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Will Higher Interest Rates Bring Down Rents?

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As we know, a large number of new BTLs are barely covering their costs. If interest rates go up, we can expect to see a large number of BTL properties dumped on the market. This would take a lot of renters out of the market. With fewer renters the demand for rented property would go down and this would depress the rental market.

The BTL fraternity would immediately say that the flaw in this arguement is that renters and rented property would go down in equal measure. But that is not the case since occupancy levels in owned property is higher than rented property (because there are fewer voids).

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As we know, a large number of new BTLs are barely covering their costs. If interest rates go up, we can expect to see a large number of BTL properties dumped on the market. This would take a lot of renters out of the market. With fewer renters the demand for rented property would go down and this would depress the rental market.

The BTL fraternity would immediately say that the flaw in this arguement is that renters and rented property would go down in equal measure. But that is not the case since occupancy levels in owned property is higher than rented property (because there are fewer voids).

Recession tends to lower rents and we are headed in that direction.

In the meantime, NuLabour are coming down hard on LL now that there are enough of them to go after. New regs are coming in and license fees will soon soar. Best of all, local authorities have a discretion to include smaller properties in the net. As they look at ways to keep council tax at double the rate of inflation they will aim squarely at the hated LL class. Rent controls will be next and they will be no sympathy from the public who have never liked LL in any event.

Recent data shows that BTL's are enjoying a 4 year low for yields. The sell signal is flashing red right now.

My local paper has more and more "no upward chain" ads on BTL-type properties each week. The exodus is underway.

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As we know, a large number of new BTLs are barely covering their costs. If interest rates go up, we can expect to see a large number of BTL properties dumped on the market. This would take a lot of renters out of the market. With fewer renters the demand for rented property would go down and this would depress the rental market.

The BTL fraternity would immediately say that the flaw in this arguement is that renters and rented property would go down in equal measure. But that is not the case since occupancy levels in owned property is higher than rented property (because there are fewer voids).

Uh?

I think higher interest rates would cause more people to move back home (or not move out of their parents home), also it would probably encourage more people to house share.

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Higher interest rates will mean higher rents.

With higher IR, there is a good chance that the current boom will end. It probably won't be a crash but property most definately will not be flavour of the month and 'everyone' will be telling everyone that now is not the time to buy (bear in mind that everyone is now a qualified property expert).

Add to this the fact that mortgages will be more expensive (and probably harder to obtain) and it is obvious that rented property wil be the way forward.

People not buying, high IR, mortgages harder to obtain, no confidence in the market, no immediate and easy capital gains.

Rents will be up, up and away and voids will be even lower than they are now which for many astute landlords is no more than 1 - 2 weeks per year.

Rent controls could cause problems but only for landlords of overvalued new builds charging cieling rents.

Lanlords of average houses or flats charging realistic but profitable rents will not feel the effects.

Sure, HMO legislation has affected some landlords but the rules were needed as some of these types of properties were unfit and dangerous.

And remember, with rents rising, Landlords have better cashflow and will be well positioned to purchase more property at bargain basement prices.

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Higher interest rates will mean higher rents.

With higher IR, there is a good chance that the current boom will end. It probably won't be a crash but property most definately will not be flavour of the month and 'everyone' will be telling everyone that now is not the time to buy (bear in mind that everyone is now a qualified property expert).

Add to this the fact that mortgages will be more expensive (and probably harder to obtain) and it is obvious that rented property wil be the way forward.

People not buying, high IR, mortgages harder to obtain, no confidence in the market, no immediate and easy capital gains.

Rents will be up, up and away and voids will be even lower than they are now which for many astute landlords is no more than 1 - 2 weeks per year.

Rent controls could cause problems but only for landlords of overvalued new builds charging cieling rents.

Lanlords of average houses or flats charging realistic but profitable rents will not feel the effects.

Sure, HMO legislation has affected some landlords but the rules were needed as some of these types of properties were unfit and dangerous.

And remember, with rents rising, Landlords have better cashflow and will be well positioned to purchase more property at bargain basement prices.

Yields are at their lowest for 4 years according to the most recent BTL survey. That means oversupply or inability of tenants to pay more. As rents continue to fall yields will turn negative and force BTLers to sell--if they can. I am certain this is why I am seeing a huge leap in the number of BTL-type properties for sale in my area. You can tell which ones they are as they tend to be the lower end, often newish builds, and have a "no upward chain" banner on the detail picture.

If we get an IR hike as a result of the Yen carry trade it will be a mass exodus from the BTL market. Some will take whatever rents they can get to try to put off the day of reckoning but the market correction will still take its toll. It always does. THis has been a cruel trick by the government to generate revenue and now they are about to take away all the profits with controls, fees and a falling market.

