Tuesday, Mar 09, 2010
What the king & queen of buy-to-let can tell us about UK house prices
MoneyWeek: What the king & queen of buy-to-let can tell us about UK house prices
Two maths teachers became the unlikely pin-ups of the buy-to-let business during the boom years. But the crash exposed the shaky foundations of their empire. John Stepek looks at what their story reveals about the state of today's housing market – and why another house price crash is inevitable.
Posted by damien @ 01:14 PM (3047 views) Add Comment
23 Comments
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1. cynicalsoothsayer said...
Aye, that positive feedback loop is going to make the BTLers burn, burn, burn.
2. mark wadsworth said...
:-)
Glorious.
3. need-a-crash said...
While I did enjoy this article, especially "You can argue the toss about the morality of all this – actually, scratch that, you can't. It's a travesty." But I disagree with his assertion that interest rates will rise because the BoE is concerned about inflation. I think we all know the BoE doesn't give a stuff about inflation, in fact all their actions point to the fact that their trying to stoke it up.
I think the authorities are going for the 'lost decade' option, this will of course see houses become more affordable gradually, but will avoid a crash.
4. down wave said...
There are all to numerous Buy-To-Let Ghettos in the UK and driving around them one can see that the tenants, nor landlord carry out any maintenance work or even gardening.
In my experience, a 3 bedroom house requires at least £1000.oo per year for upkeep, repairs, decorating and structural maintenance.
BTL ghettos in Berkshire, Hampshire, Middlesex, Kent and so on, are or have become dilapidated, both inside and outside the properties. Actually, these properties are depreciating in value and those unlucky enough that own their houses nearby are also being devalued by association.
I do not know what to say about North of the Watford/Northampton latitude as it is forbidden territory for me.
5. str 2007 said...
downwave
Agreed, in my experience landlords will avoid maintenance, even if avoiding it will cost more in the long run.
Re: the above article, I recall on the Guardian article being posted here in the last couple of days. In it, Mr Wilson boasted that all houses were let and times had never been so good. (Talking his own book perhaps)
e neglected to say 1 in 10 were behind with rent.
But then goes onto say But to Let is dead and buried. Hmmm that'll encourage a a full portfolio purchase then won't it.
And further, it's the BTL business model of running interest only payments that's blown up this bubble in the first place - so who's he expecting to sell to ??
6. the number cruncher said...
I live about 9 miles from Ashford and have watched this unfurling with interest
on rightmove there are a view fixed price properties at 180,000 , but most are 159,000 for that starter houses that the Wilsons own.
I get the feeling he has tried to flog them to other speculates as job lots and has failed so he is trying to drum up interest from private sales.
It would be great to see him bankrupt totally and forced to live in poor quality rented accommodation. If only such a thing as an interventionist god existed with a sense of justice.
7. str 2007 said...
the number cruncher
Yes they've been very smug about how clever they've been. Pride comes before a fall and all that.
8. down wave said...
5. str 2007..... This afternoon, I did a quick calculation on the maintenance over the last 10 years for my 1972, 3 bedroom home and workplace (not an ivestment unless I move into a tent).
I have had to spend £15,000.oo just to maintain the status quo. It still requires new windows and doors (£12K) and the frost/storm damage to the roof this year alone will cost another £700.oo. After 10 years the then new wool carpets are now in need of replacement as do the curtains.
I can remember the condition of council house estates in the 1950's to late 70's. This is partly the reason that councils sold them cheap to their tenants as they were too expensive to bring back up to compliance.
From my own experience over the years, I can say thay BTL landlords will eventually be left with a unrentable slums to sell, as I can't see their tenants spending this kind of money. It seems to me that the state has passed the buck for council housing onto the inexperienced BTL-ers.
9. 51ck-6-51x said...
NCruncher said, "It would be great to see him bankrupt..."
- I don't think his creditors will let this happen if they can help it though - not out of the kindness of their hearts, but simply to protect their implicit investment (and in turn their return on equity).
10. gone-to-colombia said...
I'd like to see him go bankrupt, not for any moral reason, but as part of a natural process that has been interupted by the government.
We shall not see a true recovery without experiencing a real crash.
11. cyril said...
I can't see a housing crash while the banks are state-owned. The 'independent' MPC will keep rates low until inflation has eaten away the bad debts.
12. smugdog said...
You've got it in a nut shell - Nice one cyril
13. gone-to-colombia said...
The UK government will not be able to control this situation for much longer.
14. alan said...
Every country in the world is trying to borrow money. Its obvious not every country will do this without rates going up.
