Tuesday, Apr 29, 2008
On the day Inside Trash goes under Paragon announces - "the average buy-to-let investor intends to hold a property for around 17 years"
Mortgagestrategy: Buy-to-let investors here to stay
A mass exodus from the buy-to-let market by investors is unlikely, says Paragon Mortgages. While many predicted a flight of investors from the buy-to-let market as a result of Capital Gains Tax reform, and the current instability in the housing market, survey results from Paragon suggest that professional landlords are sticking around.landlords represent the core of the buy-to-let market – they are investors that base their purchase decisions on proven tenant demand for long-term returns rather than speculative investment for a quick profit.”
Posted by jack c @ 05:31 PM (650 views) Add Comment
19 Comments
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1. symo said...
In other news Billy Bunter reports that cake is good for you!
2. uncle tom said...
They might intend to, but they won't...
3. hpwatcher said...
It's an absurd prediction......
4. nubbers said...
Perhaps 17 years might not be so far off the mark. Suppose your average BTL got into the market in the last few years,near the market peak. Because of the nature of the typical BTL property, he (or she) then may now be in a position where he is effectively locked in because he cannot afford to sell and because it is already too late to find the next fool.
Over the next decade, he will not be able to save as he is already subsidising his 'investment' and then he finds his income does not hold up as much as he was led to believe. If you take the last cycle as a rough guide, it could be 12 to 15 years before he can afford sell at all. The next cycle could be longer, as the peak was higher this time.
5. jack c said...
nubbers - it could also potentially be 17 years of throwing good money after bad !
6. Ash4781 said...
Brilliant cheap rents for 17 years!
7. plato said...
“These landlords represent the core of the buy-to-let market – they are investors that base their purchase decisions on proven tenant demand for long-term returns rather than speculative investment for a quick profit.”
So why were 'amateurs' encouraged ? (We all know really)
Professional Landlords have never been in question on HPC and already recognised as serious long term investors. Now unfortunately for them,they will in many cases be dragged into this developing financial abyss along with the duped wannabes.Most will probably ride it.
Professionals will take a long hard look at the situation, dump any excess holdings, keep the good properties and hope the market stabilises in time,before they make a reinvestment decision.
The so-called amateurs don't have the time or strategy, so I'd give most of them 19 months at the most.
In any case :
I wouldn't worry too much about who exactly is going to flood the market, cos nobody in their right mind would buy now. How will anyone know the true value to borrow against?
8. converted lurker said...
hmm....actually I reckon Paragon may have a valid point here. If a BTL player can weather the storm and have the dedication, wit and self discipline to manage their portfolio effectively and most importantly keep rent above payments for the period of their mortgage, then they'll win, and win big style.
9. new user 2007 said...
Of the over 1mn BTL mortgages around half were taken out in the last 2 years. Those 1mn mortgages back over 2mn properties (of a housing stock of 26mn).
So even if the "long term" professionals" ALL say they are staying in, that leaves at least 500,000 BTL properties waiting to get sold i.e. those who bought since early 2006...
paid so much they are subsidising tenants and relied on capital and that is gone.
I have seen a surge in To Let signs and For Sale signs in my area, suggesting estate agents are having to work harder (for BTL, suggesting not enough rental demand) and a sign of increasing supply (someone is selling, and I think BTL...it is not an homogeneous market so one BTL may be trying harder to rent his property and another selling, but the fact that many of these houses haev no chain tells me they are BTL..how does that tie in with they are not selling?
10. icarus said...
"We're in it for the long haul" = "we're taking a hammering".
11. Bangybongo said...
didn't paragon go for a rights issue? or is that another buy-to-lose lender?
12. nubbers said...
jack c - yes, but the point is, that once your property has hit bottom and you have massive negative equity, it is a very big loss to take all at once, and the interest goes up on the remainder that is owed. I have been in this situation as a FTB, last time round, but I would still have to sit down and do the maths to work out if it is worth getting rid or subsidising until the next peak. It would be a tricky one to work out if you include your time and inconvenience.
