London Bankers Become Landlords As Rents Hit Record

[Deckard]

London Bankers Become Landlords as Rents Hit Record

Vivek Jeswani became a landlord by accident when Deutsche Bank AG (DBK) transferred him to New York two weeks after he moved into a new home in central London. Now back in the U.K., Jeswani views the apartment in Baker Street, the fictional home of Sherlock Holmes, as one of his best assets and is about to buy another home to expand his rental business.

“There are no other investments as attractive and you’ve got some security if you’ve got an asset you can use yourself,” the 36-year-old risk officer at China Construction Bank Corp.’s U.K. unit said. “There’s a good yield over 5 percent and being in central London, you’ve got demand domestically and internationally.”

London rents have risen more than 6 percent in the past year to a record, even as job cuts by banks reduce employment in the financial-services industry to a 20-year low. Technology and media companies are drawing workers to the city, while lenders restrict mortgages to all but the most creditworthy customers. That’s encouraged individual investors and companies including KKR & Co. to enter the rental market as central banks push down yields on debt to record lows.

The average rent in greater London climbed to 1,240 pounds ($1,974) last month, according to an index compiled by HomeLet. That was up 32 percent from October 2009, when rents averaged 940 pounds per month. The cost of renting a property in the rest of the country increased 7 percent between 2009 and 2012, said Homelet, the U.K.’s largest referencing and rentals insurance company.

...

In Britain, rising rents are encouraging investors to take out loans for buy-to-let transactions, a type of mortgage that helped fuel speculation during the housing boom. Loans of this kind totaled 4.2 billion pounds in the three months through September, the most since the third quarter of 2008, when the housing market was crashing.

Jeswani bought his first apartment in 1999 on Baker Street for 100,000 pounds and said he plans to spend 1.35 million pounds on the latest property, which he will move into, and then rent out the place where he’s currently living.

He’s renting out the one-bedroom Baker Street property in a mansion block by Regent’s Park for 395 pounds a week. That compares with an average of 475 pounds per week in the city’s Chelsea neighborhood and 550 pounds in nearby Knightsbridge, according to the Mayor of London’s website.

Demand for rental properties is growing because first-time buyers in the city typically need down payments of about 25 percent, according to the Greater London Authority. The average deposit is 57,175 pounds, more than double the national figure, said Halifax, the mortgage unit of Lloyds Banking Group Plc.

The restrictions on lending are reflected by a slump in the number of mortgages that have been granted in the past five years. Gross mortgage lending amounted to about 141 billion pounds in 2011, down from 363 billion pounds in 2007, according to the Council of Mortgage Lenders.

...

“They don’t regulate the buy-to-let market,” Neil Chegwidden, director of residential research at Jones Lang LaSalle Inc. (JLL), said by phone. “Buy-to-let investors tend to be more affluent. Most have more than one property, so you’ve got greater security by writing that kind of mortgage.”

London rents are expected to rise 3 percent this year and 4 percent the following year, according to Savills. That’s also being fuelled by the lowest number of home completions in London for 18 months in the quarter through September, according to the Department for Communities and Local Government.

“For investors, the U.K.’s private rented sector looks an attractive option,” Barnes said.

Plenty more at the link.

Come on guys, time to let fly

Edited November 21, 2012 by Deckard

[InlikeFlynn]

OK, I'm furious.

The really upsetting thing about all this is the ugly use of the verb " to rent out" in place of the more accurate and precise "to let".

Apart from that it's all wonderful.

Am I helping?

[@contradevian]

I want revolution now. Heads on spikes on London Bridge!

[Sledgehead]

Jeswani views the apartment in Baker Street, the fictional home of Sherlock Holmes, as one of his best assets and is about to buy another home to expand his rental business.

“There are no other investments as attractive ...There’s a good yield over 5 percent.....”

Jeswani bought his first apartment in 1999 on Baker Street for 100,000 pounds ...

He’s renting out the one-bedroom Baker Street property in a mansion block by Regent’s Park for 395 pounds a week. .

Okay, he says he's making 5%.

£395 per week = £4,740 pa

If that represents a 5% yield, the property value = 100 * 4740 / 5 = £95k

But he paid £100k for it 13 years ago.

So he's assessing the yield on what he paid 13 years ago?

Fair enough, but what is the yield to anyone buying now?!? After all, that is what will support prices now, and that is surely what one would mean if one was advocating buying london property "at a 5% yield" now, no?

