Wednesday, Aug 29, 2007
Only extreme optimists should buy to let
MoneyWeek: Only extreme optimists should buy to let
One optimistic interpretation of the recent stockmarket turmoil is that it’s good news for the property market. Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, told The Independent that people “who were thinking of dipping their toe into the equity market may now be tempted to forget about stocks and buy to let instead”. But anyone who does has clearly forgotten that is was property that got us into this mess in the first place.
Posted by mary @ 10:27 AM (1619 views) Add Comment
31 Comments
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1. maddison said...
Central banks lowering interest rates because they are concerned about the broader economy will only feed more money into the housing market. It was really only the prospect of much higher interest rates that was beginning to dampen growth. Yes there may be a little less demand but property is beginning to be withdrawn again as people decide not to sell.
2. Pecker said...
Central banks have not reduced interest rates! Growth was being dampened due to a total lack of affordability. And "decide not to sell" or cant sell?? Hmmmmmm
3. mrmickey said...
maddison the banks have stopped lending money to each other because they don't know if they'll get their money back so it's unlikely they will lend to some muppet who works part time in McDonalds to get himself a buy to let no matter what interest rates do.
4. Pecker said...
Mrmickey is spot on.. and whats more, the banks have started charging the "Muppets" one hell of a lot more going forward.. im surprised how little has been said on the fact this this is an effective increase in the base rate.. ie it doesnt matter that base rate is on hold at 5.75.. if the banks are now lending at higher rate its may as well be 6.25 or 6.5... Its like these idiots who are happy with there low teaser rates that are totally ignoring the fees involved..especially when it come to re-mortgaging.. the effective rate is way higher... NEWFLASH.. the banks dont give owt for nowt...
5. Darrude said...
Madison, did you actually read the article or just comment on the headline!
institute of chartered surveyors, yet another bullish statement, I've never seen any thing but positives for the housing market from these people, it's as if there livleyhood depends on it...........
6. Tickock said...
maddison
Nonsense, IRs on BTL and subrime will rise now regardless of what short term base rates do.
Give it up, the big boys have long since left the party with all the money, and left the 'BTL for dummies' crowd to their well deserved fate.
Thats just how it works.
7. fahrenheit451 said...
Ok, I know that I'm going to get linched for this ... but ...
The problem here is that ALL of the Landlords & the BTL brigade have been lumped into the same catagory. And this is not true:
1) Old fashioned landlord ... renting to the transient community who have no interest in buying (yet) with about 30% mortgage, if any, will never be affected by these flurries in the market.
2) The newer Council House replacement landlord ... renting to people who may or may not llike to buy, but for whom it will not be possible "in the near future" will not be affected, because they have probably done their maths and are running it as a business.
3) Old fashioned holiday-let in prime areas will hardly be affected, because it is such a volatile market with peaks & troughs through the year, implies that only those who have a basic understanding of business should get into it anyway, but newbies will probably suffer (and very hard as well) one bad summer, plus incerase in payments will cause doom and dispair.
4) Various non-amateur BTL landlords will feel the pinch.
5) The new breed of amateur BTL landlords morgaged to the hilt, with little experience of business will suffer and badly, not only that but they will cause suffering in the high street letting agencies as well.
However estate agents will be trying to relieve everyone of their properties and make a nice commission on the sales !!!
8. maddison said...
Demand may fall because the banks will be lending to fewer muppets but that is not the whole equation.
9. fahrenheit451 said...
Actually ... it was not (just) the drop in interest rates in July 2003 to 3.5% that created the new breed of BTL landlord.
It was Labour Party, elected in 1997 that brough in the Housing Act 1988, Chapter 2, Assured Shorthold Tenancies
http://www.opsi.gov.uk/acts/acts1988/ukpga_19880050_en_3#pt1-ch2
Without the Housing Act 1988, there would never have been any BTL Landlords.
10. fahrenheit451 said...
Oops, sorry, Conservative Party was ruling the House of Commons in 1988.
11. sovietuk said...
Looking at a few of the standard BTL rates being offered by high street lenders it's difficult to see this sort of product surviving on the scale it has done in the current climate.
12. maddison said...
The 1977 rent act was a bit arcane and didn't really fit in with free movement of labour or encourage any sort of rented sector at all condemning people to live in council blocks
13. Surfgatinho said...
Why risk losing money on the stock market when you could be wiped out totally with negative equity and voids!!!
14. Julianw said...
Guys,- the credit crunch is about access to credit not the cost of credit. Debt will be cheap but only available to those who don’t need it.
If you cant figure what asset class to invest in to protect your savings- what do you think the bank will accept as security against your promise of debt repayment?
Central banks will ease monetary policy to stimulate a failing economy, but this will effect our currency and overseas investment in our economy- further exacerbating inflation and credit availability. (Think staples increasing in price and credit limits and overdrafts being reduced.)
The question is; collectively can we figure out some safe havens for what we have today? What does battening down the hatches look like in our present world?
In times like these is diversification is the only hedge?
15. crash bandicoot said...
