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It seems to me that Peak Rent Extraction / BTL has arrived. Housing benefit has had to been cut back due to the sheer number of claimants and the fiscal drag it causes.

Rents increase has fallen below 'government measured inflation' and has been been for sometime:

http://www.lslps.co.uk/documents/buy_to_let_index_jul13.pdf

RENTS RISE MORE SLOWLY THAN INFLATION Average monthly rent across England and Wales 1.8% higher than in July 2012

On a monthly basis, rents rise by 0.2%in July – compared to average July rise of 0.9 %

Tenant finances improve with the proportion of all rent in arrears down by 0.2%

Number of new tenants grows by 6.6% on a monthly basis,and by 12.3% since last July Since May, the average rent has risen by only £1

http://www.independent.co.uk/property/increasing-numbers-of-people-are-falling-badly-behind-on-their-rent-8690071.html

Increasing numbers of people are falling badly behind on their rent

Between April and June the number of tenants in severe rental arrears - defined as being more than two months behind on payments - rose by 3.3 per cent over the previous three months, according to figures from LSL Property Services, owners of Templeton LPA, the specialist practice of LPA Receivers.

The number of tenants in severe arrears rose by 3,000 to 98,000 in the same period, making it the third highest level on record. Those in serious arrears now represent 2.4 per cent of all tenancies in England and Wales.

Paul Jardine, director and receiver at Templeton LPA, said: “A troubled minority is feeling the pinch sharply. Slower rent rises in the last couple of months have provided some relief. However, the longer-term battle is with other forms of inflation, plus unemployment and anaemic wage growth. Consumer inflation is persistently outpacing the Bank of England’s target, and escalating much faster than either rents or wages.

"If 2013 isn’t another false economic dawn then the financial position of these struggling tenants could start to improve later in the year. But tenants in severe arrears will be among those squinting the hardest to glimpse the light at the end of the tunnel. Whether the recession included a single, double or triple dip makes very little difference – there are a growing block of tenants who can’t keep their heads above the rising tide of inflation and weak wage growth. Until the rising cost of living begins to subside, the number of tenants in severe arrears is likely to mushroom even further."

http://www.ons.gov.uk/ons/rel/hpi/index-of-private-housing-rental-prices/historical-series/iphrp-article.html#tab-Great-Britain-rental-prices

chart2_tcm77-312086.png

Could we have reached peak rent extraction? With rising utility, food and motoring costs are people choosing cheaper places to rent?

Looking at the figures I can see that without wage inflation outpacing 'cost' inflation rents will start to fall. To enable landlords to dispose of non-performing properties Help To Buy 2 is to be introduced in the new year.

Edited by Gone to Ireland.

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It seems to me that Peak Rent Extraction / BTL has arrived. Housing benefit has had to been cut back due to the sheer number of claimants and the fiscal drag it causes.

Rents increase has fallen below 'government measured inflation' and has been been for sometime:

http://www.lslps.co.uk/documents/buy_to_let_index_jul13.pdf

http://www.independent.co.uk/property/increasing-numbers-of-people-are-falling-badly-behind-on-their-rent-8690071.html

http://www.ons.gov.uk/ons/rel/hpi/index-of-private-housing-rental-prices/historical-series/iphrp-article.html#tab-Great-Britain-rental-prices

chart2_tcm77-312086.png

Could we have reached peak rent extraction? With rising utility, food and motoring costs are people choosing cheaper places to rent?

Looking at the figures I can see that without wage inflation outpacing 'cost' inflation rents will start to fall. To enable landlords to dispose of non-performing properties Help To Buy 2 is to be introduced in the new year.

