December 2017 persists you only need about 3% of the stock of BTL borrowers to become sellers in order to turn the BTL sector in aggregate into a net seller

 

Wonder how strong a link there is between the number of BTL sellers and the number of BTL remortgagors? 

Possible that more remortgaging = more equity extraction to be spent on funding further BTL purchases, while less remortgaging = more difficulty of refinancing current portfolio and increased likelihood of selling. 

Here's remortgage volume data from the CML:

 

 

[Bland Unsight]

49 minutes ago, Patient London FTB said:

Wonder how strong a link there is between the number of BTL sellers and the number of BTL remortgagors? 

Possible that more remortgaging = more equity extraction to be spent on funding further BTL purchases, while less remortgaging = more difficulty of refinancing current portfolio and increased likelihood of selling. 

That's a good point, and going forward given the level of reversion rates (4.5% to 5.5%) and the tapering in of section 24 anyone who can remortgage will be remortgaging.

Also, shouldn't we be seeing seeing the beginning of the run-up in remortgaging as all the 2-year fixes written for purchases ahead of the April 2016 SDLT surcharge reach the end of their term? If the March numbers aren't much firmer then that could be sign of something.

Bit odd that both values and volumes are down against December 2016

Quote

There were 9,900 new BTL remortgages completed in December, some 11.6 per cent fewer than in the same month a year earlier. By value this was £1.6bn of lending in the month, 11.1 per cent down year-on-year.

Source

[Neverwhere]

There's certainly seems to have been a decrease in the amount of BTL MEW, as of last summer:

Quote

Market commentary June 2017

Chart 1: Proportion of buy-to-let remortgages, by re-leveraging status

Reliance on buy-to-let remortgages, or consent-to-let on existing mortgages, to fund onwards purchases might also have something to do with the dip in house purchases by home movers?

7 hours ago, Beary McBearface said:

You can roll forward that chart to more recently with this chart

UK Finance 12-month rolling totals growth rate for house purchases

Source

 

[Ah-so]

17 hours ago, Beary McBearface said:

 

UK Finance 12-month rolling totals growth rate for house purchases

Source

I particularly like this graph. Look forward to seeing it run for all 2017 as well.

[winkie]

Is there a graph to show the rise of buy or inherited to rent with no debt or less than 25% loan to value?

Is it noticeable that the once highly leaveraged are paying off lump sums of debt from rented property using other savings and investment?

[Neverwhere]

With the caveat that - AFAICS - they're only looking at securitised BTL loans that haven't refinanced since origination, this report from S&P Global is pretty interesting:

Quote

Buy-To-Letdown? Recent RMBS Loans Will Struggle With The Perfect Storm Of Regulation And Tax Hikes

• Tax changes will lower the post-tax profitability of almost all BTL loans, and for some loans lead to losses. We calculated that post-tax profitability will reduce by 21%, on average, and estimate that 4% of the 160,000 loans we have analyzed would transition from being profitable under the old tax rules to creating losses by 2021. The proportions of loss-making loans will increase as the tax system becomes less generous between now and 2021.
• Borrowers of recently BTL loans originated will be most affected. We calculated that, if rents cannot be increased, 60.4% of the loans originated in the 2014, 2015, and 2016 vintages will become loss-making compared to the sample average of 4.0% by the time the tax changes become fully effective. For loans secured by property in the South East of England and London originated in 2014, 2015, and 2016, we calculated that 62.5% of loans will become loss-making by 2021. Furthermore, we estimate that 35.5% of the loans we analyzed will struggle to obtain the same leverage they currently enjoy if they try to remortgage with another lender.
• The new tax regime will make BTL viability highly sensitive to rate rises. By 2021 only 80 pence of any £1 of interest cost suffered by investors in servicing a loan will be tax-deductible. In instances where rent cannot be raised, we estimate that even a 1% or 2% increase in rates and will lead to 6.8% of loans (with a 1% rate rise) and 17.8% of loans (with a 2% rate rise) of loans becoming loss-making by 2020/21. Whilst some element of rate rises may be passed on to renters, we view it as unlikely that any significant rate spike could be passed on.
• We view a "fire sale" scenario, where large amounts of BTL property is placed for sale, which in turn could affect the wider housing market quickly and disproportionality, as unlikely. We believe the phased introduction of the full impact of changes in income tax treatments will give borrowers time to adjust their strategies to the new landscape.