Look at the source of this - RICS. The estate agent's sole purpose is to gain the highest price for their client. Anyone who listens to a word they say without considering this fact will take the wrong interpretation away. When they say now might be the time to look at buy to let, they mean that only a buy to let purchaser could contemplate the overblown price that we will advise our client to put on the property. All of the normal buyers are priced out of the market at the moment.
16. fahrenheit451 said...
@Julianw
Traditionally safe havens are precious metals, government bonds and property. It's for good reason that it's called "real estate" in the USA. But again it's the old catch phrase "In for the long term" that counts, but you have to look 10 - 20 years into the future to get a safe return from property, property cycles are >>> s...l...o...w <<< as in very. All this upping and downing of the Stock Market is for short term-ers, who have to keep moving to stay on top. Stand still and the next wave will sink the boat. But get it right and you make a fortune. Half the problem with all this BTL rubbish is that it's been fuelled by city bonuses, and they are used to being able to buy & sell in a few minutes, not a few months, or sitting on a property bank for years if necessary. And even then they have to wait for the 5yr, Local Area Planning review to come round even if it is, as always, 5 years late anyway. And there is the various manifestations or groping around in the dark that the national and local politicians do to help generally make a mess of everything.
17. p. doff said...
crash bandicoot - Look at the source of this - RICS.
You are possibly confusing RICS with NAEA (National Association of Estate Agents)
18. inbreda said...
in the last 5 minutes (15.20 GMT) the US dollar has plumetted like a stone. Not sure why yet, but it would surely put a dampener on any thoughts they may have of lowering rates!!
19. Bloo Loo said...
Not sure how you can "dip your toe" into the BTL market? surely £180,000 for a flat to let is more like dipping your whole body in
20. tyrellcorporation said...
RE; Dollar - Possibly this...
http://www.bloomberg.com/apps/news?pid=20601087&sid=amDYKJaVCdAE&refer=home
21. crash bandicoot said...
It's just that most of the estate agents that I have dealt with had FRICS after their name. I had assumed that this related to the RICS.
22. maddison said...
Not many EA's are Fellows of the Royal Institute. Many are FNAEA
23. p. doff said...
crash bandicoot .
RICS is the governing body of Chartered Surveyors, not estate agents.
Some estate agents may indeed be qualified RICS but most Chartered Surveyors are not estate agents.
24. fahrenheit451 said...
RICS = Royal Institute of Chartered Surveyors
MRICS = Member of the RICS
FRICS = Fellow of the RICS
25. inbreda said...
qualification?
You sure?
26. Ihopeitgoeswithabang said...
Pointing out the obvious Royal Institution of Chartered Surveyors, represents a body of people who have an interest in a "slow down of property sales".
That generally means a lot less surveys being done.
Now thats hardly in their interest is it?
Quote
“who were thinking of dipping their toe into the equity market may now be tempted to forget about stocks and buy to let instead”
or you might just want to put that money into the bank and get a guaranteed return with no risk until you know whats happening! might be another suggestion - but hang on - does that mean not needing to use the services of a surveyor or an EA?! Terrible idea obviously.
27. Orwell said...
Maddison,
Watch Cathy Come Home (Ken Loach) and then tell me that there was (and still is?) no need for The Rent Act 1977
28. waitingfor hpc said...
can the US cut rates - what does that mean? what about inflation?
29. fahrenheit451 said...
Well, they have to take the exams at the beggining, unless they go for the senior professional route:
Progressing from senior professional to fellowship
and then one may specialise in Party Walls, another in Building maintenance, yet another may setup and Estate Agency ...
After that ??? , I will comment no further on this matter, they get a bit touchy on this subject.
30. crash bandicoot said...
Sorry guys it looks like I got the wrong end of the stick. I had always assumed that you needed to be some sort of surveyor to value houses. I guess that's not the case then?
31. captain sensible said...
Surveyors are a key component to allowing rampant house price inflation, as mortgage lenders rely on their valuations to detremine how much to lend. With bog standard properties surveyors seem to be in close liaison with estate agents in their area when determining value - how else can it be said that a property which has not changed structurally is worth 50% more today than it was, say, three years ago. In effect, the surveyor is just rubber stamping the agent's and prospective buyer's contention that the market has risen by that amount over that time, rather than the surveyor using any of his/her technical surveying skills. The problem for surveyors - mortgage lenders pay for this rubbers stamp (via the mortgage valuation) so that they will have a professional with insurance to sue if the borrower defaults and it turns out that the property wasn't worth what the surveyor said it was worth. Lots of surveyors were sued after the crash of the early 90s. Many surveyors forgot about this as they were swept along in the rising market, but are begining to remember now that things are looking more uncertain. Effect? Agent values property at 500k. Buyer offers 480K, which is accepted. Surveyor instructed by mortgage lender is worried about where the market will go next, plays safe and values the property at 400K. Lender will only lend on basis of this valuation so price has to fall if transaction to proceed. As more surveyors take this cautious approach, market falls further, buyer confidence collapses. Overall effect - CRASH. Also, it does mean that surveyors have an interest (in addition to a healthy work volume) in a continuously rising market as, unless grossly negligent, they are unlikely ever to be sued for overvaluing a property when the market is rising.