I saw that LSL paper and I'm suspicious of the finding that rents have risen by 10% nominal nationally since 2010. It's not something I've seen, experienced or heard of in other stats. I have a few properties I check for rents now and again, and they all say to me that rents are stable or weakening slowly. Also, the central premise linking rent rises with CPI is flawed in my view, it is more meaningful to talk about wages versus rents.

edit The ONS paper is much closer to my own experiences, directly (places I've previously rented) and indirectly (things I've read here and elsewhere), page 7:

hir5.jpg

Many BTLers must be waking up to the idea that the capital gains they have assumed to be in the pipeline are simply not going to materialise anytime soon. As business assets most BTL cannot possibly be justified when yields are as low as most buyers in the last 10 years are getting, and the wage growth required to raise rents is nowhere to be seen.

A place identical to one I rented in 2007 for £575pcm, went 'let agreed' recently at an asking price of £575/month.

The owner paid circa £150k for it, they now sell for around £90-£100k.

Assuming no voids, arrears, and making some generous assumptions of the cost side in the last 6 years:

Rent £575x12x6 = £41,400

Mortgage (65%LTV IO 5%) = -£29,000

Capital 'gain' = -£50,000

Leasehold fee: -£6,000

Agent cut: -£3,500

Stamp duty: -£1,500

I'm being generous- the mortgage expense could be much more. The striking part is how on generous assumptions, the rent just allows the LL to stay afloat on 'cash' terms, although this assumes 100% occupancy, no arrears, repairs to white goods etc. Probably the hook that gets them to sign on the dotted line. In reality the LL will be well underwater in cash terms, I've little doubt. Casting all that aside that aside only leaves the small matter of the capital 'gain' though. Not far off £700/month in the hole to date. A complete disaster.

Edited by cheeznbreed

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Well, the BTL brigade are alive and well in Leighton Buzzard. Just been gazumped on a 3 bed semi by a cash paying 'professional landlord'. So they must still potential in good returns?

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I think that when you see headline figures reported that those figures include London which is in the middle of a a crack up property boom. It's a giant Ponzi as the rents primarily come from those working in or in relation to the financial sector who in turn make money form the property and those rents.

I saw Phil and Crusty offloading some shitty flat to a middle age couple for 1/2 million on the TV yesterday. :lol:

So I believe you are correct, that rents are not rising country wide (exc. London). We get the same reports here in Ireland rents are rising, quick time to buy etc.. property shortage etc.. (yes shortage)..

Rents are rising in financial districts (London, Dublin, NYC)... I think we all know the outcome of that from recent history, only this time the governments & currencies will need bailing out.

Also I would think that much of London is Negative Geared in the hope of [further] capital appreciation, I guess the lucky ones [MP's] are offloading to wealthy foreigners before SHTF - Just hope they don't come looking for them brandishing a sharp machete.

I would say the current London bubble is just a bailout for the London landlords club who did not get out in time before - guess this will be their last chance.

Edited by Gone to Ireland.

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Well, the BTL brigade are alive and well in Leighton Buzzard. Just been gazumped on a 3 bed semi by a cash paying 'professional landlord'. So they must still potential in good returns?

That's ok, rent it off them for a couple of years as you watch the value plumet then make them an offer for it.

Note: You will find that their 'cash' offer will be about 50k down and the rest on mortgage - check the BTL borrowing figures if you don't believe me.

Look at their 'cash' as your discount.

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I wonder how much effect the Capital Gains Tax (CGT) changes introduced in 2008 are having?

There was a time when most landlords were only in it for a few years before selling up and taking the profit, but I know two small time landlords who now say "I'm not paying 28% to the govt, I'll just hold onto it forever if thats what it takes"

This 2010 survey was taken 2 years after the CGT changes in 2008

pK31Ff3.jpg

[source: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/7249/2010380.pdf]

There are now around 1.46 million buy-to-let mortgages in the UK, accounting for around 13% of the total estimated stock of 11.26 million mortgages.

(or about 7% of all homes - there are 25 million properties in the UK)

Of course the effects are not equal - in the north where many BTLers have made little or no capital gain, the tax won't disincentivise selling. In London pretty much every landlord would be looking at a big CGT bill if they were to sell - so they don't sell and thus prices in London stay high.

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I wonder how much effect the Capital Gains Tax (CGT) changes introduced in 2008 are having?

