Thursday, May 15, 2008
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Reuters: Resilient buy-to-let may soften housing downturn
"All our anecdotal feedback is that significant landlords... are absolutely seeing the current market environment as an ideal opportunity for them either to continue to expand their portfolio or to start expanding them again," said Jeremy Law, head of buy-to-let at mortgage lender Bradford & Bingley. "In many ways (buy-to-let) is counter-cyclical." Please remind me, what did B&B say about their rights issue? "B&B, the number two player in the buy-to-let sector, has reported strong demand and said this week it would use a £300m cash call to continue lending"
Posted by confused76 @ 04:45 PM (1493 views) Add Comment
26 Comments
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1. (cr)ash said...
I think the key phrase here is "significant landlords" - they may be seeing it as a time to expand their portfolio.... whatever.... However, for every "significant" landlord there are thousands of insignificant ones who see their nice little earner haemorrhaging value every day. I doubt the combined will of every single significant landlord acting in unison could come close to having a measurable effect the housing downturn.
2. crash n burn said...
In fairness, I think there are some valid points in there. Just as we all have vested interest in seeing the market drop, we must not be blind to everything. I some times think we can end up brain washing each other in the forum and can miss some important pieces of information. Although the market is doomed, there may be some support at the very bottom from the big time landlords don't you think? Nice post confused.
3. Rental John said...
In the FT today - B+B was called Bradford + Bungle.....ha-ha
4. Social Justice Through Housing said...
Surely significant landlords are into making money - so they will wait to buy at the bottom of the market. But how do they know when is the bottom.
On the way up you want to get in as soon as possible as everything is increasing around you and to wait is to lose out. On the way down surely everybody waits as acting in haste allows you to repent at leisure.
5. Marcus B said...
Thing is noone really knows what BTL is going to be like through a housing crash. My personal view is that the average BTL investor (and there are so many of them now that most are just the average bloke in the street) won't be any more 'mature' or 'sensible' or 'long term' than any other speculator throughout history who suddenly sees their profit disappearing down the plug hole (investor - someone who buys an asset primarily for the income, speculator - someone who buys something primarily for the capital gain, which do you think BTL investors have become in recent years?) Worse still of course, the vast majority are on margin, they are geared up and when gearing goes into reverse it can get very ugly very quickly ... But hey we just don't know yet, you may be right Jeremy Law but I really doubt it!
6. handle_it said...
All the more reason why legislation should be passed to prevent these leeches making good from bad.
7. str 2007 said...
As my name suggests I'm currently supporting a BTL Landlord, however I'm not convinced about this article.
I think the switched on Landlords will have got out last year (we had an example on telly earlier in the week).
Landlords in it for the Long term have expanded their portfolios maintaining an average 66% LTV I believe.
With the market falling back I don't believe they have equity enough to re-mortgage for the best deals
http://www.buytoletmortgages-uk.co.uk/index.php?id=21&gclid=CMfggvv1qJMCFQSIMAod1R3GoQ
never mind creating more deposits.
66% being average there will be quite a few already struggling at 85% LTV.
For the Landlords that didn't expand too much and used the growth to reduce LTV's there may be a buying opportunity at -30%, but for these people why weren't they buying at that level on the way up.
I see alot of Landlords getting into trouble with re-mortgaging difficulties as prices fall as they have to maintain LTV's.
8. Davgrav said...
Stuart Law'z brother?
9. uncle tom said...
That B & B are spouting this Paragon-ese rubbish confirms my suspicion that they are also on the brink of going under - and know it.
Who are these 'professional' landlords, buying into a falling market when rents are still a mile from providing an economic return, even if prices stabilised?
The only people buying into BTL now are a handful of small time nutters who have more money than good sense.
The really smart money sold up last year when they saw what was happening in the states.
10. Endisnigh said...
Significant landlords have always existed. However, their existence has not prevented previous house market crashes.
11. Scottow said...
Of course this depends on B&B getting their rights issue away.Would you buy shares in this bank?
12. Davip said...
I have said this before on a similar topic, but it bears repeating. Why does the MIRAS tax break still exist for these people? In addition to having renter's pay off all of the capital of their mortgage loans, BTL investors get all their mortgage interest paid by the taxpayer (because it's a 'business' expense). The poor fools who (are able to) buy their homes to live in (quaint, I know) have to pay all their interest themselves. This more than anything has inflated our housing market while robbing the exchequer of much-needed revenue.
These people are doing the rest of us out of one of the basic requirements of life in this country -- shelter (our own shelter, that is). Think about it this way: how would it be if I had a preferential tax arrangement to buy up all the bread or milk and then sell it back to you at my price (while carping about what a public service I'm providing and what a disagreeable recepient of my services you are)? The BTLers would soon squeal about that, wouldn't they? I've been working and saving for a house for years and watched a home grow further out of my reach every year. Why should I be priced-out of a home because of the preferential tax treatment our government gives to property speculators.
Let's be clear about what this means: the UK government, mimicking the US again, is acting in concert with the finance industry and the private investor to maintain stratospheric house prices; to insulate them (with taxpayer's money) against every falling to normalcy. An entire generation of people are being permanently priced out of home ownership -- kept paying the mortgages of others in privately-rented accommodation -- a new breed of have's and have not's.
That this collosal inequity was ever allowed to happen is a disgrace; that it persists is an outrage, and down to Gordon Brown alone.