I guess doing the maths is something the average recent/amateur BTLer has not done, so still just guessing, perhaps they could well be led by the emotion of disappointment and sell up sooner rather than later.
13. Bangybongo said...
in answer to my own question: yes they did. bailed by ubs. i cant cut and paste from my browser box. but if you type ' paragon "rights issue" ' into google, hey-presto. these dudes CLEARLY know the market inside out and ARE NOT talking their book. no siree.
14. bearshare1616 said...
BTL amatuer landlords are still in denial, they are convincinced that the credit crunch is a mere blip on the housing market. Most will weather the storm for 12 months or so, however when the losses continue and they are still subsidising rent over mortgage they will eventually jump ship. It's like somebody hitting you over the head with a stick every month, at some time you will say 'enough is enough'.
15. Slysmiles said...
It's all relative. The BTL bubble followed the HP bubble, both in quantity and value. The only difference will be that larger landlords will have more of a cushion, altough I'm not so sure. If they've bought in the same pattern as everyone else their cushion will be relative to their entire debt. Only those that bought 5 years or more ago at intelligent rates, or the ultra rich, will coast through this. All the others will see their cushion deflate in the next 6 months and be forced into firesales. Those who can afford to take 17 years loss will be fine.
16. renting2 said...
Swap "Don't want to sell" for "Can't sell".
17. last_days_of_disco said...
Ok, I will have a go at predicting too, probably wrong, but what the hell:
I think that BTL was already going sour in 2007. So its a wave that is just breaking. I really think BTL is going to collapse spectacularly very soon, not in a year's time. People are in such a hole financially. All it will take is a bunch of credit cards to be pulled and the house of cards will collapse. I can't see it lasting much longer, we have the two extra bonus overtime years, there is nothing left in the tank but vapour. The banks are saying "every man for himself" and trying to grab as much money as they can. That is why LIbor keeps going up. They will keep faking like they are keen to see things recover (knowing full well from their own analysis we are doomed) to keep the government giving them cash cause than can grab that too. No one wants to be the last one left standing in this game of musical chairs. Paragon is dead dead dead. But others are going down too. Be careful where you keep your deposit for after the crash!
I am thinking faster rather than slower, the higher the rise the faster the fall is my theory.
18. Noutram said...
I've got some bad news if your expecting rents to lighten / BTLeters to throw in the towel: I smoke to Foxtons head office yesterday and they told me the London rental market was 'on fire'. Its obvious really, as more and more FTBers wait on the sidelines to see what happens in the market and people sell up or get foreclosed on the rental market gets tighter and tighter... You can't have it both ways, this is a tight market...
Nick.
19. new user 2007 said...
Noutram...
Yes, a guy at Foxtons told me they were on fire as well a couple of weeks ago. That was why he had the time to make long calls to me:)
I mentioned the 5% of staff who have already left or been pushed owing to poor sales. I also reminded him about the redundancies Rightmove made this year already (many in South London).
And surely not an estate agent talking up the market. Can you give me the number so I can get some equally impartial advice.
Is this demand source the corporate sector that is now starting to lay off workers, especially in the South east? Or is it from the migrants who are now returning home in droves?
Or is it that the excess supply that even under benign conditions will remain excess for years will be cut off, so there will be less BTL competing? Oh, no, none are going to sell either…
Leaves FTBs? So they are not or cannot buy, BTL are not or cannot buy. The question is how many BTL will sell, but even with no new money coming in the market falls.
Use a respected source like the FT (and even the BoE, although not sure how respected it should be) and rental yields are well below prudent levels for anyone who entered after mid-end 2005.
Oh, and in my area To Let and For Sale signs have been going up steadily and yet at an accelerated pace since Xmas, with few sales. The key is the number of no onward chain sales...and BTL is not selling?:)
All amid a economy that is ABOUT to deteriorate (I suppose BTL will have to be happy with DSS and all that entails:)