BTL was good while it lasted but nothing goes on forever as there is no such thing as a Miracle Economy. Things go in cycles and for the next few years the cycle will not favour IR sensitive assets such as BTL. I would go for utility stocks, cash (not sterling) and perhaps about to be vintage Mercedes SL's with a 6 cyl. engine.

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Higher interest rates will mean higher rents.

With higher IR, there is a good chance that the current boom will end. It probably won't be a crash but property most definately will not be flavour of the month and 'everyone' will be telling everyone that now is not the time to buy (bear in mind that everyone is now a qualified property expert).

Add to this the fact that mortgages will be more expensive (and probably harder to obtain) and it is obvious that rented property wil be the way forward.

People not buying, high IR, mortgages harder to obtain, no confidence in the market, no immediate and easy capital gains.

Rents will be up, up and away and voids will be even lower than they are now which for many astute landlords is no more than 1 - 2 weeks per year.

Rent controls could cause problems but only for landlords of overvalued new builds charging cieling rents.

Lanlords of average houses or flats charging realistic but profitable rents will not feel the effects.

Sure, HMO legislation has affected some landlords but the rules were needed as some of these types of properties were unfit and dangerous.

And remember, with rents rising, Landlords have better cashflow and will be well positioned to purchase more property at bargain basement prices.

Good luck but I fear you are hoping in vain.

The public sector is enjoying healthy pay rises but this is at the expense of higher taxes for everyone. In the private sector salaries are being depressed by global competition. Gordon Brown has transferring so many jobs to the public sector (or public funded projects) that we have much less scope to work our way out of difficulty. In this climate of rising taxes and rising unemployment, tennants will neither willing or capable of bailing out landlords in trouble.

This paints a bleak future for BTLs (especially ones who have bought in the last 5 years) but it was their choice to go into the business. Business can be extremely rough.

Edited by dog

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Higher interest rates will mean higher rents.

With higher IR, there is a good chance that the current boom will end. It probably won't be a crash but property most definately will not be flavour of the month and 'everyone' will be telling everyone that now is not the time to buy (bear in mind that everyone is now a qualified property expert).

Add to this the fact that mortgages will be more expensive (and probably harder to obtain) and it is obvious that rented property wil be the way forward.

People not buying, high IR, mortgages harder to obtain, no confidence in the market, no immediate and easy capital gains.

Rents will be up, up and away and voids will be even lower than they are now which for many astute landlords is no more than 1 - 2 weeks per year.

Rent controls could cause problems but only for landlords of overvalued new builds charging cieling rents.

Lanlords of average houses or flats charging realistic but profitable rents will not feel the effects.

Sure, HMO legislation has affected some landlords but the rules were needed as some of these types of properties were unfit and dangerous.

And remember, with rents rising, Landlords have better cashflow and will be well positioned to purchase more property at bargain basement prices.

I was expecting to actually see an argument that linked higher interest rates to higher rents. I don't see one in your list of points.

As we know, a large number of new BTLs are barely covering their costs. If interest rates go up, we can expect to see a large number of BTL properties dumped on the market. This would take a lot of renters out of the market. With fewer renters the demand for rented property would go down and this would depress the rental market.

Not true. There is a fixed supply of housing remember. If BTLs sell their house someone has to buy it. This may be a current renter (reducing rental demand), to another landlord (most likely, the big landlords who sold up will be the ones with the cash to come and buy lots back cheap) or another owner who is selling their house (upsize/downsizing).

The only way the supply/demand balance is changed is if the property is left empty or purchased as a 2nd home.

The most likely path is:

- I.r. rates go up

- Housing prices go down

- Rents fall because the asset being rented is not worth as much any more and people will not pay that return.

Because rents have not risen as fast as property prices I would expect them to not fall as far either.

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Yields are at their lowest for 4 years according to the most recent BTL survey. That means oversupply or inability of tenants to pay more.

I thought it meant that the high value of property purchased now makes even high rents appear insignificant. There may well be an oversupply of 2 bed city newbuilds but everything else is renting very quickly.

As those who sold to rent can confirm, renting is often way way cheaper than buying = loads of tenants now + as per post above, loads when things change.

The public sector is enjoying healthy pay rises but this is at the expense of higher taxes for everyone. In the private sector salaries are being depressed by global competition. Gordon Brown has transferring so many jobs to the public sector (or public funded projects) that we have much less scope to work our way out of difficulty. In this climate of rising taxes and rising unemployment, tennants will neither willing or capable of bailing out landlords in trouble.

This paints a bleak future for BTLs (especially ones who have bought in the last 5 years) but it was their choice to go into the business. Business can be extremely rough.

As there are many pro investors on this board, so there are many pro landlords.

Good quality property will always rent well. It always has done and there is no reason why it will not continue to. Ther will always be people renting.

Just as you assume that all property transactions will cease if the crash occurs, you also seem to assume that if and when things change, no one will want or need to rent. I'm afraid they wil and the astute landlords that have purchased well with very positive cashflows will weather whatever is thrown at them.

