Wednesday, Jan 10, 2007
The party is over but BTLers are buy-and-holders
Telegraph: New buy-to-let investors face profit crunch
"The booming buy-to-let market continues to attract inexperienced investors despite the rental yields available to new landlords slumping to a five-year low."
Nothing we've haven't read here before (double negatives, ouch!) other than that "only about one in 50 said they would sell if house prices were to fall." Given the boundless enthusiasm in this sector it doesn't look like the often touted "rush for the exits" is going to happen anytime soon.
Posted by monty @ 09:13 AM (153 views) Add Comment
25 Comments
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1. Sam said...
Am sure it's the same thing people who were holding on to shares in 2000 were saying.
2. Davros said...
"only about one in 50 said they would sell if house prices were to fall."
Well that goes to show the intelligence of buy to 'investors' doesn't it? I've got an asset which is falling, so I'll hang onto it rather than selling at a profit and putting the money into something else.
Looks like I'll never make much of an 'investor'.
3. tyrellcorporation said...
In my experience it's very easy to say you're in it for the long term when the market is growing or static. It takes ball of steel (or rank stupidity) to maintain that position as you watch your investments - and for many, pensions - evapourate before your eyes. My hunch would be that any downturn would inevitably cause a rush for the exits, after all, people would think about the prospect of selling high and buying low again.
4. the bald man said...
Tyrellcorporation..I agree. Making money (or avoiding losing it) is all about timing. Holding in a falling or flat market on an investment that is breaking even or costing money to service (plus is aggravation) is either very longsighted or just stupid. Hindsight is a wonderful thing.
5. Surfgatinho said...
Yeah, right. I always tell myself I won't seel my dodgy investments as they are based on sound logic. However, once they really start tanking I always hit the panic button!
6. monty said...
It's all very well to chastise BTLers for holding onto a falling asset but these aren't Marconi shares. The market is illiquid when compared to the stock exchange. You can't just scream "sell" to your broker and the job is done. Couple that with the fact they're highly geared and selling forces you to pay the loan back, even at a loss, and you may see why someone may be inclined to hold and wait for the next upturn however far down the line that may be.
What will make the difference is when people are forced to sell, be they buy-to-live or buy-to-let. This will only happen through changing circumstances - punitively high interest rates and lost jobs.
7. inbreda said...
Fair opint Monty - which makes it seem rather odd that so many people (BTLers) consider housing as an investment, given the fact it is so difficult to get out of when prices are falling.
The trouble is that it is the latecomers that will be stiffed. Those that bought 4 or 5 years ago will have the ability to sell at below peak prices and still walk away with a big profit. Those who bought at the top have no such luxury.
Only 1 in 50 would sell? I agree with Tyrell. The trouble is that BTLers are naive optimists regarding the housing market. They've answered the question on the assumption that falling house prices will never happen. If prices do fall their actions will be very different.
It could require a shock to the economy to get the ball rolling, but being a BTL is like playing in the middle of a busy road. It's impossible to tell when you're going to get run over, but it's fairly inevitable, and at the end of the day playing in the road isn't a good idea.
8. Davros said...
> The market is illiquid when compared to the stock exchange.
Granted, but so is timeframe. I've never heard of houseprices dropping 20% overnight.
9. Maggot said...
the word inexperienced looms large.they have bought on a wave of good feeling and seen their beliefe come true.if there is a crash these are probably the same people who will be carried on the wave of sentiment on the way down.as i imagine many investors are now subsidising thier investments from the house keeping they have not allowed for the direct and indirect costs in a falling market.if they have no savings i would imagine many would get caught in the negative equity trap.not wont sell,but cant afford to sell.this risks increased financial burden from rising intrests rates in the face of negative equity
10. Garch said...
Agree with these points... Only a few people will be forced sellers and take big financial hits whilst most will struggle on. I have a feeling that a lot of these late BTL investments will end up as negative "wealth effect" i.e. a financial burden hanging over people, who will look back with regret on their herd-driven purchase. Naturally many will come out the other side of this, but the bad sentiment it generates will be notable for a good few years...
11. Doomwatch said...
I think we only have to look at the Enron case to see how so many employees and investors could be fooled by optomistic propaganda
in the dot com bull run.
12. bidin'matime said...
What will get them selling is the pincer action of falling prices and rising interest rates - if they are not forced to sell, it's got to be a 'better get out while we still can' scenario. It's going to take time for people to fully come round to this. We need a great big question mark over just how high interest rates might go - a few more quarter percents will help no end.
13. Chillilizard said...
"Only 1 in 50 would sell" - This story sounds so familiar!!!!
When I have arguments with my brother over house prices his view is: "it doesn't matter if there is a crash tomorrow, the market will recover over the long term". Its like speaking to a brick wall. The obvious counter argument to this is "why buy at the top of a peak rather than at the bottom - you would profit twice as much of the long term". To which he replies "you can't predict when you are at a peak".
Frustrating.....!!!!!!
And not completely off the point: I've been predicting a crash/adjustment since 2004. Here we are 3 years later.