Anybody understand a word of this?

Edited November 21, 2012 by Sledgehead

[bomberbrown]

London rents are expected to rise 3 percent this year and 4 percent the following year, according to Savills.

....and naturally, wages (and probably more applicable in London, LHA rates) are following suit?

[19 year mortgage 8itch]

Okay, he says he's making 5%.

£395 per week = £4,740 pa

If that represents a 5% yield, the property value = 100 * 4740 / 5 = £95k

But he paid £100k for it 13 years ago.

So he's assessing the yield on what he paid 13 years ago?

Fair enough, but what is the yield to anyone buying now?!? After all, that is what will support prices now, and that is surely what one would mean if one was advocating buying london property "at a 5% yield" now, no?

Anybody understand a word of this?

Per week, sledge, per week.

[easy2012]

Okay, he says he's making 5%.

£395 per week = £4,740 pa

If that represents a 5% yield, the property value = 100 * 4740 / 5 = £95k

But he paid £100k for it 13 years ago.

So he's assessing the yield on what he paid 13 years ago?

Fair enough, but what is the yield to anyone buying now?!? After all, that is what will support prices now, and that is surely what one would mean if one was advocating buying london property "at a 5% yield" now, no?

Anybody understand a word of this?

Math is not really my strong point but I thought 395 per weekx 52 = £20540 pa @ 5% (i.e. x 20) = £410800 ? (which is about right for baker street. crazy price of course)

I am actually pretty concern that banker's (and a risk officer !!) is so bad about attempting to project into future using a short (15 years ish data). I hope he is not given authorization to setup large derivative contracts although the fact that he works for a Chinese banks give me some level fo comfort...

[Deckard]

The point is, London rents rose by nearly a third in the last three years, and bankers are now basking in their bailed-out-cum-BTL hubris

I am unaffected, as I left the smoke in 2008, however I feel sorry for all our London-based posters.

Talk about adding insult to injury...

[Sledgehead]

Per week, sledge, per week.

ah, right

thought 395 was a bit pathetic for Baker st.

think i need a rest

Edited November 21, 2012 by Sledgehead

[R K]

Precisely why Merv needs to raise interest rates on London postcodes.

Bank of England wouldn't know a bubble if it fell over one.

[blackgoose]

That is just what a mere risk officer is up to. Though their salaries are solid, they dont partake in the big bonuses that the revenue generators recieve. Those guys must have blt portfolios many times the size.

[Bloo Loo]

I wouldnt worry, its probably his pal on the desk opposite that is letting from him.

Who else could afford £20K for a 1 bed in an old block?

[scepticus]

That is just what a mere risk officer is up to. Though their salaries are solid, they dont partake in the big bonuses that the revenue generators recieve.

Well maybe the risk guy has better job security.

Those guys must have blt portfolios many times the size.

Not sure why their collection of popular lunchtime snacks is relevant....

[zugzwang]

The point is, London rents rose by nearly a third in the last three years, and bankers are now basking in their bailed-out-cum-BTL hubris

I am unaffected, as I left the smoke in 2008, however I feel sorry for all our London-based posters.

Talk about adding insult to injury...

I've posted this chart elsewhere but its worth seeing again. It clearly demonstrates the signature of 3 successive bubbles on mean real household incomes: dotcom, housing ponzi and bank bailout. The richest 20% have done very well out of all three, everybody else not so much.

(Somewhat off -topic, I know, as these are US households, but income inequalities suggest the picture must be pretty much the same for the UK.)

[Bloo Loo]

Well maybe the risk guy has better job security.

snip

unless.....he reports any risk that he sees is damaging bonuses.....

[wonderpup]

I want revolution now. Heads on spikes on London Bridge!

I doubt you could afford to rent space on those spikes- not at London prices.

[Ash4781]

Does this follow the other report, RICS maybe, that the lettings market is like the 'wild west'?

[@contradevian]

Just watched "Man About The House" from circa 1974 and "Roper" from downstairs was trying to evict the three in the flat. Looking for a flat they are complaining about high London rents and state they can only afford £26 per week. There are clips of real adverts in a paper showing flats for £45 per month. Interestingly as part of the plot, the Citizens Advise Bureau advise, that the landlord has to give 2 months notice, has to get a possession order, and that they can apply to the rent tribunal. Seems to be pretty accurate advise for a sitcom, and this is before the days of the "Assured Shorthold Tenancy."

Edited November 22, 2012 by Secure Tenant