Whether the future for BTL looks bleak or not depends to an extent on when and how you bought. There are many so called landlords that have 'invested' in city center flats that will feel some pain, there are many other that bought well, some in 2003 and some in the 90's that will continue to make money. There may not be massive capital appreciation, there may even be falls, but it will not matter.

I was expecting to actually see an argument that linked higher interest rates to higher rents. I don't see one in your list of points.

- Rents fall because the asset being rented is not worth as much any more and people will not pay that return.

I'd suggest you read it again then.

Why should rents fall just because the underlying value has dropped. That's silly.

As you have stated, rents have not risen dramatically since the mid 90's. £500 per month then on a £40,000 house is probably £550 per month now even though the house is worth £100,000.

If, and it's a massive if, the price drops back to say £60,000 why should the rent fall?????????

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No. You're wrong. No landlord worthhis salt is going to come back into the BTL market once there are a shed load of properties dumped on estate agents' books. Why on earth would you come back in to buy an asset that is essentially going to fall in value. Among most people there is a sheep mentality which has, as we all know, seen young couples willing to forfeit their first born to get on the property ladder. 6X salaries everywhere. Thing is, it works BOTH ways. As soon as rates go up, people will wait to see just how far prices will come down. It won't just be BTL properties onthe market - there'll be more repos of residential property too and the glut of stock together with the fear factor will drive prices down.

Capital appreciation of housing stock is a very important matter to landlords. They're putting in 10 - 20% before they even get a tenant in and they're gonna feel pretty sick if within a year or so of buying, their deposit's gone.

I was a mortgage broker at around the time of the last crash and i tell you, it was UGLY !! "A slight correction" the economists cried. Right - O !! :rolleyes::rolleyes: We all know what happened.

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The government has been way too slow in turning its attentions to the BTLer. Now BTLers may suffer a twin attack of punitive legislation just when capital growth has dried up and their large debts start to look rather dodgy in a higher IR environment.

If IR's go up then borrowing costs more. House prices WILL drop and if mr highly geared BTLer tries to put the rents up on the average punter he will just leave and either go to a non-geared landlord who keeps his rent the same, or buy a house. Remember lots of people rent because they cant afford to buy. Where have all these renters come from to fill the 700k BTL motgaged properties that have appeared in the last 10 yrs? All those that cant afford a house at recent/current prices!

My worry is that my landlord bought 2.5 years ago, and the rent has stayed the same, but if this is a mostly mortgage stunt then he may well try to up the rent when IRs go pete tong. I dont want to leave but l will...just been looking around the room wondering how much hassle its gonna be...fish tank, mail redirect etc..

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From what I've seen in the past it seems to me that the amount of money that landlords can charge for rent is conditional on local employment rather than interest rates. If there was a recession with high interest rates then you'd probably see rent fall due to higher unemployment. In my experience in areas with high unemployment, even areas which are currently seen as sort after, landlords have had to settle for DSS tenants if they want tenants at all.

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I'd suggest you read it again then.

Why should rents fall just because the underlying value has dropped. That's silly.

Because that is what tenants will pay. You have to remember that rent people pay is an arbritary figure, there is no exact rime or reason why people think a place is worth £600/month or not. Sure, asset value and rental value correspond with each other but neither figure has any real meaning. They perhaps would if capital could just be purchased (ie new houses built) but it dosen't work like that, the value of the asset (and thus it's income) is very much based upon sentiment.

Once sentiment changes and the price of houses falls, all those people renting are going to notice. They are going to see the the value of the house they are in is falling. Collectivly, they will bargin rentals down, just as they bargined them up when they collectivly viewed the house as worth more. At the cheaper prices houses will become, some renters will of course go out and buy.

As I said the rental falls are unlikely to be as sever as the asset price falls, they never rise and fall as quickly (mainly because they are not affected by changing levels of liquidity, no one borrows to rent).

No. You're wrong. No landlord worthhis salt is going to come back into the BTL market once there are a shed load of properties dumped on estate agents' books. Why on earth would you come back in to buy an asset that is essentially going to fall in value

Not true, the good landlords will pick the bottom and buy up lots. Hold them another 10-15 years until the next top and "prices only go up", sell and wait for the cycle to repeat. It always has and always will, the question is just when and by how much.

From what I've seen in the past it seems to me that the amount of money that landlords can charge for rent is conditional on local employment rather than interest rates. If there was a recession with high interest rates then you'd probably see rent fall due to higher unemployment. In my experience in areas with high unemployment, even areas which are currently seen as sort after, landlords have had to settle for DSS tenants if they want tenants at all.

This is clearly part of it, a housing crash dosen't not happen in isolation, a housing crash of 30% is going to cause major problems in the economy affecting all types of unemployment. There is certainly a follow on effect here that affects rental costs independant of the direct changes on the cost of housing.

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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