Still Think Btlers Are In It Short-term . . . ?

[MarkG]

However your comment as from 'when the crash comes etc...' is pure guesswork - Do you actually realise that?

Speculative bubbles burst, and we're currently in the biggest speculative bubble the UK property market has ever seen. It's not a question of if, just when.

IMO the recent btlers who bought the wrong type of properties or have overstretched their finances are in the most danger so obviously some of these may lose

You don't consider losing 10-20% a year on all your rental properties to be 'losing' then?

[Guest Yeahbutnocrash]

I have a friend who used to borrow six-figure sums to buy shares in companies for a few days or weeks. When they went up he sold them, paid off the debts and pocketed the profits. He made a killing... until the day the shares he picked dropped big-time and he barely avoided bankruptcy.

Ah, the joys of leverage!

Well.. you have shown us the disadvantage of buying shares using borrowed money

I guess btl by it's nature has the leverage factor built in and if you set it up right the income is virtually guaranteed

Borrowing to buy shares seems very risky/volatile as your example shows. It seems to have the potential to make more over a short term if you time it right...

[Guest Yeahbutnocrash]

Speculative bubbles burst, and we're currently in the biggest speculative bubble the UK property market has ever seen. It's not a question of if, just when.

You don't consider losing 10-20% a year on all your rental properties to be 'losing' then?

When did that happen???

Prices have been rising each year since 1996 - Have a look at Brighton, decent areas in London, Bristol etc...

Like I said you are using a hypothetical example instead of fact!

What's more I don't think you even realise that is what you are doing...

Apart from stating some worst case examples of btl and applying this as though it were true for the whole sector where is your real argument about what will cause your crash?

I agree the signs may be there for a slow down but the market will not crash because you want it to or think it will

If you could build an argument for IR's of say 7,8,9% then you could start to have a case...

Another couple of points

Btlers in it for the long run may be more interested in what the rents will be when they eventually own the properties and want to retire and less worried about fluctuations in price

If prices go down presumably a lot more btl property will be bought - ie. there is pent up demand

Edited February 5, 2007 by Yeahbutnocrash

[jackalope]

I sold all of my BTL to young families often at 15-20% BMV. I had done well out of it and didnt want to rake more in at the expense of the next generation.

How did this work then? Did you turn away higher offers or did you just tell them they could have it for 20 grand (or whatever) less than their offer?

[NJP]

You seem not to have recognized what is probably the most significant point with btl in this area

This is that with btl you can aquire your assets using other peoples money

Yes, you would be acquiring your assets using other people's money if the rent covered the cost of a repayment mortgage. Unfortunately it doesn't even cover the interest portion at the moment.

Five years ago, on the other hand...

[Guest Yeahbutnocrash]

Yes, you would be acquiring your assets using other people's money if the rent covered the cost of a repayment mortgage. Unfortunately it doesn't even cover the interest portion at the moment.

Five years ago, on the other hand...

Did you actually research this / do the sums for various parts of the country and for different types of property or are you basing that statement merely on something you read or heard or is it just your opinion?

[NJP]

Did you actually research this / do the sums for various parts of the country and for different types of property or are you basing that statement merely on something you read or heard or is it just your opinion?

This is based on my own sums for various types of property around various parts of the country. Based on this, London appears to be one of the few places I've found where rents generally seem to comfortably cover an IO mortgage.

I'm not coming at this from an anti-BTL stance. If I were able to find what I considered to be a good BTL investment, I'd take my money out of shares and invest it in property instead.

As far as using someone else's money to buy your assets, you'd have to find a property where the rent covers a repayment mortgage. If you do know of an area with properties like this, and you're willing to share the information, please let me know.

[underpressuretobuy]

If you borrowed 350,000 pounds to buy an 'executive flat' and prices are dropping 10-20% a year, why would a fixed interest rate make you feel any better about losing 35-70,000 pounds a year?

How many people are going to choose to hold onto a rapidly declining asset no matter how fixed their interest rate may be? Anyone who can afford to and had a clue would sell out as fast as possible and buy back for less later.

I think that last sentence suggests the major difference between holding property and holding any other type of asset.

Some people holding property will not take any interest in market movements until they want to move.

Many others simply cannot afford (or do not believe they can afford) to sell out of the property market.

I have in mind when my parents had a home in Cambridgeshire years ago property prices shot up after they bought and then crashed back down again.

Because they did not move or sell during that whole period they were completely unaffected by all this.

However before the property bulls pile in and say that this is what they have been saying all along - that everyone will just sit tight and ride out the storm - I have to say it is different this time.

The property porn TV shows, the endless media coverage of flipping, BTL and numerous other types of property investment along with endless adverts encouraging people to "release" equity in their home has changed everything.

People who might have sat through previous property booms unaffected by the madness will have been sucked in because the ramping of property has been all pervasive and has gone on far longer than ever before.

In order to be able to sit tight through the property crash you have to have sat tight through the preceding boom as well and I am convinced that very few have actually done that.

