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samtheman

Rental Yields Are Low - Boohoo!

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This isn't a new article but I only came across it recently and was just amazed by the naivety and tone of the article.

http://www.homesandproperty.co.uk/property-news/rentals/accidental-landlord-rental-yields-london

Somehow we are to feel sorry for this writer's friends because their return on investment is not what they hoped for. Would you feel sorry for an investor who bought some corporate bonds that are overvalued and have a poor dividend?

We've come to the point where people genuinely believe that the right of the landlord is to use their tenants as a mean of funding their mortgage. It's a widespread, accepted view across British culture whether among landlords or tenants. I remember an old housemate of mine when I was sharing, who obviously had come from a family with some type of property investment, who said that we should consider the landlord's demands for a higher rent (despite my stubborn insistence that rents had not increased in our area for 2 years and had even slightly dropped) because property prices had gone up and therefore it was harder to cover the mortgage.

In all other European countries, a property investor cannot use their rental income to apply for a mortgage i.e. you can't say "I have some spare cash hanging around, I'd like to buy a third of this property and get some pleb or the taxpayer to fund the other two thirds".

The EU's directive on a single regulatory framework for mortgages was to put an end to buy-to-let mortgages and it's only through lobbying by British landlords that the usual British exclusions were added.

You'd think that someone with just an ounce of logic would ask themselves: if the return on my investment is low, yet it is not a low-risk investment like government bonds, maybe the intrinsic value of the asset is lower than I thought and I am making the wrong decision here?

Quite amusing is the claim that "I’m getting rather weary of people telling me that rents are so high because we are so greedy."

Yet, they don't see the contradiction in that statement when making the subsequent statement "Of course, my friends have bought the property in the expectation that it will continue to go up in value so they hope to make a profit when they come to sell, but in the meantime they might have to subsidise it."

So nothing greedy with the idea that prices will go up in value based on hope/further speculation. Nothing strange with the expectation that when they buy their property with a rubbish rental yield of 4% or so, some other idiot will accept to buy the same property for a higher price but this time with a rental yield of 3% because they think they will find another mug a few years down the road who will buy with a rental yield of 2.5%? That's a pipe dream and won't happen.

Nothing greedy with the concept that they are "subsidising" the house. It's your investment, it's your property! How are you subsidising anything? The tenants are there to rent it, NOT to subsidise your investment.

Do these people not see that without an economic situation where increased rents are possible (right now, rents in London are close to unaffordable, with more than half of a lot of families' income going towards rent and unlike property purchase prices, they are capped by affordability/ordinary Londoners' purchasing power) their amateur speculative attempts will fail?

So no issues with the assumption that by speculating on an investment with falling returns with the expectation that the value will increase simply through self-prophecy (i.e. if I speculate then maybe someone else will want to speculate) even if the value of the underlying asset hasn't really increased.

This article really summarises everything that is wrong in British attitudes towards property and the scariest part is that the writer uses no nuance in their statements.

Edited by samtheman

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In all other European countries, a property investor cannot use their rental income to apply for a mortgage i.e. you can't say "I have some spare cash hanging around, I'd like to buy a third of this property and get some pleb or the taxpayer to fund the other two thirds".

You can in France, and in certain circumstances get a tax break as well.

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Totally agree with your assessment. These people aren't investors. Would someone buy a share with a low and declining dividend which, if that wasn't bad enough you would have to pay a yearly charge subsidising your share, or as these people call them 'investments'!

As most of us know on this site these price and yield discrepancies show that some sort correction to prices or rents will have to occur. Of course these people are banking on rents correcting upwards! However, what they seems to be missing is that this can't happen unless wages make a big jump to the upside too!

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Property I live in would have a negative yield as a mortgaged BTL - I ran the numbers through HSBC's calculator recently and a 75% BTL mortgage would cost £7 a month more than I currently rent for. Even owned outright, the gross yield is only 5%.

Can't go wrong with pwoperdee though!

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Totally agree with your assessment. These people aren't investors. Would someone buy a share with a low and declining dividend which, if that wasn't bad enough you would have to pay a yearly charge subsidising your share, or as these people call them 'investments'!

As most of us know on this site these price and yield discrepancies show that some sort correction to prices or rents will have to occur. Of course these people are banking on rents correcting upwards! However, what they seems to be missing is that this can't happen unless wages make a big jump to the upside too!