There was a time when most landlords were only in it for a few years before selling up and taking the profit, but I know two small time landlords who now say "I'm not paying 28% to the govt, I'll just hold onto it forever if thats what it takes"

This 2010 survey was taken 2 years after the CGT changes in 2008

pK31Ff3.jpg

[source: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/7249/2010380.pdf]

There are now around 1.46 million buy-to-let mortgages in the UK, accounting for around 13% of the total estimated stock of 11.26 million mortgages.

(or about 7% of all homes - there are 25 million properties in the UK)

Of course the effects are not equal - in the north where many BTLers have made little or no capital gain, the tax won't disincentivise selling. In London pretty much every landlord would be looking at a big CGT bill if they were to sell - so they don't sell and thus prices in London stay high.

Which means there'll be a recursive selling effect if capital gains evaporate.

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Well, my rent has not risen in the 18months ive been in my current place, and ive just signed upto another year where it stays at the same price so that will be 30months with no rent rise

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Well, the BTL brigade are alive and well in Leighton Buzzard. Just been gazumped on a 3 bed semi by a cash paying 'professional landlord'. So they must still potential in good returns?

Many such landlord buyers are just innocent victims themselves, with no choice in the matter, being forced to pay blisteringly high painful house prices via their savings and additional mortgage debt. You're their pension. Feel sorry for them. :blink::blink::rolleyes:

The central bank and government as directed by the US are directing thousands of savers into BTL in the full knowledge that interest rates are going to rise and property prices will collapse in the very near future.

We are in the final throws of a last ditch attempt to keep money flooding into property and keep asset prices propped up. Once this round of coercing savers into speculating in property is over there will be nobody left to prop up the Ponzi housing market and at that point all of the good money will have been sucked in and leveraged the maximum it can be.

The banks, central bank and government are in the process of conning the general public out of their savings.

A warning for the older crowd "They stole your pensions and now they are after your savings". Do not let them suck you into buy to let.

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Well, the BTL brigade are alive and well in Leighton Buzzard. Just been gazumped on a 3 bed semi by a cash paying 'professional landlord'. So they must still potential in good returns?

HMO potential. Turn lounge into another letting bedroom?

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I saw that LSL paper and I'm suspicious of the finding that rents have risen by 10% nominal nationally since 2010. It's not something I've seen, experienced or heard of in other stats. I have a few properties I check for rents now and again, and they all say to me that rents are stable or weakening slowly. Also, the central premise linking rent rises with CPI is flawed in my view, it is more meaningful to talk about wages versus rents.

edit The ONS paper is much closer to my own experiences, directly (places I've previously rented) and indirectly (things I've read here and elsewhere), page 7:

hir5.jpg

Many BTLers must be waking up to the idea that the capital gains they have assumed to be in the pipeline are simply not going to materialise anytime soon. As business assets most BTL cannot possibly be justified when yields are as low as most buyers in the last 10 years are getting, and the wage growth required to raise rents is nowhere to be seen.

A place identical to one I rented in 2007 for £575pcm, went 'let agreed' recently at an asking price of £575/month.

The owner paid circa £150k for it, they now sell for around £90-£100k.

Assuming no voids, arrears, and making some generous assumptions of the cost side in the last 6 years:

Rent £575x12x6 = £41,400

Mortgage (65%LTV IO 5%) = -£29,000

Capital 'gain' = -£50,000

Leasehold fee: -£6,000

Agent cut: -£3,500

Stamp duty: -£1,500

I'm being generous- the mortgage expense could be much more. The striking part is how on generous assumptions, the rent just allows the LL to stay afloat on 'cash' terms, although this assumes 100% occupancy, no arrears, repairs to white goods etc. Probably the hook that gets them to sign on the dotted line. In reality the LL will be well underwater in cash terms, I've little doubt. Casting all that aside that aside only leaves the small matter of the capital 'gain' though. Not far off £700/month in the hole to date. A complete disaster.

Rents did squeeze up in 20011-12 in SUSSEX but have stabilised and possibly siftening since people are buying a little more -

10% yes, in the last 4 yrs.

