A Goodbye To All That Buy To Let

[bear.getting.old]

6 hours ago, spyguy said:

but house price growth remains robust.'

It remains robust at the moment but that might be changing

Edited April 27, 2018 by bear.getting.old

[Bland Unsight]

From the shobolerant:

Quote

The end game that isn’t going to happen

In July 2015 the papers got in a flap about a bit of research from PwC suggesting that by 2025 half of 20-39 year olds would be renting privately. Where are all these new landlords coming from?

Source

The PwC 'research' is still up on their website:

Quote

As house prices have risen much faster than earnings and social housing supply remains constrained, the number of households in the private rented sector has more than doubled since 2001, and this trend is predicted to continue with an additional 1.8 million households becoming private renters by 2025. This would take the total to 7.2 million households – almost one in four of the UK total in 2025. The trend is particularly strong in the 20-39 ‘Generation Rent’ age group where more than half will be renting privately by 2025, according to PwC analysis in its latest UK Economic Outlook report.

Source

To be fair to PwC they published their report on 22 July 2015 which meant it was probably all set in stone and ready to be published before Osborne announced, on 8 July 2015, what we'd come to know as section 24. At that stage we couldn't have foreseen the 3% hike on SDLT for additional homes, the effective 8% additional rate on CGT on residential property or the PRA acting to bring forward the effect of section 24 on buy-to-let credit underwriting, but it was pretty clear which way the wind was blowing (well perhaps not to everyone, as also recorded in the shobolerant).

Quote

Some of the investors offering their insights on the Property118.com forum are late entrants with smaller portfolios but some are clearly representatives of the tens of thousands of HLPI with portfolios of ten of more properties, many of whom have been riding this bubble for a decade, if not almost two decades. If buy-to-let is driving prices, as I propose that it is, then these investors are the ones gambling the most earnestly in the buy-to-let casino and playing a disproportionate role in setting house prices. What did they make of the events of July 8th 2015?

By the early evening, Ros was getting to grips with things, “Does anyone here have a contact in Government that they can ask to explain this? It seems like it could be a c*ck-up. Hopefully it will get cleared up in the next few days”

We're now looking back almost three years  - and how we've all grown over that time, perhaps none more so than the esteemed Bosher, whose dream of getting clause 24 all "cleared up" over the next few days has led to a transformation from a larval stage of quietly running a string of crappy terraced house somewhere in the Valleys into a beautiful butterfly - the nation's leading academic landlord.

Anyway, here's the latest data from the government on dwelling stock by tenure:

Source: Ministry of Housing, Communities and Local Government - Dwelling stock estimates: 2017, England (release date 24 May 2018, link).

If the PRS continues to shrink or if indeed the rate at which it shrinks increases things could get very interesting. Of course if house prices started to fall sharply and that contributed to investors selling up to capture gains before they vanished, or stop losses before they get monstered by them, then we could end up in a feedback loop of falling house prices calling forth highly motivated sellers and driving house prices down further. Even if all we see is a sell-off of the million homes added to the PRS since 2008, things could still get pretty exciting.

Edited May 25, 2018 by Beary McBearface

[Bland Unsight]

Fans of the research-PR mashup genre will be interested to read the latest instalment of the Paragon Financial Advisor Confidence Tracking index here, from which the following chart is taken:

Those who likes their FACTs in a bit of context will be interested to see what that looked like in Q2 2015 (link) prior to the announcement of government plans to restrict the relief on leveraged landlords' mortgage interest.

Summarised in a table

	Q2 2015	Q1 2018	Change
Weak or very weak	9	51.4	42.4
Stable	43	40.3	-2.7
Strong or very strong	44	5.5	-38.5

 

Edited May 30, 2018 by Beary McBearface

[kibuc]

Stable? Stable equilibrium is death.

[Bland Unsight]

The Ministry of Housing, Communities and Local Government - Dwelling stock estimates: 2017, England (release date 24 May 2018) posted above has now been picked up by the Daily Mail's This is Money, who've jazzed up the reporting a bit.