14. Grumpiest Old Man said...
One positive view about the Polish and Rumanian invasion. They are prepared to room share and are at least holding rental values
15. The Capitalist said...
as they say - "go figure" - markets are driven by fear and greed - this is a highly speculative sector driven by young (30 somethings) who don't remember the last recession...Go help them...
16. Sam said...
I agree monty, but just as the market is iliquid, so is the process of selling, ergo the process of a crash in prices. share prices crash in an afternoon, house prices take months/quarters perhaps even years. The emotion though is the same. some people who've probably aready made a lot of money don't want to get out because they want more. remember 'greed is good'.
Also agree a major shock is required. it wont just be intrest rate rises. however I can imagine that because of rate rises the consumer society dries up, causing people to concentrate on paying off mortgages, and who knows perhaps even credit cards. then I think it may become a downward spiral. Also it could be due to an energy crisis with oil and gas problems at the same time.
17. Enuii said...
As the Capitalist said 'this is a highly speculative sector driven by young (30 somethings)', most of the ones I know in this sector have strings of terraced properties purchased on the back of each other in the last 2-3 years. This chain of investments (debt) although not directly affected by falls in property prices will potentially collapse due to a lack of income or cash flow if they have more than a couple of properties that are permanently tenantless.
As has been said before by Tenant's on this site, when it is cheaper to buy than rent they will.
18. Exlandlord said...
The experienced landlords got in at or near the bottom. We've made an absolute pile and can afford to get out just short of the top. I've just sold my last property, and have had the profits invested in the stock market for the last three years. I'm almost 49 so I can remember both the 1973-4 and 1990-1994 market crashes. Sadly, the inexperienced landlords (who make up the majority) will not take such a hard-headed approach. They will hang on till it's too late, and be forced to take large losses. Then they'll blame the Government for their own greed and stupidity.
19. Nohpc said...
The problem is you can't just sell when the market starts to drop. God knows how long it will take to sell if this were to happen. If you can afford to hang on to it and it is not causing you stress and it is tenanted then why would you want to sell it during a dip in prices. All the best investments have their ups and downs and the property market is no exception. If anything most of the rich BTLers will be increasing their empire during a property crash rather than selling up!
20. Nohpc said...
And Exlandlord you may still live to regret selling your properties yet. If you have been selling your properties off over the last few years you will already have lost out on a huge wad of easy moolah so you really made a bad decision if you think about it. Especially if you got in at the bottom of the pile your outgoings should have been very small and you should have been making monthly profit on each of your properties. I would argue that you are not experienced at all and you definately should have held onto them and increased your portfolio if a crash occurs which is still odds off. That is the path to being a property millionaire.
21. geed said...
"Only 1 in 50 would sell", its a silly survey and a silly question to ask. A good investor would have replied "probably sell, but i would have to review the circumstances" .
Amateur BTL'ers are brainwashed, irrational plebs incapable of making long term predictions and therefore sensible decisons. They are being driven by greed.
"My mate at the pub has bought three houses 2 years ago and he's made 25%, i'm gonna have me some of that". We've all heard it before and thats just it, this is the sort of financial advice they are taking before diving into the BTL market, what their mates down the pub!! I am just astounded by how long it has gone/going on for.
Times are good when they are good but horrendous when they are bad.
Exlandlord said..."Then they'll blame the Government for their own greed and stupidity." your right, this is what will p!ss me off the most.
22. Mjchum said...
BTL arose out of an almost complete failure of trust in the British pensions industry, because of the FSA, pensions firms (gangsters) and Mr. Brown and his windfalls on private pension schemes. The great unwashed understood property and thus started to buy up what they could with BTL mortgages (which I think were illegal up until the late nineties, but I'm not sure). Considering Labour's windfall taxing of pensions whilst at the same time telling people to save for their old age, really who could blame them? I still hate this speculation (whatever drives it) though Monty, on such things as homes, sorry but I do. Maybe I'm just getting soft.
23. Grumpiest Old Man said...
I agree with nohpc exlandlord has very little courage and has not cleaned up. I am taking a year ex-pat to sell up mine. True there is no logic now for them to rise. With the tax gain (no capital gains tax) I can afford to see them even drop a shed load and still make more and if they only dip initially before sinking I can get under the market and sell to first time buyers who will allways buy and will be ok in the long term. Short of a nuclear war all bases covered. Cream running down chin.
24. C'mon Correction said...
Nohpc quote - "All the best investments have their ups and downs and the property market is no exception"
And yet your adamant - No HPC.
You seem quite a confused fellow.
25. inbreda said...
NOHPC, you know as well as everyone else here that properties have been bought on the back of other properties in BTLers portfolio. If prices start to drop the amateur BTL landlords will no longer have the equity in their properties in order to MEW, so they won't actually be able to increase their portfolios. This is very wishful thinking on your part.
When you say 'property millionaire' you might as well be saying 'monopoly millionaire'. Exlandlord has realised his gains. You haven't