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Buy-To-Let Market Revives As Britons Choose Bricks And Mortar Over Shares

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A real VI special this :rolleyes:.

Mike Valente raises his hand to bid on a second house in a property auction in London, moments after paying 130,500 pounds ($215,000) for another home he plans to rent out.

“Money does so poorly in the bank at the moment,” the 53- year-old dentist said in an interview at the auction house on Tavistock Square where he bought the properties last month. “Buy-to-let is coming back because land and houses are cheap, and bricks and mortar won’t go to the wall like shares.”

Purchasers like Valente are fueling a rebound in the U.K.’s private rental market, known as buy-to-let, as they take advantage of falling prices and low interest rates. The value of loans taken out by private landlords increased 22 percent last year, Council of Mortgage Lenders data shows. Mortgages obtained by all types of homebuyer fell 5.1 percent, according to the Bank of England.

“Transactions are up, but buy-to-let landlords and cash investors are propping up the figures rather than owner- occupiers,” said Nick Leeming, business development director of property website Zoopla.

Buy-to-let transactions played a big part in the rise and fall of the U.K. real-estate market during the previous decade. The number of these deals increased 19-fold in the 10 years to 2007 -- when average home prices doubled -- as TV programs such as Channel 4’s “Location, Location, Location” and investment clubs encouraged Britons to become landlords. In the two years through 2009, mortgages for rental properties fell by 73 percent compared with a 52 percent drop in home loans overall.

Arrears, Repossessions

In 2008, mortgages to buy rental properties accounted for 18about 10 percent of all home loans and 15 percent of those that were at least three months delinquent. Last year, lenders repossessed 5,900 buy-to-let homes, or 16 percent of the total, also higher than its share of the mortgage market.

Buy-to-let deals became identified with speculation during the boom years, though the market has deeper roots. They became attractive to private investors after the government enabled more companies to provide mortgages and introduced legislation on fixed-term tenancies in the 1980s. Also, mortgage-interest payments and management costs linked to these investments are treated as tax-deductable business expenses.

“Buy-to-let has become part of pension planning for a lot of people,” said Grenville Turner, chief executive officer of Countrywide Plc, the U.K.’s largest real estate and mortgage broker.

Steady Climb

Privately owned rental homes have increased as a proportion of all residential properties every year since 1999, rising from about 10 percent to almost 16 percent. That may climb to 20 percent by the end of 2016, real estate adviser Savills Plc said in a report today.

“Our prognosis for the private rented sector as a whole remains extremely bullish,” said Yolande Barnes, the broker’s head of residential research.

About 83 percent of U.K. residential investors owned 10 units or less as of March 31, the Association of Residential Letting Agents said. Unlike the U.S., France and Germany, institutional investors have virtually no presence in the U.K.’s private rental market.

“In the near term, the buoyant U.K. rental market should continue to support buy-to-let borrowers, but interest rate rises are a risk on the horizon,” Mark Boyce, a credit analyst at Standard & Poor’s, said in a report yesterday.

Crisis Benefit

Britain’s economic crisis has made buy-to-let investments more attractive. The Bank of England has kept its benchmark interest rate at a record low of 0.5 percent for 27 consecutive months, reducing financing costs and improving returns.

Restrictions on mortgage lending have prompted more Britons to rent homes. The number of English households living in private rented accommodation increased by 1.1 million in the six years through March 2010, government figures released two months ago show. The private rented sector represents the highest proportion of England’s housing stock in 35 years, according to the data.

Average home prices in England and Wales are 12 percent below the peak reached in November 2007, according to sales- figure prices compiled by the Land Registry.

“The rental sector is strong, mortgages are available and property is out there so that a good quality investor can make good, sensible purchases,” Countrywide’s Turner said.

The value of the benchmark FTSE 100 Index (UKX) of U.K. stocks fell 5.2 percent in the decade ending in 2010, although reinvested dividends lifted annual returns for stock market investment to 3.2 percent for the period, data compiled by Bloomberg show.

Returns on Rentals

Gross rental income for homes averaged about 5 percent of purchase prices in the first quarter, according to a February survey of members of the Association of Residential Letting Agents. The net income return is less if management expenses and lost revenue from non-payment is included.

In parts of the country where accommodation is in short supply, rents are rising quicker than property prices. In the London region, average residential rents rose 16 percent last year, Savills said.

The average gross rental income of the 3,100 tenant- occupied properties sold in auction last year was 8.5 percent, based on hammer prices, according to David Sandeman, managing director of the Essential Information Group, which collects data from U.K. property auctions.

Expanding Investment

Valente says he expects to earn 800 pounds a month from his latest purchase, a two-bedroom house. The home is his fifth in the English village of Fobbing, about 25 miles (40 kilometers) east of London, which he says is an “overlooked opportunity” because local employment is strong. He wouldn’t say how many properties he owns in total.