Quote

Landlords sell almost 4,000 buy-to-lets a MONTH as tax assault bites -but renters face spiralling costs as a result

• Number of rented homes drops for the first time in 18 years
• Tax and regulatory changes have been blamed for shrinking profits on buy-to-let
• Renters may see rents rise as competition for properties intensifies 

Source (emphasis added)

Fans of detail will note that the word "may" is included in the final bullet point. Whilst there's growing evidence that the sell-off predicted by posters on HPC is real, the evidence of rising rents as a consequence is not looking so good, will London rents flat for the year to April 2018 according to the ONS (link).

Leveraged landlords associated with Property118 forum must be a little curious that despite their claims that they are all jacking up their rents and their complete commitment to their Landlord Theory of Rents, wherein the landlord with the highest costs sets the market rent, rents are stubbornly refusing to rise. London property prices falling too at the moment. It must be very tempting to get your money off the table and take the capital gains that are there for the taking. No point being right in the long run if you end up bankrupt before you get there. The market can remain irrational longer than you can remain solvent, to coin a phrase.

[Bland Unsight]

On 24/04/2018 at 18:58, Jurassic Bland said:

Quote

UK Finance, the industry body for finance and banking, is carefully monitoring the impact of recent legislative changes on the buy to let market.

It is liaising closely with the Government, the Opposition, and other key stakeholders on the other major challenges and opportunities facing the industry, UK Finance chief executive Stephen Jones told its annual lunch.

He told the audience that there are challenges ahead for residential lending. ‘In particular, we have seen a recent fall in buy to let investment, driven by recent tax and legislative changes. Our analysis shows the number of buy to let mortgages fell to 74,900 in 2017, down 27% on the previous year,’ he said.

But he explained that this impact isn’t being felt equally across the country. Investment has been more resilient in areas with higher yields, particularly in Northern England and Wales.
However in the high value, low yield regions, particularly in London and the South of England, investment is falling. ‘This risks putting upward pressure on rents in areas and supply of privately rented homes in areas where many people still can’t afford to buy their own home,’ he added.

Source: Lending industry body is monitoring impact of changes to UK buy to let sector, 24 April 2018

Bit more data on this theme:

Source: via Twitter - Lucian Cook, Savills director residential research

 

[spyguy]

Gross Buy To Let yield!!!!!!!!!!

As well as not understanding yield and risk, Ill bet these brave entrepreneurs dont fully grasp the meaning of 'Gross' in the North.

 

[Neverwhere]

7 hours ago, Jurassic Bland said:

Bit more data on this theme:

Source: via Twitter - Lucian Cook, Savills director residential research

 

That x-axis is quite striking!

[Bland Unsight]

Nice little current state-of-play piece in the FT. Single sentence 'fair use' quote to give a flavour; full article at the link.

Quote

Buy-to-let [landlords have] withdrawn from the market, particularly in London and parts of the south-east, but first-time buyers haven’t been able to replace them there.

Source: Buy-to-let landlords cool on property purchases, Financial Times, 22 June 2018

I know a something that both allow first-time buyers to ride to the rescue and "replace" the withdrawing landlords and improve the yields on any new buy-to-let speculation. It does involves some collateral damage for people who are already holding leveraged bets on London flats...

[spyguy]

14 hours ago, Neverwhere said:

That x-axis is quite striking!

Striking?

Sinking!

[Neverwhere]

Nice little anecdote from Busta:

Quote

I didn’t think much of it at the time, save for the fact he was an excellent tenant and I was sad he was leaving. Nevertheless, I did my sums, decided it was worth keeping the property and advertised it to re-let. I didn’t even increase the rental price, which had remained the same since he moved in four years ago. At that time I had several applicants to choose from.

Two weeks after advertising the property I hadn’t received any enquiries. The advert was fine and I put it down to lethargy due to the hot weather. Nevertheless, I hate rental voids so I decided to drop the price by £80 a month. My thinking was that I would be inundated with enquiries, because mine is the best property in the area and I was advertising it at least £50 a month below the advertised rental price of inferior properties. The plan was to pick the best applicants and then go to final offers to try to get them to bid higher.