If Euroland and the USA raises IRs we will have no alternative but to follow.
Britain (and the MPC) is no longer a leader - but a follower of fashion.
15. str 2007 said...
smugdog
I'm inclined to agree with gtc & alan
Care to expand on your certainty ?
16. jackas said...
Smugdog believes in Santa Claus.
He doesn't understand why interest rates can't say low forevermore.
17. drewster said...
I'm not sure rates will rise any time soon. Assuming the Tories win the next election, the last thing they'll want is a repeat of 1992. In that year, interest rates were hiked to preserve the value of Sterling. Homeowners faced rocketing interest rates (12%) and quite a few lost their homes (3.38% of mortgages were repossessed between 1990 and 1996 inclusive; just under 0.5% a year - source: CML). The Tories largely blame that mistake for costing them the 1997 general election, and they surely won't want to repeat the experience. I imagine they'll prefer to see the pound devalued further rather than risk raising rates.
Of course the BoE is supposed to be independent, but I imagine we'll soon find out how independent it really is in times like this.
18. uncle tom said...
The fundamental issue is that through the QE scheme, the BOE has devalued the currency by over 10%. I think it likely that a new round of QE will commence in the coming months, further devaluing sterling.
However there is one inevitable consequence of devaluation, and that is commensurate inflation. The exact timeline is hard to predict, but the economy cannot recover without this coming out in the wash.
By printing more money, interest rates can be kept low in the near term, but not the long term, and the more the currency is devalued in pursuit of this short term fix, so the eventual consequences will be worse.
It seems likely to me that there will be sudden loss of confidence in UK sovereign debt, possibly following a ratings downgrade (or causing one), and that interest rates will be forced sharply up as the BOE seeks to defend the currency from speculation.
Again, the timescale is hard to call, but my money is on it happening this year.
19. techieman said...
Nice to see you back uncle tom... a fleeting visit?
20. Crunchy said...
'a fleeting visit?' Need you ask.
21. tenyearstogetmymoneyback said...
Drewster said "I'm not sure rates will rise any time soon. Assuming the Tories win the next election, the last thing they'll want is a repeat of 1992"
I actually emailed George Osbourne about this in the middle of the Andrew Marr show when he was proudly proclaiming that the Conservatives would keep interest rates lower than Labour. No reply though.
It puts me in a bit of a quandry as to who to vote for.
As for all the comments about expenditure on maintainance, when I was a Zombie household between 1989 and 1999, then
(excluding servicecare for the central heating) I spent about £300 in nine years. Admittedly it was my property so I did all the
gardening, window painting etc myself. I think one of the great myths of the last decade is that if you spend £10000 on a kitchen
your property will go up in value £20000.
22. andrew said...
Judith's response? "Interest rates are not going to rise quickly. If they do, then the whole country is bust."
Where I work we haven't received a pay rise in 3 years, real inflation is making it tough for most people that i know, if interest rates don't go up then the whole country will be bust anyway, nobody will be able to pay their bills and buy food.
23. Reluctantgambler said...
down wave
I liked your comments about 'buy-to-let ghettos'. That's exactly what areas like mine which have far too many let properties have become. Most of the so-called landlords are clueless idiots who bought up properties without understanding a thing about what they were doing in the heady years when banks and building societies were chucking money around like water. As far as the average speculator is concerned, maintenance is an unnecessary drain on profits even in the good times. In the bad times? Forget it. And those of us who are unfortunate enough to own properties in chavved-out-to-let areas have to live with the consequences. Just to add to our woes, as let properties become more and more run down, the only way to let them is to be progressively less fussy about tenants.
I wonder whether the Bradford and Bingley et al ever envisaged that they'd end up being the proud owners of Ghetto Suburbia? But it's really just common sense. People who are renting for six months to a year have no particular interest in taking care of their surroundings. And in general the kind of people who speculate in buy-to-lets have no interest in anything except their own pockets.
I had a quick look on the Nationwide's specialist buy-to-let mortgage page recently. To my astonishment, it's still touting business loans for people who don't have much in the way of a salary or a deposit, on the basis that yields are the all-important thing. Perhaps the Nationwide's 'experts' would care to take a look at the decaying property next door to me, which was bought on one of its 125% loans. It's empty and it's falling down but the owner won't sell because suddenly a falling market has made all that funny-money into a very real and personal debt. Instead he'll sit there, hoping to eke things out until the market recovers. Meanwhile we can look forward to living next door to a decaying slum, occasionally tenanted by society's flotsam and jetsam.