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Jason

Thinking Of Buy-to-let? Do The Sums

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http://business.guardian.co.uk/story/0,,1854607,00.html

Safe as houses? Yields have fallen, interest rates are rising - yet people still think it is a sure bet
If something looks like a bubble and smells like a bubble, there's a good chance it may be a bubble. Figures out last week showed a renewed frenzy of buying in the buy-to-let market, an area of the economy that is flashing warning signs as never before.
The new figures from the Council of Mortgage Lenders were a shock. In the first half of the year, they showed that buy-to-let mortgages jumped by a fifth in value, or a record £17.5bn, a figure that almost matches the amounts paid in City bonuses in the same period. Buy-to-let mortgages now account for 8% of the total, having grown from zero just a few years ago. Were it to go pop, that is a big enough chunk to drag down the whole housing market.

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I was just about to post this myself - beat me to it!

At last, a sensible article. They seem quite rare within the media.

Basically speaking, your monthly rent is now very unlikely to cover your mortgage, even on an interest-only basis. What worries me, though, is that people are not doing these basic sums. You hear people saying: "I am getting a buy-to-let because everyone else is and property always goes up in value."...
Edited by crash-and-burn

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"But a small rise in rents does not alter the fact that the economics of buy-to-let are now very unfavourable, as they have been for some time. At the heart of every investment decision should be a consideration of return, or yield. This is when you divide the price you pay for the investment by the income flow from it. In the case of rental property, you take the purchase price and divide it by the rent. For example, if a property costs £100,000 and you can get £10,000 a year in rent, the yield is 10%.
The main reason that the buy-to-let craze started a few years ago was because rents were high relative to property prices, giving nice fat yields of 10% or more. Now, after years of strong price rises, and some periods where rents fell as new landlords found themselves competing for tenants, the average yield in Britain is down to 5%, with London at 4.5%, according to the Royal Institution of Chartered Surveyors. That is bang in line with interest rates, also known as the cost of capital.
That is a gross yield. Once you deduct running costs, agents' fees and so on, you get to an average net yield of 4%. If you have a month or two without a tenant, your yield in one year could fall to 3% or lower. You also have to pay stamp duty and solicitors' fees on the way into the investment, and capital gains tax, estate agents' fees and more solicitors' fees if and when you sell. All of which eats into your returns."

No sane investor is going to touch BTL. The smart ones bailed in 2003 the suckers will lose their "portfolios" once the downturn picks up just a little more negativity then all hell will break lose in the rush to the exits. In my area its aready begun with large numbers of cheaper BTL-type properties for sale with "no upward chain" designations.

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http://business.guardian.co.uk/story/0,,1854607,00.html

Buy-to-let mortgages now account for 8% of the total, having grown from zero just a few years ago. Were it to go pop, that is a big enough chunk to drag down the whole housing market.

[/indent]

Go on, what did they call buy to let mortgages before? There've always been private landlords.

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I've just received a call from a chap who has bought a couple of BTL properties and wanted to know whether the Bank could try and repossess his own home if they couldn't recover all of the BTL mortgage from a sale of the BTL property. That's the first call of that sort I've had in years. I think we might be seeing the start of the tipping point.

A prize to the first person to shout TIMBER! when house prices fall three months in a row ;)

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I've just received a call from a chap who has bought a couple of BTL properties and wanted to know whether the Bank could try and repossess his own home if they couldn't recover all of the BTL mortgage from a sale of the BTL property. That's the first call of that sort I've had in years. I think we might be seeing the start of the tipping point.

A prize to the first person to shout TIMBER! when house prices fall three months in a row ;)

Is this a friend? Or a client?

What was your answer and their reaction?

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I've just received a call from a chap who has bought a couple of BTL properties and wanted to know whether the Bank could try and repossess his own home if they couldn't recover all of the BTL mortgage from a sale of the BTL property. That's the first call of that sort I've had in years. I think we might be seeing the start of the tipping point.

A prize to the first person to shout TIMBER! when house prices fall three months in a row ;)

Did he previously think they would repossess someone elses house?

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I've just received a call from a chap who has bought a couple of BTL properties and wanted to know whether the Bank could try and repossess his own home if they couldn't recover all of the BTL mortgage from a sale of the BTL property. That's the first call of that sort I've had in years. I think we might be seeing the start of the tipping point.

A prize to the first person to shout TIMBER! when house prices fall three months in a row wink.gif

Jeeeesusss- I wouldn't let this fella lose with a credit card or give him a sharp pencil- let alone give him a few mortgages to play with. This is a staggering level of ignorance and stupidity- FFS don't people realise what the feck they are getting into? Greed really does overcome all sense and reason

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Is this a friend? Or a client?

What was your answer and their reaction?

It was a telephone enquiry from someone who got my number from the firm's website.

He wanted to know whether in addition to having to sell the BTL properties, they would also have to sell their own property to pay off the loans on the BTL properties.

I explained that if the BTL was in negative equity, the Bank could apply for a charging order against his house if he couldn't make up the shortfall.

He claimed it was his wife that was worried but he sounded like someone who had overstretched himself. He was talking about transferring the family home to his wife to avoid losing it as the BTL properties were in his name

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It was a telephone enquiry from someone who got my number from the firm's website.

He wanted to know whether in addition to having to sell the BTL properties, they would also have to sell their own property to pay off the loans on the BTL properties.

I explained that if the BTL was in negative equity, the Bank could apply for a charging order against his house if he couldn't make up the shortfall.

He claimed it was his wife that was worried but he sounded like someone who had overstretched himself. He was talking about transferring the family home to his wife to avoid losing it as the BTL properties were in his name

Maybe it is my landlord. Here I am again, being asked to leave to property after renting it only for 4 months. The landlord sent us notice to quit. When we signed the agreement he said it was a long term let, and now he sais that he received a good offer on the property. Mind you, it was not up for sale and nobody viewed it. Strange. But our rent did not even covered the interest on the mortgage. I am going to ask him to pay for pur moving costs and estate agent fees.

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"But a small rise in rents does not alter the fact that the economics of buy-to-let are now very unfavourable, as they have been for some time. At the heart of every investment decision should be a consideration of return, or yield. This is when you divide the price you pay for the investment by the income flow from it. In the case of rental property, you take the purchase price and divide it by the rent. For example, if a property costs £100,000 and you can get £10,000 a year in rent, the yield is 10%.
That is a gross yield. Once you deduct running costs, agents' fees and so on, you get to an average net yield of 4%. If you have a month or two without a tenant, your yield in one year could fall to 3% or lower. You also have to pay stamp duty and solicitors' fees on the way into the investment, and capital gains tax, estate agents' fees and more solicitors' fees if and when you sell. All of which eats into your returns."

This is assuming it was a cash purchase. If it was money from a MEW there would also be interest to pay

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Jeeeesusss- I wouldn't let this fella lose with a credit card or give him a sharp pencil- let alone give him a few mortgages to play with. This is a staggering level of ignorance and stupidity- FFS don't people realise what the feck they are getting into? Greed really does overcome all sense and reason

You've put it in a nutshell.

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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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