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"does Btl Still Make Sense?" - Guardian Article

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God almight, i actually want a crash now more than ever, not so i can get my foot on the ladder, but just so i can wipe the no-knowing, arrogant and condescending smile off Kirsty's face. She literally has bullied people into serious amounts of debt from the programmes i have seen of her, that i can actually bear to watch. She has been successful only because of market conditions and continues to preach her word as if it were gospel. Thank christ for articles like this....

From today's Guardian:

Does buy-to-let still make sense?

Does buy-to-let still make sense?

You can't go wrong, according to the TV programme Where Best to Invest. But can you? Miles Brignall does the maths

Saturday May 13, 2006

The Guardian

In the TV world inhabited by Britain's favourite property duo, Kirstie Allsopp and Phil Spencer, making money from buy-to-let property is a doddle. Follow a few basic rules, buy a place in a carefully selected city, and just sit back and wait for the money to roll in.

Two weeks ago millions of viewers enjoyed an hour-long treatise to put aside their misgivings and invest in a buy-to-let. The show, Where Best to Invest, went on to name the 10 sure-fire winners. The message was: "Invest here and you can't fail to make money."

Independent experts, the programme said, are predicting property rises of 40% to 55% over the next five years. After flagging last year, buy-to-let is surging again, and for a property-obsessed nation, it made great TV. So should you really be jumping in?

The buy-to-let theory

Thousands of Britons have, undoubtedly, made lots of money out of buy-to-let, and many will continue to do so. Investors have to put down a minimum deposit of 10%-20% of the value of the property and take out an interest-only mortgage for the remainder. The lowest rate buy-to-let mortgage now costs £417 a month per £100,000 borrowed.

Kirstie and Phil maintain you need an annual rental income equal to at least 5% of the purchase price (otherwise known as the yield). But investors need to take into account a string of other costs that will depress the yield - and wipe out profits - most of which were not mentioned in the programme.

Letting agents typically charge 10% of the rent, plus VAT. Any period that the house is empty ("voids" in the jargon) reduces the rental income - typically two weeks to two months a year. Stamp duty costs another 1% on houses bought for £125,000-£250,000, 3% up to £500,000 and 4% on properties above that.

There are also maintenance costs. Buildings insurance (£400-£500 pa), an annual boiler inspection (£100) and purchase fees (£600) must be subtracted from the rental income. Most lettings are furnished, so the cost of this should also be factored in.

The other big factor is interest rates. They look set to rise. A 1% rise would add £83 a month for every £100,000 borrowed. A 2% rise would throw many investors into deep trouble.

To succeed in buy-to-let, you have to generate more in rent than you are paying out - and hope prices will rise to create a surplus at the end. Any profit is still subject to capital gains tax (at 40%), but the longer you keep the property, the less you pay (called "taper relief").

Does it work?

Given the recent huge rises in property prices, few investors are going to make much (if any) profit from rental income. Instead, most investors are betting they will make a return from further house price rises.

But with the possible exception of Belfast, each of the dream locations named in the programme have already shot up in value, pricing them out of the reach of all but the wealthiest investors. Few of the properties featured in the show are likely to cover their costs.

Lee Grandin, managing director of Landlord Mortgages, which approves 300 buy-to-let mortgages a month, watched the programme with disbelief.

"I thought the whole thing was a load of drivel. I am happy to talk up the buy-to-let sector all day long because it's my business, but I have no idea where they got their figures from or how they came up with the top 10.

"I know the Reading area (number six) very well and was waiting to see some new fact that they had unearthed, but it never came. Reading can hardly be described as an undervalued location just waiting to shoot up."

The winners

After finding a four-bed house ideal for students for sale for £299,950 in Oxford, Kirstie and Phil breathlessly described it as the "ultimate buy-to-let in the ultimate place to invest". They said it would rent at around £1,200 a month.

But even if an investor was able to stump up a generous 20% deposit (£60,000), it is more than likely that once the mortgage and other costs are paid, the property could lose the buyer around £1,000 a year. The loss would be even higher if you factor in furnishings, and the interest lost on the deposit.

Suzanne Webb, who manages lettings in Oxford for Cluttons property consultants, didn't see the programme but said it caused great interest in the city. "We are still seeing a lot of people investing in the city, but I'm not sure the figures add up. The rental market is certainly strong for family houses, but less so for flats. One developer is currently selling a big group of flats as investments. They sell for £200,000-£230,000 but achieve rentals of £850-£950 a month, which for most people will be less than the cost of borrowing the money."

She admitted that she was involved in a couple of buy-to-lets that have yet to make her any money. "Returns that were 11% a few years ago are now closer to 4%. That said, I have got a one-bed that is making the owner some money, so there are a few jewels out there if you can find one," she says.

Perhaps the best chance for investors is Belfast, described as "investment heaven" in the programme. But even there, buyers may have missed the boat.

Chrisy Dorman of lettings agency Daniel McGeown says houses are already changing hands for £20,000 above the asking price and each new development has a queue of people outside. She quoted prices that would generate a profit, but warned: "Nice properties go really fast but if they are tatty, they do tend to hang about."

Are prices going to soar?

The programme told viewers that prices will rise by up to 55% over the next five years. But this week the Bank of England ruled out the prospect of another property boom. Halifax is also currently warning that rising unemployment and higher taxes will take the edge off demand, and predicted an easing of house-price growth in the second half of the year.

What programme makers say

They say they consulted independent residential property experts, came up with a set of criteria, collated robust statistics from the whole of the UK and used the figures to generate the 10 best places to invest in residential property. Low unemployment and lots of students was a big factor.

"The programme was clear that with any area, if you pick the right property in the right place, at the right price and do your research, you should cover your costs and make a profit. We stressed that to maximise profits, you should always view an investment property as a mid to long-term investment."

They also said it was it meant as a general guide and that issues such as interest rates or capital gains tax could have made a programme on their own.


Flat-line for Cherie

Given that Bristol has been named in Kirstie and Phil's top 10 places to invest, one might imagine that the city's most famous buy-to-let investor, Cherie Blair, would have made a killing by now.

The Prime Minister's wife bought two flats in the block below for a reported £265,000 each in 2002. However, according to estate agents in the area, they have not risen at all in value.

To get an overview of the lettings market and the figures quoted in the programme, we contacted David Lewis, partner at Hydes Letting & Property Management in the heart of Clifton in the city.

"I doubt we will see 40% increase in prices over the next five years, but it all depends on what you buy. A lot of newly-built flats have come on the market in recent years and they haven't gone up in value at all.

"Meanwhile, family houses continue to do very well. There are comparatively few for sale in the best areas, but those that do exist typically cost £400,000 to £600,000, putting them out of reach of most buy-to-let investors."

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