Buy-to-let investments are “attractive in the medium and long term as rental incomes will continue to increase as the sector gets ever stronger,” Turner said. “On top of that, there’s capital gain.”

By the end of last year there were 1.3 million buy-to-let mortgages outstanding worth 152 billion pounds, representing 12 percent of outstanding home loans, according to Council of Mortgage Lenders data.

Demand from prospective landlords is “resilient and loan performance has improved,” said Michael Coogan, CML’s director general.

Institutional investors own about 3.76 million apartments in the U.S., according the world’s biggest real-estate adviser, CB Richard Ellis Group Inc. The U.K. is trying to attract large- scale investment in the market by lowering stamp duty taxes for buyers of multiple homes.

“You couldn’t buy the land and build this property for much less than I got it for,” said Valente. “Shares can make you a millionaire overnight, but property is safe and steady.”

To contact the reporter on this story: Chris Spillane in London at cspillane3@bloomberg.net; Simon Packard in London at packard@bloomberg.net.

To contact the editor responsible for this story: Andrew Blackman at ablackman@bloomberg.net.

http://www.bloomberg.com/news/2011-05-10/buy-to-let-market-revives-as-britons-choose-bricks-and-mortar-over-shares.html

They really are getting desperate :lol:.

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Obvious free money creation from thin air or buy to let investing may be a fashionable no brainer now but lets see if its as popular when the market tanks 40%. Sop many of these people will be burned the fear will spread like wildfire.

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Small scale BTL landlords are dead in the water if Osborne's budget suggestions are implemented in the Autumn Finance Act (REITS conversion rate scrapped, stamp duty reduced on multiple purchases, etc )

Corporations will have massive tax breaks over BTL landlords and so be able to undercut their rents. Then pick up the properties when the amateur BTL landlords go bust.

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We cant afford to move back to UK and rent. Even 2 bedroom places around London are nearly 800 pounds or more a month.

If house prices do not come down we will stay out here. We would have to see at least a 25% drop to be able to afford our own place. I expect the BTL investors would pile in before it got to that stage and keep us priced out. Not even sure we would want a mortgage of over 1000 pounds a month either.

We may try the council list

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bricks and mortar won’t go to the wall like shares

Well, houses may not lose more than 30%, but most people buy houses on leverage, which is why there are so many people who have already slammed through the wall and are in neg equity.

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"Property is safe and steady.”

This is the property that posted +20% in 2002 and -20% in 2008.

Neither safe, nor steady I'd say.

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Well, houses may not lose more than 30%, but most people buy houses on leverage, which is why there are so many people who have already slammed through the wall and are in neg equity.

Really? Why?? In Northern Ireland they're down over 40%.

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Small scale BTL landlords are dead in the water if Osborne's budget suggestions are implemented in the Autumn Finance Act (REITS conversion rate scrapped, stamp duty reduced on multiple purchases, etc )

Corporations will have massive tax breaks over BTL landlords and so be able to undercut their rents. Then pick up the properties when the amateur BTL landlords go bust.

I don't know about the REITS change but the Stamp Duty change is meant to make bulk purchases the same as individual purchases (rather than worse off). It certainly isn't intended to make them better off (though I accept that there are some marginal cases where it does)

And corporates have so far shown so little interest in BTL that I can't see any tax changes making them interested.

tim

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I don't know about the REITS change but the Stamp Duty change is meant to make bulk purchases the same as individual purchases (rather than worse off). It certainly isn't intended to make them better off (though I accept that there are some marginal cases where it does)

And corporates have so far shown so little interest in BTL that I can't see any tax changes making them interested.

tim

well, apart from bankers shell firms buying up possessions and cleaning their balance sheets with cheap BoE money.

Of course, Doomberg is the bankers mouthpiece....

of course, if I was a BTL owner, i'd be a bit concerned that people like me and cash buyers, like banks, are "propping up the market" as Zoopla reports. Bit like a Ponzi scheme needs new entrants to "prop" it up too.

Edited by Bloo Loo

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Small scale BTL landlords are dead in the water if Osborne's budget suggestions are implemented in the Autumn Finance Act (REITS conversion rate scrapped, stamp duty reduced on multiple purchases, etc )

Corporations will have massive tax breaks over BTL landlords and so be able to undercut their rents. Then pick up the properties when the amateur BTL landlords go bust.

I think this is fantastic - when, eventually, yields look good, REITS can own large amounts of houses and I can rent one from a good institutional landlord and live an easy life with my capital growing in a nice array of low cost investment funds instead, free to move for work without hassle

fantastic :)

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Any landlord worth his salt would be buying a house outright in cash, therefore dropping the bank out of the scenario, and the BTL moniker.

Taking on a leveraged and very risky asset, such as property, in this economic climate is like running the hurdles with some nitro-glycerine in your back pocket.

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  • 284 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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