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Thought I would add a couple of anecdotal to this thread:

The guy 2 doors up from the in-laws was looking into ploughing all his savings into the house that came up next door.

I also found this:

http://www.grumpieroldmen.co.uk/forum/phpBB3/viewtopic.php?f=3&t=30737

I am at the moment looking at btl at about £150,000. I shall put down 50% deposit and mortgage the balance at bout 3% interest only This will bring me in about £6,000 pa, net after tax. This is far more than we need to live on so we will put the surplus into ISAs and loans to the kids trust fund. Sorted!

There must be hundreds of thousands of people like this who will lose their savings in the coming years.

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There must be hundreds of thousands of people like this who will lose their savings in the coming years.

Good.

No more excuses for them, as per HPC 1.0.

Bring on HPC 2.0.

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A place identical to one I rented in 2007 for £575pcm, went 'let agreed' recently at an asking price of £575/month.

The owner paid circa £150k for it, they now sell for around £90-£100k.

Assuming no voids, arrears, and making some generous assumptions of the cost side in the last 6 years:

Rent £575x12x6 = £41,400

Mortgage (65%LTV IO 5%) = -£29,000

Capital 'gain' = -£50,000

Leasehold fee: -£6,000

Agent cut: -£3,500

Stamp duty: -£1,500

Shouldn't you add £100 a week for repairs if its an average 3 bedroom house ?

IIRC, this was the agreed hpc forum figure for repairs (inc new roof every 20 yrs etc )

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Sure £5,000 per year every year :lol::lol::lol: new roof every 20 years :lol::lol::lol:

Hold up, i think you misread my post,

I believe the estimated figure was £350 -400 a month.

This was to cover all costs the house requires to keep it in good order for the 25 yrs of the mortgage, not just the roof.

I can't remember if the figure was for a Btl or family home. If you think it's too high, then what do you estimate the figure at ?

Edited by Saving For a Space Ship

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Shouldn't you add £100 a week for repairs if its an average 3 bedroom house ?

IIRC, this was the agreed hpc forum figure for repairs (inc new roof every 20 yrs etc )

As it happens this was a flat so the leasehold fee I put down includes building maintenance. It was a rough calc to make a point about the precariousness of BTL as an 'investment' when capital gains are essentially what will make or break it.

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Thought I would add a couple of anecdotal to this thread:

The guy 2 doors up from the in-laws was looking into ploughing all his savings into the house that came up next door.

I also found this:

http://www.grumpieroldmen.co.uk/forum/phpBB3/viewtopic.php?f=3&t=30737

There must be hundreds of thousands of people like this who will lose their savings in the coming years.

Holy smoke, what a bunch of repugnant individuals.

Sorry GreyHair, but I am with Dippy on this one..

We bought BTL properties since middle 1990's . It is still possible to buy a decent 2 bed mid terrace in a half decent area for £120k/£130k in York Harrogate Ripon areas and rent it out for £700pcm gross.

We have flats with one bed bought for £60k in the year 2000, and 2 bed ones bought for £90k in 2003 now producing 7% p a NETT . As long as one has a good agent managing them, with instructions he follows not to give leases to DSS types, immigrants other than working Poles, no smokers, no pets , no curry munchers, and does 3 monthly inspections, then problems are minimal.

No pension pot worth a hoot for either of us, but at least when we pop off the Pension Pot which would have evaporated and gone to some City loon to waste on Russian Blow Jobs, and Ferraris will be in the form of property in trust to kids wrapped up in fancy ways to ensure the idiot Osborne or his successors will get next to bugger all from it.

BTL and property are always good. Financial seasons come and go.

People thankfully like to live indoors.

People grow up and move out.

people marry.

people separate.

Always a need to fill.

I sneeze at banks and deposit accounts, and I fart at pension Funds. ( Actually Pension funds put some of their money into......Rental Properties...What does that tell you???)

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A place identical to one I rented in 2007 for £575pcm, went 'let agreed' recently at an asking price of £575/month.