Another four weeks on and it still isn’t let. I had one applicant but he had a history of unsatisfied CCJ’s and I couldn’t get rent Guarantee Insurance on him. My view is that I would rather have an empty property than to risk taking on a tenant that an RGI provider considers too risky to underwrite.

Having done the sums again, it now transpires this property falls into the Return on Investment category I set for properties to sell when they become vacant.

It seems quite clear the amount of housing stock available for private rental is dwindling, due to onerous legislative policy. So why is my property still empty? My concern is that demand from tenants might be reducing even faster than supply of property available to rent

(Emphasis added)

[spyguy]

4 hours ago, Neverwhere said:

Nice little anecdote from Busta:

(Emphasis added)

He doesnt hate voids. He cant afford them ffs.

Things have moved on in 4 years. LHA have been reduced.

'It seems quite clear the amount of housing stock available for private rental is dwindling, due to onerous legislative policy. So why is my property still empty? My concern is that demand from tenants might be reducing even faster than supply of property available to rent'

 

Maybe he needs to share that anecdote with his fellow btlers. A lot were really worried about their tenants being homeless. Looks like all those Rigsbys can have a good night sleep now.

[spyguy]

I dont agree with 'onerous legislative policy'

Simple price and supply and demand.

[Mossie]

5 hours ago, Neverwhere said:

Nice little anecdote from Busta:

(Emphasis added)

Also worth a read, this thread that began on Saturday at BTL PropertyTribes. 

https://www.propertytribes.com/where-have-all-the-tenants-gone-t-127635984.html

[rantnrave]

6 hours ago, Neverwhere said:

(Emphasis added)

I though the last line was the best bit!

[hurlerontheditch]

"Buy-to-let landlords are feeling very unloved and unwanted. They're doing their sums, sucking on the end of their pencils and deciding buy-to-let's probably not a good idea any more," says mortgage adviser Jane King #wakeuptomoney

 

start of the podcast around 20 mins in too

Edited August 20, 2018 by hurlerontheditch

[spyguy]

1 hour ago, hurlerontheditch said:

"Buy-to-let landlords are feeling very unloved and unwanted. They're doing their sums, sucking on the end of their pencils and deciding buy-to-let's probably not a good idea any more," says mortgage adviser Jane King #wakeuptomoney

 

start of the podcast around 20 mins in too

Surely they should have done their sums before buying?

[hurlerontheditch]

1 minute ago, spyguy said:

Surely they should have done their sums before buying?

historically no need to as it was a one way ticket to riches beyond their wildest dreams

[Ah-so]

11 hours ago, Neverwhere said:

Nice little anecdote from Busta:

(Emphasis added)

He can either cut the rent more or sell it.

But neither option fits the narrative of putting up the rent or making people homeless. 

Thanks for posting. It was a joy to read.

[Neverwhere]

7 hours ago, spyguy said:

He doesnt hate voids. He cant afford them ffs.

Things have moved on in 4 years. LHA have been reduced.

I thought you'd like that

[Neverwhere]

5 hours ago, rantnrave said:

I though the last line was the best bit!

Agreed!

I cut off the end of the sentence as I think Busta's explanation is a red herring. There are multiple factors that tend towards tenant demand decreasing with rental property supply:

• Conversion to owner-occupation means one less household renting as well as one less rental property.
• Conversion away from rental-occupation reduces the empty stock of rolling voids and so increases the amount of residential properties in use (a percentage of all PRS properties are empty at any given time so reducing the PRS reduces the number of properties going empty).
• Rental demand is elastic, with some renters who previously rented a discrete unit moving into lodgings, (which may be an expanding option with government tax incentives for resident landlords), shared accommodation, or staying temporarily with family or friends, to reduce rent and/or boost savings. House price expectations are obviously a motivating factor here.

Then we also have the SDLT-spike in rental property to consider, which may have over-supplied many local rental markets.

There are so very many reasons why Busta should be worried that he just hasn't cottoned onto yet.