(Covered in the FT as ‘Sixty per cent of older buy-to-let loans will become loss making’; h/t jimmyblueeyes)

I think they're missing a trick on the "fire sale" scenario because they don't appear to be considering the impact on prices of changes in purchasing power, with even buy-to-let landlords increasingly unable to afford them, or what would happen if prices falls were added in to all of the above.

[Tapori]

On 4/9/2018 at 7:28 PM, Neverwhere said:

With the caveat that - AFAICS - they're only looking at securitised BTL loans that haven't refinanced since origination, this report from S&P Global is pretty interesting:

(Covered in the FT as ‘Sixty per cent of older buy-to-let loans will become loss making’; h/t jimmyblueeyes)

I think they're missing a trick on the "fire sale" scenario because they don't appear to be considering the impact on prices of changes in purchasing power, with even buy-to-let landlords increasingly unable to afford them, or what would happen if prices falls were added in to all of the above.

[Bland Unsight]

Passing comment on buy-to-let in London in today's FT. I'll keep the quote short in order to stay in line with fair use. The article title is "Sound of silence sweeps through Maida Vale’s housing market", google will do the rest. Link for FT subscribers.

Quote

A drop in investment purchasers has been a key factor, say agents. Across the Maida Vale part of W9 in 2014 and 2015, buy-to-let investors “were about three quarters of our market”, says Frost-Wellings. 

The Frost-Welling goes on to say that it's now more like 25%. 

[Si1]

4 hours ago, Beary McBearface said:

Passing comment on buy-to-let in London in today's FT. I'll keep the quote short in order to stay in line with fair use. The article title is "Sound of silence sweeps through Maida Vale’s housing market", google will do the rest. Link for FT subscribers.

The Frost-Welling goes on to say that it's now more like 25%. 

Peaked in 2014, given the benefit of a historical look

[Bland Unsight]

5 hours ago, Si1 said:

Peaked in 2014, given the benefit of a historical look

Good call by Damik, I reckon.

 

[Guest]

Hong Kong investors etc are going to be leaving soon too I imagine? The strengthening pound means the purchases are getting more expensive...

[Ah-so]

2 hours ago, Grab_Some_Popcorn said:

Hong Kong investors etc are going to be leaving soon too I imagine? The strengthening pound means the purchases are getting more expensive...

But surely that means the rent received gets higher too by the same amount.  And if we look back, we are only returning to fx rates seen in pre-referendum, and HK investors loved UK property back then too. 

I think that the massive glut in new build UK luxury  property is probably the driver. They can't sell the new stuff, let alone 2nd hand flats.

https://www.google.co.uk/amp/s/amp.theguardian.com/business/2018/jan/26/ghost-towers-half-of-new-build-luxury-london-flats-fail-to-sell

 

[hurlerontheditch]

14 minutes ago, TonyJ said:

I thought the Chinese don't rent out their properties - safe deposit boxes in the sky, forever brand new and untouched.

I rent off one

 

in saying that, next door is also owned by Chinese and was empty for a year

[Ah-so]

3 hours ago, TonyJ said:

I thought the Chinese don't rent out their properties - safe deposit boxes in the sky, forever brand new and untouched.

In which case they are just buying a more expensive asset. The FX rate does not have a big impact unless you take a view on it being over our under priced. 

[Bland Unsight]

A couple of posters were discussing the behaviour of buy-to-let investors on the 1/3 of Landlords thread, in particular they were posting about buy-to-let lending for purchase becoming more focused on regions where up to now house prices have stayed close to their levels at the end of the post-2008 falls, e.g. the North East (see, for example, @oatbake's post here).

There are few reasons to anticipate this happening. Firstly the marketing of mug buy-to-let often focuses on so-called 'gross yields' being just the ratio between a year's rent and the price of the house. Because London rents have only grown modestly whilst house prices have inflated wildly post-2013 London 'gross yields' have been crushed. Secondly, the changes to buy-to-let taxation and buy-to-let credit underwriting mean that much larger deposits are needed to make the numbers stack up. Whereas in the pre-2008 boom years 15% deposits were typical and 5% deposits could work a higher rate tax payer now needs a 40% deposit. If you're trying to buy in London today 40% of the price of a crap flat is an awful lot. Thirdly, we seen an apparently endless sequence of articles in the Telegraph telling us about all the buy-to-let hotspots being in the North.