The owner paid circa £150k for it, they now sell for around £90-£100k.

Assuming no voids, arrears, and making some generous assumptions of the cost side in the last 6 years:

Rent £575x12x6 = £41,400

Mortgage (65%LTV IO 5%) = -£29,000

Capital 'gain' = -£50,000

Leasehold fee: -£6,000

Agent cut: -£3,500

Stamp duty: -£1,500

I'm being generous- the mortgage expense could be much more. The striking part is how on generous assumptions, the rent just allows the LL to stay afloat on 'cash' terms, although this assumes 100% occupancy, no arrears, repairs to white goods etc. Probably the hook that gets them to sign on the dotted line. In reality the LL will be well underwater in cash terms, I've little doubt. Casting all that aside that aside only leaves the small matter of the capital 'gain' though. Not far off £700/month in the hole to date. A complete disaster.

An excellent post.It amazes me how many people still think it's a great investment.

Outside of London,there haven't been capital gains in the last five years.Outside of London there have been no rent rises above RPI or CPI.The maths on BTL was bad fiuve years ago,it's even worse now.

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Rental values falling back would be ace. There are many reasons why they could weaken, including velocity of money, despite what the BTL crew claim about higher rents to cover their taxes.

Ever more red tape for the BTLers / LLs too.

Voids. Ummmm.

Prediction number 4.
Landlords who have been in the business as long as I have, almost 44 years, are getting tired of new legislation/regulation and escalating costs and realise that the party is over.

http://www.propertytribes.com/my-predictions-for-property-investors-property-market-for-t-127622428.html

.....anecdotal is consistent with falling rents, because the rental achieved recently is lower than the rental achieved earlier.

However, we can add to the anecdotal because one way to square the circle is to propose that the BTLer took all that time because they couldn't at first accept that they were going to have to accept a lower rent in order for the market to clear. Basically, the market stayed irrational* longer than they could stay solvent, so eventually they folded and let at a lower price. Now that suggests that some BTLers are simply unable to believe that rents fall, and you are giving the appearance of being additional anecdotal evidence to that end.

It also suggests two tricky questions for BTLers. How long do you keep a property void in order to wait for a pinch point in the mismatch between supply and demand to allow you to lock in the rent you want, and how many times does 'bad luck' on this score result in BTLers wiping out all their profits? On thin margins even a single month void is bad news. The take home message is that a wise BTLer with any sense wouldn't hold the property void for too long. If that meant pulling the rent down sharply then plenty of BTLers will do just that, with the earlier entrants able to pull further down without turning cash flows negative. In the teeth of the next recession with all these piss weak late entrant BTLers desperate to avoid voids, rents could fall quite sharply. Sweet. Again, combine that with the end of FLS, BCBS RWA revisions and housing element of UC being trimmed and some late entrant BTLers are going to find that a 5% gross yield was just a ticket to an enormous capital loss on an investment with a negative carry. Double sweet.

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Rental values falling back would be ace. There are many reasons why they could weaken, including velocity of money, despite what the BTL crew claim about higher rents to cover their taxes.

Ever more red tape for the BTLers / LLs too.

Voids. Ummmm.

There's a whole thread on 118 about how landlords apparently charge under the market rate (which suggest that they think that it's not set by what landlords actually charge :blink:) because they like to keep good tenants and avoid voids. Now they feel they are going to have to raise rents they don't seem able to put two and two together and realise that this will mean losing good tenants and incurring voids. Or to notice that rents are tied to wages and the median income of working households has been going nowhere fast and exiting BTLers selling up to owner occupiers are also likely to reduce the average wage of the remaining renters (as obviously it will be those renters with the best wages and in the best financial positions who will be most able and most likely to buy those former BTL properties).

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And as I may have mentioned before, the best of the rest are also in a position of power when negotiating rents. I.e. You could have someone else at the asking price or more, or you could have the better paid, more reliable tenant for slightly less.

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Look to Aberdeen as to how quickly rents can collapse due to 'unforseen' economic changes.

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