Tuesday, Nov 18, 2008
Piling on the pain
Independent: The buy-to-let dream has turned into a nightmare
Pop. There goes another housing bubble. Two years ago, you could barely move without bumping into someone who'd given up on pension plans and savings in favour of bricks and mortar. The buy-to-let boom was the single most important contributory factor to the meteoric rise in UK house prices.
Bad enough that the value of property has fallen by at least 15%. Now RICS says rents are falling too. It's not difficult to see why. The market is saturated with unsold flats and houses.
This is an alarming development for buy-to-let investors. Until now they could take comfort in the fact that house prices might recover in time. But with rents falling too, and the cost of remortgaging escalating, the monthly cashflow will force many to sell their properties in a falling market.
13 Comments
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1. quiet guy said...
Get some sleep, little professor :)
(just my little joke I hope you understand)
2. quiet guy said...
"Many will be forced to sell loss-making assets into a falling market. It's an appalling prospect"
I supose that depends on your viewpoint :)
3. drewster said...
Should really say:
"Many first-time buyers will have the opportunity to buy at bargain prices. It's an appealing prospect." :)
Also I don't quite get this line: "... the cost of servicing mortgage debt is rising sharply..."
Anybody who bought at the peak would have a fixed-rate mortgage at 5% or 6%. When their fix runs out they'll be kicked onto the SVR (since they won't be able to refinance), but the SVR should be quite low since the BOE cut rates to 3%. Even if the SVR is base-rate + 3% that's still only 6%.
4. drewster said...
Just looked at mortgage rates, something very strange is going on. Look at http://www.moneysupermarket.com/mortgages/, scroll down one screenful to the Best Buy table, then click on Buy-to-Let. Several of the BTL mortgages have a higher initial fixed period, then after a few years they revert to a lower level. For example the C&G mortgage is 6.59% fixed for two years then down to 5% thereafter. Don't think I've ever seen that before. Any mortgage brokers or IFAs care to comment?
5. A_landlord said...
@3 .... I guess it means that rents are falling as well, plus if you have multiple properties, you are likely to have a few vacant due to oversupply of BTL properties on the market.
6. Fjcruiser said...
Fixed rates are high in comparison to SVR because they are based on Libor. BTL will be better off when their interest rate reverts to an SVR. It will still not solve the problem of rent falling possibly faster so mortgage not being covered by rent so high risk of being unable to meet the mortgage repayments. How many BTL LL have only one mortgage to service ?I think BTL are stuffed especially those who bought in the last 2 years, which is the great majority.
7. uncle tom said...
I thought rents would fall in the aftermath of the crash, but that at this stage, an unwillingness of new households to buy coupled to the desire of BTL landlords to get out would keep rents firm.
Seems I was wrong; suggesting that the 'shortage' argument was an even bigger myth than I thought. The dramatic turnaround in London also suggests that reverse migration is in full swing.
I had previously reckoned that the more reckless BTLers would go down in short order, followed by a second wave of landlords who tried to sit it out, but were then caught by falling rents when capital values reached stability.
For the landlord who has one modest BTL that was previously breaking even, having to pay an extra £100 a month in interest is nasty, and then getting £50 less a month in rent makes things worse, but its a pain that can probably be weathered.
When the landlord has a dozen properties on his books, with nett equity dropping to zero; its a bankruptcy in waiting..
8. little professor said...
@Drewster -
Isn't that the way fixed rates tradionally worked, say ten years ago before the current bubble? You would pay MORE than the SVR, in return for the security of knowing that your payments were fixed and wouldn't change for the next x number of years. It's only more recently that the concept of a discounted fixed rate appeared.
I may be wrong though, I'm only a young 'un.
9. brightonrentfodder said...
I'm sure you're right about the migration out of here uncle tom, let's face it when the pound drops below the Euro, what advantage is there in
staying? won't be long now, shame about taking any holidays though. Guess I'm gonna have to sit tight and try to hang on!
10. montesquieu said...
Some wonderful comments. My favourite:
'Whats the problem? A bunch of self-agranded greedy parasites having spent a decade forcing prices into a stratospheric bubble are now getting their dues. A bubble that has rendered our whole society unstable.
'Like many hard working young people who were smart or lucky enough to avoid borrowing 5 times + salary just to buy an outragously overpriced kennel in a crime zone I am delighted. Once these greedy pigs who attempted to enslave a generation of young people forever while setting themselved up like feudal landlords living off my hard work while claiming tax relief on their mortgage costs.
'Feels like justice.
'I will buy one of their repossessed properties at some point at a fair price that i can afford. Let them get jobs.'
Posted by Jeremy | 18.11.08, 09:11 GMT
11. Bertywooster said...
Well said montesquieu!
12. inbreda said...
can't find a single post under the article that supports BTLers. They really are the hated segment of society. People are realising that now. As soon as the government realise they're backing the wrong horse the game will be over.
Then again, GB the fat git probably won't work it out anyway.
13. sold out said...
great comments regarding BTL losers.
When is one of the opposition parties going to start talking about this and coming up with solutions?
Even with the years of financial mismanagement and easy credit the housing bubble would never have grown to such heights had government policy changed and recognised the risks of the BTL speculators driving up prices in 2002/2003.
Unfortuneately Nu-Labour where part of the problem, using there expences to buy up property in London.
Come on Cameron and Clegg we haven't heard this mentioned and yet it is so obvious that reckless BTL's have not only brought this all on themselves but also look like burdening the rest of us via the collapse of the uk economy.
This must never happen again.
The market for rental accomodation in the UK must be taken from the hands of unregulated amatuer landlords and if need be nationalised by future governments.
Future House price booms in the UK need to be controlled and severly regulating BTL is one way forward.