Time to raise the rents.

"But then if they are going to have to cope with a correction without tenants you could argue they will be hit worse (and perhaps this would explain why their prices were 'cool' and offering such an apparently nice yield beforehand). " Exactly my argument. Why would a row of terraced houses sold at £1 each 4 years ago, now be worth 100K each (no examples, just the gist of what I've heard on this forum)? The revived local market causing a major over supply to limited tenants. "The areas that are now 'cool' (London etc) will fall by more, surely?" London has seen more sensible rises in the last couple of years while less economically balanced areas have seen crazy gains. Why would London suffer when there is decent tenant demand and plenty of jobs? Add to that all the talk of city jobs picking up in a big way & you've got more tenant demand in the pipeline as many people move to London for these jobs from other countries (I know, I did myself).

Can you point me to the best entry point for your arguments on this: I could search but may start at the wrong point. Cheers I don't get your question entirely. But if you mean where can you see my original post on this, I believe it dropped off the old forum a while back. I'd have to rewrite it and the wife's on the way home with guests. I'm expected to have the BBQ ready & cooked in 45 mins from now. Shit, is that the time?

MB, It aint just any lump of clay. It's the lump that a person can live in in perpetuity, pass on to their family on death etc etc. See the Fulfords for an example. A playing field, or a park, or industrial estate. It's all land, but subject to very different rules. Nobody will be out protesting when brownfield land is aquired for re-development, but you'll see them on the streets when the common goes up for sale....

The hottest areas now seem to be where the tenants are scarcest, well out of cities where prices are considered low by London standards. The rising prices making people feel they've chosen well, only to find they have to pay for that place themselves rather than a tenant pay. I've said it before, I get 6% and I'm happy with it as long as rates stay moderate.

Gracious apology accepted. I've been here 10 weeks now & had a break over the past 12 days.

I'm afraid I haven't got the evening to spend arguing this point again, for probably the 5th or 6th time in the last couple of months, but here goes with a few points: The supply/demand argument is not as simple as you claim or as many believe. There is serious demand for good property in good locations. There is also serious demand for investments, people attempting to provide for their future etc. A row of empty terraces in some obscure location or boarded up properties on the A40 or next to a BR line doesn't constitute a large supply ready to match the demand. You can't match demand for a 5 bed Victorian terraced house with supply of a 4 bed ex-council maisonette in the same suburb for example. Many people who own good properties in good locations aren't willing to give them up at current prices largely because of the poor alternatives available to them. Government isn't chopping up the commons to allow new builds in the best locations. People have to compete for these top locations in the price they're willing to pay. High demand, low supply. On the other hand, builders are falling over themselves to supply lovely newly built flats that no family wants to live in. Investors on the other hand, have shown themselves willing to pick up a few of these low maintenance beauties, sure the tenants will be lining up (as the agent told them). There is your High demand, with supply attempting to match. Effect, builders asking higher prices. Add to that the fact that many tenants don't want to pay the rents asked of these newly built wonder flats and in that part of the rental market you have high supply and low demand. Effect, rents for posh places in crap locations falling. Nice rentals at a decent price & location, you've still got high demand with what now seems to be a similar supply. Effect, rents stagnant. I'd say unless the government starts compulsory aquisitions of rows of terraced houses in popular locations and forces them to be replaced with smart high density places, the market will continue to suffer from localised supply/demand problems.

If you think I'm new to the forum, you're sadly mistaken & obviously new yourself.

But I'm afraid I am a believer that things really have changed. In many of my past posts, some before you joined the forum, I've pointed out that prior to the 1988 Housing Act, property was a very bad investment option in the UK. The market at that time was made up largely by owner-occupiers and councils. Only a few were stupid enough to rent places out and banks were very worried about people gaining sitting tenants. The 1988 Act changed all that, but it was too late to have an impact on the last crash as once the slide started, it had it's own momentum. But 1995 onwards saw the impact of the 1988 Act taking hold in terms of a widespread acceptance by banks that rental properties were a good investment (lets say over 95-98 this idea really took hold). Unfortunately we've now had the I'm joining the bandwagon idea which has caused an over-valuation. But by how much, it depends on whether the current laws really will have an impact on the long term price trend. So in my mind, 10-20% in the hottest areas, is enough of a correction to take the head of steam out of the market & return it to more realistic levels without causing the overall economy to fall down as well.

