Wednesday, Jul 18, 2007
So, the truth landlord, high interest rates = more rooms to rent
The Guardian: Homeowner seeks housemate
Basically, its rather simple, people bought expensive houses on cheap interest rates, so got a few more rooms than they would have otherwise, now, ooops, mortgage costs an arm and a leg, so lets rent out those two wasted rooms! Rooms to let up a whopping 50% in London. And these will be cheaper than the stupid BTL flats that go for £250-400/week for a tin can and a roll mat. So, guess what Landlord? If you had any flats, which you don't, coz you're a fraud trying to sell a stupid website at the wrong time, you will have to suffer higher interest rates plus a shed load of competition from people who can and will undercut you (hypothetical in your case of course). SELL SELL SELL!!!!!
Posted by planning4acrash @ 11:35 PM (149 views) Add Comment
10 Comments
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2. maddison said...
You have some support here. I am a bull and think that the market will not crash, a wobble maybe. At the end of the day it is all about location and I would be very surprised is there were a crash in the value of nice houses/flats in nice areas of nice towns. High rental yielding property could be more risky.
3. sovietuk said...
There are some serious points in this article. If interest rates go up significantly, people struggle to pay their mortgages and therefore take in more lodgers.
Sounds perfectly reasonable.
As the article says
"This website (Gumtree) said yestaerday that in the past six months it had seen a 38% rise in the number of adverts for flatshares where the room was in a person's own home. A survey of 1,500 people carried out last month for the site showed almost a third (30%) of borrowers said they were struggling to make their repayments"
Supply and demand.
4. tyrellcorporation said...
That sounds very reasonable and is borne out by evidence. A few of my mates in London who have bought flats have recently conceded that they are now renting out rooms to help with mortgage payments.
LA how do you see this massive increase in rental capacity impacting on your business?
5. dohousescrashinthewoods said...
Handbags aside, (you too, Planning4acrash) Landlord, you mention the following:
"rise predicted of around 4% exponentially year on year for say just 3 years from now"
What if that assumption doesn't hold? What if there were a 20% drop? That would put your capital back to where you started (20% drop cuts more than a 20% rise adds).
Also, you say off-plan, so that's new-build, which is the area looking most shaky. I read that flats have remained static or actually gone down marginally, when separated from the stats on e.g. semi-detached. I'm not saying -20% will happen, but current risks and historical precedents exist and unfolding economic conditions here, in the US and globally are pointing in that direction. I think this is fair to say, based on generally available information, and I hope you won't perceive it as an attack.
I salute you on one thing, owning outright means you are personally immune to mortgage interest rates and don't have to offset the cost of borrowing against rental returns. That puts you under less pressure to find a tenant. I would say landlords like yourself will be able to make life very hard for those who are highly leveraged, because you are not forced to pass on interest rate rises to tenants and, if you do need to lower rent to attract business, it isn't going to put you in negative territory.
If the climate worsens, rent-a-room is going to look very attractive to cash-strapped owners and would-be tenants, particularly tenants who can't pay and won't pay increased rental to landlords who can no longer cover their costs.
So I'd say you are in a strong position as compared to many, but then if others start going bust, it could adversely affect the value of your investment, so it's not an ideal situation. Do you have information on the general state of you members' finances? (It would be an interesting contribution to hear from an insider what proportion ot BTL are highly leveraged, vs. owned outright, including primary residences).
I, like Planning4acrash might be a "bitter little council lodger" and I might have a "dence scull" (sic.), but I see risks and, knowing that a BTL friend of the family, for whom I do not hold "considerable hatred", assessed the risks and chose to sell up, I offer you the same advice and wonder whether you should, likewise, offer such advice to your members? That might bring about a more orderly unwinding of marginal landlords' portfolios, so protecting the value of your own.
What do you think?
6. stillthinking said...
I think that perhaps the view that house price crashes are inevitable and a natural cycle has been replaced, in the posts that I see, with the hpc being an accompaniment to a coming recession, not the sole cause of it. Seems to be the argument for an extreme correction lies with a number of events all coming together at the same time which cause inflation to 7% and over. Absolutely nobody has any interest in talking up the inflation sentiment, however, it is often mentioned here with various causes.
From that, the views that the market will not drop relying completely on the fact that they are still profitable at the moment, and never provide any reasons/arguments why inflation will go back to 5% over the next few years. Nobody ever seems to have a valid reasons for this, and nobody ever puts that forward. Perhaps the market will not crash by itself, but it will be crashed by other events. Although certainly reading about future stability and levelling makes a great comparison,
basically there never seems to a supportable basis for believing interest rates will return to their low level. With high and higher IRs sentiment is a bit meaningless. I might 'believe' ferraris will go up in price soon but I can't borrow to buy one. I would certainly be extremely interested to read a credible explanation of interest rates going down.
If they keep going up, BTLs will be forced to sell in a rush, and sentiment will follow. Then the crash is happening. Anybody who thinks IRs will go back, please share your reasoning.
7. planning4acrash said...
Landlord, I am not arguing against the fundamentals of BTL and you you miss the point, which is about a very specific supply and demand issue that questions your earlier assertions that rising interest rates will benefit BTL investors. I say nothing here that discusses the fundamentals of BTL as a whole, but this site is about discussing specific issues so that people can come to their own conclusion about where the market is going. And, once again, whilst I joke about your credentials, I only do so because you boast, so you give me a chance to tease you. I honestly couldn't care less how much you own or how many flats you have. I too am on the 40% tax band, doing a proper job! So are many other people on this site, welcome to the club. You are not unique or special dean. So, after that ribbing, :trout: please actually listen to the argument and make a proper response to the specific issue if you are to say anything at all, because that is what this website is about, its not about bi-polar arguments about who has the better credentials or poltical positioning, so, to remind you, here is the additional argument, which suggests a specific additional reason why (some) novice BTL'rs may get stung by higher interest rates, putting a counterbalance to your suggestion that many should see rising interest rates as an opportunity:
BTL properties are usually fully utilised, all bedrooms let out. They can only raise the cost of rent per room to cover shortfalls caused by higher interest rates, and, if 1% raise adds £80 to the average cost of servicing a BTL room(that's a guess), it will be hard to raise rents by quite so much. At the same time, families will be experiencing the same credit crunch, but, in contrast, many families have spare rooms, so, instead of paying more on repayments, they can let out a spare room. That room is likely to be relatively cheaper than a BTL room because, they will be bringing a person into the family, the house will come all set up and families are more likely to live in nice areas. The result, as seen from gumtree, is that supply of these rooms is going up at the same time that BTL's are trying to raise rents. This competition could mean that many BTL's can't take advantage of higher interest rates to raise rents, therefore, they may end up experiencing a shortfall and have to sell some of their properties to bring their leverage down to a serviceable level, which, in turn, could depress house prices by putting more supply of flats on the market, they could top up the losses from their wages, but, this will be increasingly hard if inflation keeps rising and rates go significnatly about 6%..
8. planning4acrash said...
Oh, another reason why families can let cheaper rooms, is, that a single room let at £80-100/wk, seriously undercutting other family quality BTL rooms could cover the full cost of a 4% rise in interest rates on a 100k mortgage. (p.s. the extra cost of a room with a 1% rise should have said £80/month, not week, sorry). So, they may cover all their costs for a long time without having to raise the amount they pay, contrary to the BTL solution, which involves individuals paying more.
9. planning4acrash said...
:trout:
10. confused76 said...
I think we will be debating forever, but reality is quite simple, when interest rates go up, asset values go down in real terms. So LA profit outlook is a pipe dream. I would advise him to sell/