Remove the tax breaks for the BTL leech feeding off the body of the British housing supply: a painless (politically, as well as morally) way to restore some balance to the UK housing market...
I despair that anything can be done about this and I lack your communal faith in the prospects of a fall to normality...
13. hpwatcher said...
I think the B&B are very, very exposed to BTL and so are obviously trying to talk the market up.
B&B are very vunerable to a property downturn and will one of the first to go to the wall.
14. doom&gloom said...
Shame on Reuters for interviewing a VI (B&B) and presenting this as a 'story'. Yields will not stack up until prices fall by 30% or rents rise by 30%, and and any clued up investor knows this. Added to that, cash is safely fetching 6% interest and capital property values are falling.
Waste of reading time.
15. confused76 said...
"In many ways (buy-to-let) is counter-cyclical." Yeah like canned soup. So why did it expand during 2005-07?
16. jonb said...
And this £300m will fund about 1,500 houses?
I'm sure lots of people would like to buy houses. But if they can't get the money to buy it, then they won't be able to.
17. Peteranton@tiscali. Co. Uk said...
Bradford & Bingley? Oh yes, the joke lender which is going cap in hand to its shareholders for a massive bail out. Who are they to preach about the state of the BTL market?
A bunch of turkeys, more like, terrified by the fierce heat of the oven into which they are about to be pushed, and a level of incompetence matched only by Northern Rock.
18. it_is_going_with_a_bang said...
Current values do not compete with interest from the bank.
That leaves anticipated earnings from HP inflation - of which there is now none.
The idea being put forward is that professional landlords will save the housing market and prevent a crash. Not.
Note the use of the word 'may'.
I 'might' win the lottery on saturday night - quite unlikely though ... unfortunately!
19. montesquieu said...
There is some fair comment here. The adequately capitalised big boys, who didn't over-stretch themselves in the last two years, will be well placed to mop up in the coming carnage in the flats market particularly.
And these are the guys who the lenders are after - large deposits, realistic about returns (which in the short-term at least, rents may do rather well as people who have to move rent rather than buy in the current climate).
The million numpties who leveraged to buy just a properties, mainly in the last year, on the other hand are still in deep sh&t. And so are the banks who lent the money to them.
There is some VI spin here of course but there is a nugget of truth we shouldn't ignore.
20. Dillardpruitt said...
We haven't really had substantial 'real world' effects on the economy as yet. I'm not sure the trends which underpin the BTL market will necessarily hold if jobs are lost - the trend toward single households could reverse pretty quickly in such circumstances. Most UK natives would be unhappy living in the same conditions as those endured by many recent immigrants but they might have to get used to something similar. It is really too early to assert with any certainty that BTL is counter cyclical
21. uncle chris said...
If BTL has been such a good investment, then why am I able to buy a local 2-bed flat for £106,950 (check here) that sold January 2007 for £141,450 (a href="http://www.houseprices.co.uk/e.php?q=10+John+Wilkinson+Court&n=10" target="_blank">check here). With a typical offer of 10% below asking, this BTL eejit is in for a £45K (32%) loss in just over a year. Doesn't look like the BTL big boys are interested in mopping up all the flats being off-loaded by the small fry.
22. uncle chris said...
Ooops - try again ...
If BTL has been such a good investment, then why am I able to buy a local 2-bed flat for £106,950 (check here) that sold January 2007 for £141,450 (check here). With a typical offer of 10% below asking, this BTL eejit is in for a £45K (32%) loss in just over a year. Doesn't look like the BTL big boys are interested in mopping up all the flats being off-loaded by the small fry.
23. uncle tom said...
"The adequately capitalised big boys.... will be well placed to mop up in the coming carnage "
Yes, but they won't be buying yet; not until they see an end to price falls. There's no hurry, no shortage of cherries to pick when the they're ripe..
Press releases like this one are a pathetic attempt to get the moneyed brigade buying too soon. yet any examination of the numbers shows what a hopelessly forlorn objective that is.
The more that call the bottom too soon, the fewer the players that will be left when the bottom is finally reached, so the lower the bottom will be...
So, c'mon Paragon, B & B, - keep these releases rolling..!
24. uncle tom said...
Chris,
Take your example - 2 bed flat in Wrexham, not an area where there is a huge shortage of development land, so sale value should be not that far removed from build cost, and rent should be around 7% of value p.a.
When the dust has finally settled, and sanity resumes, that flat should sell for about £35k, and rent for perhaps £200 pm
How on earth could anyone suggst that it's worth £141k??
25. icarus said...
montesquieu - not sure how big that nugget is. There aren't many fire sales (as this rambling article points out) except for rubbish, in which these guys wouldn't have any interest. There was a post on this site a couple of days ago in which a wannabe "significant" landlord said that there was a lot of competition for the kinds of properties in which he was interested and that he was continually being outbid - the market finding its own level and making it difficult to find uber profitable deals.
26. alan said...
"Some inexperienced buy-to-let investors are sure to get burnt, not least those who have snapped up new build city centre apartments, sold at discounts by developers at the peak of the market but now in oversupply in many towns"
IMHO, this is an understatement. I think that BtL will get knocked harder than the article says. Margins are really tight says one of my family who insures BtL flats for "professional, long term" landlords in Essex/E.London.