[Neverwhere]

1 hour ago, Ah-so said:

He can either cut the rent more or sell it.

But neither option fits the narrative of putting up the rent or making people homeless. 

Thanks for posting. It was a joy to read.

You're welcome!

I think the fact that he has gone to all of the trouble of moving into an apparently tedious tax exile and yet isn't taking the opportunity to sell absolutely everything is itself hilarious.

I look forward to seeing how that plays out for him with time

[SOLZHENITSYN]

6 hours ago, Neverwhere said:

Agreed!

I cut off the end of the sentence as I think Busta's explanation is a red herring. There are multiple factors that tend towards tenant demand decreasing with rental property supply:

• Conversion to owner-occupation means one less household renting as well as one less rental property.
• Conversion away from rental-occupation reduces the empty stock of rolling voids and so increases the amount of residential properties in use (a percentage of all PRS properties are empty at any given time so reducing the PRS reduces the number of properties going empty).
• Rental demand is elastic, with some renters who previously rented a discrete unit moving into lodgings, (which may be an expanding option with government tax incentives for resident landlords), shared accommodation, or staying temporarily with family or friends, to reduce rent and/or boost savings. House price expectations are obviously a motivating factor here.

Then we also have the SDLT-spike in rental property to consider, which may have over-supplied many local rental markets.

There are so very many reasons why Busta should be worried that he just hasn't cottoned onto yet.

It is interesting to see that a number of LL’s are complaining about not being able to find ‘quality’ tenants. The sort that pass referencing and qualify for rent guarantee insurance. They seem to have plenty of lower quality applicants. Can’t find the reports now, but there are some that suggest number of first time buyers is slowly increasing.

could it be that the higher earning renters are taking the opportunity to buy houses? Perhaps seeing the lull in the market as an opportunity to buy? It’s been suggested by many on here over the years that, one of the first things to happen would be that the more affluent, better ‘quality’ tenants leave the PRS and buy homes. Thus leaving landlords with an ever decreasing (in terms of number and quality) pool of potential tenants.

[Neverwhere]

7 minutes ago, SOLZHENITSYN said:

It is interesting to see that a number of LL’s are complaining about not being able to find ‘quality’ tenants. The sort that pass referencing and qualify for rent guarantee insurance. They seem to have plenty of lower quality applicants. Can’t find the reports now, but there are some that suggest number of first time buyers is slowly increasing.

could it be that the higher earning renters are taking the opportunity to buy houses? Perhaps seeing the lull in the market as an opportunity to buy? It’s been suggested by many on here over the years that, one of the first things to happen would be that the more affluent, better ‘quality’ tenants leave the PRS and buy homes. Thus leaving landlords with an ever decreasing (in terms of number and quality) pool of potential tenants.

That seems likely to me, and also something which will only increase with lower house prices, as a larger and larger portion of the most financial secure tenants find themselves able to buy.

Effectively the average income of the average renter is driven down simply by a change in the mix of who is actually renting, and this puts downwards pressure on rents; so if the most indebted landlords sell up to first time buyers they may end up putting further financial pressure on the remaining landlords, some of whom then might also need to sell up, etc, etc.

[IAmNotAfraidAnymore]

2 hours ago, SOLZHENITSYN said:

could it be that the higher earning renters are taking the opportunity to buy houses? Perhaps seeing the lull in the market as an opportunity to buy? It’s been suggested by many on here over the years that, one of the first things to happen would be that the more affluent, better ‘quality’ tenants leave the PRS and buy homes. Thus leaving landlords with an ever decreasing (in terms of number and quality) pool of potential tenants.

 

2 hours ago, Neverwhere said:

Effectively the average income of the average renter is driven down simply by a change in the mix of who is actually renting, and this puts downwards pressure on rents; so if the most indebted landlords sell up to first time buyers they may end up putting further financial pressure on the remaining landlords, some of whom then might also need to sell up, etc, etc.

And that same pool of poor quality tenants become the pool of first time buyers that the late-selling landlords might well have to offload their properties to, i.e. at prices set by that pool's lower affordability.