I agree with the assesment too! We need to sort out our methods of delivering secure social housing; we need to ensure BTL cannot distort the market for FTB and ramp up prices as it does now. The politicians always dodge this subject because so many voters do rent a property or two. We need to amend renting legislation to provide more secure tenancies with rents that cannot be put up just because the market for anothe one round the corner after two years is more. The property does not any longer cost any more and the mortgage is already set up. There should be long term arrangements for those who want to rent privately and behave reasonably. BTL should involve at least a 35% deposit and be a marginally more expensive mortgage than owner occupier. It should not be possible for a group of citizens to squeeze the last penny out of lower paid people so easily. In fact BTL should form a much smaller group of investors. Group investment schemes with sensible long term tenancies as I describe would be better. You can then invest in the Company etc.

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This isn't a new article but I only came across it recently and was just amazed by the naivety and tone of the article.

http://www.homesandproperty.co.uk/property-news/rentals/accidental-landlord-rental-yields-london

...This article really summarises everything that is wrong in British attitudes towards property and the scariest part is that the writer uses no nuance in their statements.

Recent new story (April 7) from her, re a property in her 3 property portfolio. http://www.homesandproperty.co.uk/property-news/rentals/accidental-landlord-problems-buy-let-mortgages-and-welfare-benefits

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Thanks for that. What a ridiculous person she is with a completely skewed logic in order to justify their somewhat immoral attitudes. It is apparently "Dickensian" to have a clause in your cheap BTL mortgage that prevents you from renting your flat out to a person on housing benefits? I'd like to know why she, if she is so concerned about the welfare of her prospective tenants, did not go for a deal that allowed her to rent out to a tenant on benefits?

Another amusing article from a somewhat dimwitted writer who thinks people are as stupid as her and can't see through the BS.

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For the best monthly return on investment, however, you’re better off buying outside London in cities where property prices are lower but demand for rental accommodation is high. Areas giving the highest rental yield include parts of Birmingham, specifically the B7 postal area where buy-to-lets typically yield 10.6 per cent, and coastal Kent, where it’s 10.5 per cent. Other good bets are parts of Surrey, Middlesbrough and Merseyside, including Knotty Ash, birthplace of comic Ken Dodd, where yields are typically 9.5 per cent. Now that’s what I call Happiness.

I'm seeing mostly asking price cuts on a RM search for Knotty Ash, listing search lowest-price first, on first 16 or so pages; so still that Real Yield to think about for BTL chasers "look at that yield", including in Middlesbrough etc. Maybe everywhere if London softens more.

Not sure if works to her own house have gone fully to plan, or just a drama tweet.

Returned from holiday to see house looking as if hit by earthquake - big cracks, wonky windows, walls separated from ceiling & floors. Nice

0 replies . 0 retweets 0 favourites

3:03 am - 4 Nov 2014

12h

Thanks, it will take tons of polyfilla thanks to #dodgybuilders who forgot lesson 1: support house BEFORE knocking down wall!

https://twitter.com/VicWhitlock/status/529589778418008065

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Sit and watch and track and worry that each week's payment has gone in.

Pay up now - or I'll cut off something precious to you, says the accidental landlord
The accidental landlord considers disconnecting her tenant's WiFi to get them to pay their rent...

Victoria Whitlock
Publish Date:
14 November 2014

http://www.homesandproperty.co.uk/property-news/rentals/pay-now-or-ill-cut-something-precious-you-says-accidental-landlord

Victoria Whitlock @VicWhitlock · 18 hrs ago

Tenants call to ask if they can end lease early as *sob* they're splitting up. I nearly went round with cake #sonotapro

Do I look like the blocked plughole fairy?
The accidental landlord spells out rights and responsibilities to tenants who expect her to magic away every little household problem.

Victoria Whitlock
Publish Date:
13 October 2014
http://www.homesandproperty.co.uk/property-news/rentals/do-i-look-blocked-plughole-fairy

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Victoria Whitlock ‏@VicWhitlock 23m23 minutes ago

#Landlords wear and tear allowance going too in #BloodyBudget? *slums in chair, reaches for revolver*

Victoria Whitlock ‏@VicWhitlock 2h2 hours ago

Wait what, did Chancellor just say he was cutting mortgage interest tax relief for #landlords? Wow

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