I've held off on posting about this because to the best of my knowledge there is no public domain information about the geographical allocation of new buy to let lending hence there were two layers of speculation; was there actually a shift in the geographical allocation of investor purchases and if there was could it be taken as further evidence of the importance of buy-to-let to the level and direction of travel of house prices.

Apropos of all that I was intrigued by this report from PropertyWire (there is more at the link):

Quote

UK Finance, the industry body for finance and banking, is carefully monitoring the impact of recent legislative changes on the buy to let market.

It is liaising closely with the Government, the Opposition, and other key stakeholders on the other major challenges and opportunities facing the industry, UK Finance chief executive Stephen Jones told its annual lunch.

He told the audience that there are challenges ahead for residential lending. ‘In particular, we have seen a recent fall in buy to let investment, driven by recent tax and legislative changes. Our analysis shows the number of buy to let mortgages fell to 74,900 in 2017, down 27% on the previous year,’ he said.

But he explained that this impact isn’t being felt equally across the country. Investment has been more resilient in areas with higher yields, particularly in Northern England and Wales.
However in the high value, low yield regions, particularly in London and the South of England, investment is falling. ‘This risks putting upward pressure on rents in areas and supply of privately rented homes in areas where many people still can’t afford to buy their own home,’ he added.

Source: Lending industry body is monitoring impact of changes to UK buy to let sector, 24 April 2018

Because of the rubbish public domain information it's all very speculative but I can't see any obvious reason (apart from greater speculative investment by the buy-to-let brigade) why annual house price inflation in these regions should be running at about 5% when annual HPI in London and the South East is negative. Now that the UK Finance have offered a bit of public domain confirmation of the geographical shift in buy-to-let investment I think it's reasonable to float the idea that what is happening is suggestive evidence of the way in which interest-only buy-to-let 'punches above it's weight' when it comes to driving house prices, particularly now that median income owner-occupiers no longer have access to interest-only lending when financing purchases. There are other factors driving London down, but I'm damned if I can think of anything that is suddenly driving the North East up.

Edited April 24, 2018 by Beary McBearface

[happyguy]

On 8/3/2015 at 9:57 PM, fru-gal said:

f half of all 20-39 year olds are going to be renting in the PRS by 2025, you can bet Corbynomics is going to become more and more popular

it already is with council workers and those with no ambition

[bear.getting.old]

No need to cancel S 21 etc now then... https://www.lettingagenttoday.co.uk/breaking-news/2017/6/buy-to-let-still-viable-but-may-suffer-because-of-brexit

Its all still viable just yields down a bit.

[Bland Unsight]

9 hours ago, bear.getting.old said:

No need to cancel S 21 etc now then... https://www.lettingagenttoday.co.uk/breaking-news/2017/6/buy-to-let-still-viable-but-may-suffer-because-of-brexit

Its all still viable just yields down a bit.

Righto.

Quote

The report, by the Centre for Economics and Business Research for the Shawbrook Bank, indicates that while recent tax changes have had some effect on investor behaviour, the market remains a viable one. 

An article from Letting Agent Today about a report from daft gobshites for hire at the cebr which was commissioned by one of the crap buy-to-let lenders.

I cannot express the depth of my surprise that they indicate that buy-to-let is still "viable".

Talk about damned by faint praise;

Shawbrook: "I can offer you the investment opportunity of a lifetime"

Mug punter: "How much  money will I make"

Shawbrook: "Let's not focus on that, let me instead assure you that it is viable!"

Mug punter: "Eh?"

[spyguy]

'The report indicates that yields for landlords are set to decrease over the next 10 years, declining from an average of 5.0 per cent in 2016 to around 3.5 per cent by 2027, but house price growth remains robust.'

And here is where I was going to post the current Shawbrook BTL APR, just show how little if any, wiggle room there is in those yields.

https://www.shawbrook.co.uk/business/mortgages/residential-buy-to-let/

Except I cannot find it in written down.

If there's no sticker on the product then its probably very expensive.