10-20% would be a sign of a mild correction. Enough to halt rate rises, and to kill off the idea that property is a dead cert. Only recent buyers & over leveraged people would really get hurt by that and others would probably think it was due anyway. 30% would cause panic amoung lenders & owners and probably lead to either more falls or a long period of uncertainty. A paper gain or loss in property is speculative as each place is different and therefore each place should have a different value. Looking in an agents window won't tell you exactly what you can really sell for. You need to sell to find out. Shares on the other hand, each share is quoted daily (from moment to moment in reality) and yours are identical to others in the same stock. You know for sure whether you're in loss territory or profit territory from day to day and can more or less instantly act on it. "Surely on that basis property is much more risky than shares - since someone else (the bank) can, in certain circumstances, FORCE you to sell whereas you can pretty much refuse to cash in your stockmarket losses under most scenarios (if your £10k is worth £0 the bank will probably not bother to FORCE you to crystallise this £10k loss or if we go communist you probably won't be FORCED to sell - you can still keep your share certificates and pretend they are still worth £10k)." I'll argue that purely because the banks are heavy investors in property (by virtue of their willingness to lend so much on such small deposits), yet much more cautious regarding lending on shares, they demonstrate that property is the more secure investment. Whether it's the best speculative vehicle though, is a matter of timing and the opinion of the speculator. By saying people are more cautious with a property investment, I mean that they have to have made a large number of considerations before they decide to purchase. With shares, many read a few reports & throw their money in. With their property, they get to use it whether the market moves up or down in the short term. With their shares, they may be stuck with a lemon that's worthless in every way. At the end of the day, the government isn't releasing enormous amounts of land to build on. While our society restricts shanty towns & DIY sheds to live in, property will be expensive by most people's standards and banks will consider it a good investment.

LL, I've said it many times. This is probably the wrong time to start a BTL portfolio. 30+% to me is astronomical. 10 - 20% could be considered a fair correction. "But if you end up just paying yourself income out of capital (you still get your income stream but take capital losses) then this surely fails the above definition of an investment and moves into the realm of speculation doesn't it?" My post is stating that property purchase is speculative in nature and that being a property lender is to be the real investor. But also that property speculation is less speculative than shares amoung many other things. And you only get a capital loss if you sell at a loss. Speculating that a higher value now represents your invested capital is wrong as far as I'm concerned (many will disagree and they'll have valid arguments on that comment). Van, I think that speculation with your own cash on shares, even as with the dot com bubble, will always happen. The difference is that type of speculation usually risks money than people can afford to lose. Mortgaged property risks a lot more and therefore would tend towards causing people to be more cautious. I don't believe that it is generally accepted that shares are a better investment. A broker will say it is, an agent will say housing is. Over time the two cross paths and one is ahead of the other at any given moment. I believe (without being able to substantiate it at the moment), that property is in the lead right now. Add to that, the ability to heavily gear a property and you've got what has been a real winner up to this point in time.

Hi all, On my trip to London last week I was reading a very old book, written in the 1920's which is called 'The Common Sense of Money and Investments'. It was one of the first investment guru type books that broadly covered investing. One point that I thought was very interesting and wanted to pass on was the author's definition of an investment as I think it is extremely relevant on why banks are so willing to lend on property. Here goes (MY COMMENTS IN CAPITALS): Why not Get Rich Quick? Investment is entirely different from gambling, but differs only in degree from speculation. Investing represents a quest for safety of principal and assured regularity of income (A MORTGAGE), whereas in speculation the incentive is to attain an appreciation of principal rather than mere security. Men otherwise intelligent, who in their financial relations become intoxicated with the hopes of excessive gain, frequently place their funds consciously in unpromising and far fetched speculations. They will buy almost anything that a plausible promotor presents because they are acting on the theory that the law of averages is certain eventually to bring them something good and that one success will more than pay for the thousand failures. Silly reasoning! In order to be sure the law of averages would eventually lead one to the financial paradise it might be necessary to live ten thousand years. Moreover, the average worth of valueless securities is zero (WE'RE SPECIFIC TO SHARES HERE). Get-rich-quick propositions are always seemingly on the bargain counter. Those promoting them perpetually send stock salesmen into the cities and the countryside. Common sense would indicate even to the inexpert buyer that those with a proposition that assured quick riches would not need to employ security peddlers to unload stocks by high pressure methods on an unwary public. End. Having given it some thought, it appears obvious to me that a mortgage is an excellent investment from a banks point of view. They lend against both a property that is almost always valued higher than the loan and either has the purchasers income stream, or the rental income stream to draw off as it's income. Given that the bank diversifies it's investment over many properties and income streams, the principal is safe (default and loss rates being fairly low versus other investments). It is therefore an excellent investment for a bank. Property buyers, being the speculators, are willing to take on mortgage loans as they need a place to live and therefore need to purchase (many rent of course). They both use the utility value of the property and the investment value when considering their gearing into a traditionally rising value. For the majority, it has been an excellent speculation in the past. BTL buyers have speculated that values will continue to rise and have levered off the banks willingness to lend and the fact that there are many who by choice or need, rent instead of buy. Up to now this has also proven to be a top choice of where to speculate. Now I'm willing to bet (and have done so with my own choice to be a landlord) that the properties of a decent investment for a bank and a good bet for speculators will generally continue into the future for the housing market. The difference for BTL as an investment versus shares are, as stated many times, that each property, if well located and well maintained, will continue to command an income stream even in tough times. Many shares in tough times tend to disappear as the company behind them folds. Hence a share is very much more speculative than a house. Only an astronomical crash will cause years of pain and governments and central banks will do all they can to avoid that scenario.