Monday, Jun 11, 2007
A BTL re-thinking?
Times: Only the brave
It is article like this in the mainstream press that do more harm to the housing market than anything else. If I am BTL investor, content with my returns to date, I would certainly decide to stand still, possibly to sell one or two flats to take profit. Believe me, just that change of mood will make a HUGE difference to demand. Let us not forget, BTLs have been 20%+ of all transactions last year. “Developers are panicking. You can see it in all the inducements to buy. Guaranteed rents for two years, furniture packs and so on.”
Posted by confused76 @ 12:26 PM (413 views) Add Comment
13 Comments
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1. sovietuk said...
Shoot this old bag
2. Davros said...
It's a common misconception that people don't like buy to letters because they're jealous of the money they've made. That's not true. It's phrases like 'Only last week, over strawberries and cream in the garden, a friend confided he was still getting yields of 8% in Hackney, while another confessed she was selling up in Kensington because hers had fallen to 3%. That’s my social circle for you.'
Honestly, the day I ever mention the yields I'm getting on my portfolio of buy to let properties, shoot me.
3. Wage Slave said...
http://www.rosiemillard.com/
4. doomwatch said...
Yeilds now below the worst internet savings account. That's if the mugs out there recognise the word "savings". The BTL mugs are now taking all the risk for mortgage companies.
5. Realist said...
But low yields are ok as long as you take a "long term view". Because apparently if you do that, the factors which make the yield suggest that the value of the asset is over inflated will all go away....
6. paul said...
Something that continues to elude me, more than the lack of logic behind the low yields is this. If you talk to BTL landlords, they agree that others will not be able to achieve the returns they have, doing the same thing now. So in other words, the majority agree that their "business model" is unsustainable.
Consider a business selling widgets. If they discovered, (or heaven knows, the directors admitted) that their business model was unsustainable, the investors would flee.
At some point, the price people are prepared or able to pay for their goods will drop, because the business model is unsustainable. So why are they hanging on? Do they not realise that they have set themselves up for a fall or is it the old fashioned NIMBY "Prices won't drop in my area because of __________ (insert shopping centre development name/olympics/access road plans/waste disposal site development name)".
I think it must be the latter.
7. doomwatch said...
Prices won't drop because our little sh1tty commuter town was on the Krusty & Pffill (pronounce with slight public school speech impediment)
8. confused76 said...
In an effor to understand them I asked a few I came in contact with. Most common answers:
1. "I take advantage of LEVERAGE" saying that word the person eyes became like Jack Nicholson's in The Shining. "You see, I had no money to start with, but I can still make a lot of money"
2. "I had no job in my country, I came to this country and banks would lend me money to buy places I could quickly fix and rent or resell making more money. I think banks are stupid, or there is a catch, or I do not know... but I have primary school education so why should I know? If things go bad I take first flight, but I have wired enough money home to live well with my family for 100 years. Oh yes, and Britons are so stupid they also buy shacks in my country for a fortune, so I invest there too"
3. The brickhead: "Bricks and mortar are a safe investments"
4. The financially savvy: "You know, I have burned myself with stocks in the dotcom, and I bought into pension schemes with guaranteed payoffs that could have let me live like Richard Branson... but it all went wrong. Now I buy houses, so I am in CONTROL" Yeah yeah you were greedy and stupid 2 ways around, now you are right... yeah yeah
9. confused76 said...
one more point...
leverage is pronounced "LAA..VVV.. RRGGG" say it very slowly and you really have to make the Jack Nicholson's eyes or people won t believe you
Another good facial expression would be that of Gordon Gekko
http://www.americanrhetoric.com/MovieSpeeches/moviespeechwallstreet.html
10. confused76 said...
what did I say earlier this morning?... by the way 10 yr treasuries are 5 bps up in US morning trading
end of cheap money!!
S&P warns of ratings pressure on U.K. buy-to-let lenders
http://www.marketwatch.com/news/story/sp-warns-ratings-pressure-uk/story.aspx?guid=%7BCEDEFBE2-27EF-41D3-9A4C-5F75F100D2D4%7D
FYI, when S&P announces action, they move quickly and ruthlessly, as their main goal is to cover their arses. If they stick their long noses in the business fundamentals of BTL, they quickly come to the conclusion that have to downgrade the lenders
http://www.ft.com/cms/s/66938290-17b7-11dc-86d1-000b5df10621.html
The report says: "UK mortgage borrowers are exposed because they are highly levered, while UK house prices are volatile and can fall. It could be argued that the spurt in house prices over the past year or so, when a prolonged soft landing seemed more likely, could make a more painful outcome more likely."
UK specialist mortgage lenders face risks -S&P
LONDON, June 11 (Reuters) - Lenders in Britain's specialist mortgage sector are vulnerable to a sharp downturn if the housing market deteriorates, following a relaxation of lending standards, credit-rating agency S&P said on Monday
http://investing.reuters.co.uk/news/articleinvesting.aspx?type=allBreakingNews&storyID=2007-06-10T230109Z_01_L08817544_RTRIDST_0_MORTGAGES-SPECIALIST-RISK.XML
11. uncle tom said...
I quite like this article - the author comes over as someone who is sympathetic to BTL, so a BTLer might take it seriously.
The underlying message? - The BTL party is pretty much over; a few crumbs to mop up if you can be bothered, but time to stick with what you've got - maybe offload some poor performers...
A good message. Credible.
As I've said many times before, we don't need the BTL brigade to start selling for the market to fall over - we just need them to stop buying more...
12. Rimmer said...
My previous figures and i stand by them, is it worth the "RISK" ????????
Lets do the figures ourselves
200 K mortgage for a 2 bed place = https://ib02.npbs.co.uk/netmastergoldmortgagecalculator/MortgageCalculator_Results.asp
Well that's £1300 per month ( actually £1350 ish but giving the benifit here )
Rental income on a 2 bed place is maybe £800 Month tops,
So lets call it 9 month average rental at £800/month = £7200 PA, minus agent fees lets say 15% ( £1100 ) leaving £6100 PA, upkeep and renovation costs must be £1000PA leaving £5100, insurances and council tax / bills etc for the months not occupied lets be kind and say £700, that leaves about £4400 PA, should all be tax free if you have a good accountant ( at a fee ) otherwise its taxable.
So mortgage costs PA = £15600 from your pocket.
Rental return = £ 4400.
That means your BTL "ONLY" costs you £11200 PA , if and its a big if house prices go up 5% you will have made £10000
If you had invested your money ( £11200 ) carefully bearing in mind its compounded across the year you should have somewhere around £12500 .
Now if house prices had gone down and you cant sell a house at the press of a button things would be very different, also i know very well which one is safest.
Which would you rather do?
13. fahrenheit451 said...
I'll give it an "interesting" rating. Yep, no more cheap money for another 10 years. So they will stick to what they've got, then when the mortgage goes up and up with 4x leveraged acceleration and the rents only keep pace inflation? It's going to be "Sell, Sell, Sell". But nothing in Property happens quickly, unless you go to the auction houses, and I think I'll start by going there to see what's happening.
Hmm, just typed in "Property Auctions" into Google, and came up with Inside Track seminars, what more BTL rubbish.