[Selling up]

Re: rental income not covering mortgage interest:

Did you actually research this / do the sums for various parts of the country and for different types of property or are you basing that statement merely on something you read or heard or is it just your opinion?

I thought we established this quite convincingly in recent threads where those of us renting posted our rent, and the market value of the house. IIRC the only places where the rent covered the interest were in London.

My own landlord is charging me £575 monthly on a property he bought 6m ago for £160,000. IE 4.3% return before expenses. Nice of him, don't think he comes to this site.

[Guest Yeahbutnocrash]

Re: rental income not covering mortgage interest:

I thought we established this quite convincingly in recent threads where those of us renting posted our rent, and the market value of the house. IIRC the only places where the rent covered the interest were in London.

My own landlord is charging me £575 monthly on a property he bought 6m ago for £160,000. IE 4.3% return before expenses. Nice of him, don't think he comes to this site.

I agree to an extent

What you established is that this is happening in a large number of cases and is undoubtedly a growing trend but it's still not true in all cases...

Edited February 5, 2007 by Yeahbutnocrash

[Si1]

I guess btl by it's nature has the leverage factor built in and if you set it up right the income is virtually guaranteed

eh, are you saying that leverage-risk is priced in to the BTL market? how's that? I'm not sure most recent BTL landlords understand the two-sided concept of leverage let alone markets, feel free to enlighten me!

[Si1]

Indeed there are: they got lucky.

At least you admit that 'some will lose'. However, when a crash comes, the majority of BTLs will lose because they can't dump houses as fast as a leveraged stock speculator can dump shares.

hear, hear. Property is a relatively illiquid asset, especially when morgaged - that doesn't seem to be priced into the market at all at the mo.

[Si1]

I agree to an extent

What you established is that this is happening in a large number of cases and is undoubtedly a growing trend but it's still not true in all cases...

i suppose it comes down greatly to whether you think the market is defined by everyone who owns the assets, or defined by its margins.

I think the textbook answer is that a market price is set at the margins - so all cases do not have to be thus-affected for a market direction to be defined by loss-making yields, i.e. downwards (eventually....)

[Guest Yeahbutnocrash]

This is based on my own sums for various types of property around various parts of the country. Based on this, London appears to be one of the few places I've found where rents generally seem to comfortably cover an IO mortgage.

I'm not coming at this from an anti-BTL stance. If I were able to find what I considered to be a good BTL investment, I'd take my money out of shares and invest it in property instead.

As far as using someone else's money to buy your assets, you'd have to find a property where the rent covers a repayment mortgage. If you do know of an area with properties like this, and you're willing to share the information, please let me know.

Ok I agree there must be far less possible 'deal's' around compared to a few years ago

But you have actually found areas where rents could cover an I/O mortgage. And that is exactly what I'm saying - It may be harder now for a new btler but not impossible as some people seem to be assuming...

I'm basing some of my comments on what I read from an experienced BTLer who said he is still able to do some 'deals' these days only less often than a few years ago...

[Doom Lord]

hear, hear. Property is a relatively illiquid asset, especially when morgaged - that doesn't seem to be priced into the market at all at the mo.

Definately, The two factors that will wipe people out will be Interest rates and\or over-supply Get a fixed rate deal for 10 years and hand your property over to the council and your sorted on both these counts.

[Guest Yeahbutnocrash]

i suppose it comes down greatly to whether you think the market is defined by everyone who owns the assets, or defined by its margins.

I think the textbook answer is that a market price is set at the margins - so all cases do not have to be thus-affected for a market direction to be defined by loss-making yields, i.e. downwards (eventually....)

I think that's a good point to bear in mind

However the debate is really around 'how significant are low yields' and 'how do you define a loss'?

Yields will be lower now in any case as property prices have gone up so quickly and IR's have gone up also whilst rents don't tend to fluctuate as they don't constitute a stake in the equity

LL's who bought years ago will be doing ok out of the equity or rent and may be less concerned about the yield being quoted as low as it just means their property price has increased

It's the JC2Lers who bought the wrong types of property who could be exposed to problems

Even if a btler is subsidising the rent he may end up with a valuable asset having paid only part of thr repayments himself which may be better value than paying into a pension for example...

[NJP]

Ok I agree there must be far less possible 'deal's' around compared to a few years ago

This is the problem. We're seeing a record number of BTL investors getting into the market at a time when the business model is running out of steam. And every time we see prices increase above inflation, it gets harder to make the figures add up.

I run a business with 14 employees, and I'd hate to see what the effect of a full-scale housing market crash would have on the economy and our jobs, so it worries me greatly that we're approaching the point of no-return.

How much more can house prices rise before anyone with any sense will no longer be prepared to buy, and those who don't have any sense can no longer afford it? I estimate that an increase of 40% (in real terms) is an absolute maximum, and the reality is probably much lower.

[winkie]

BTL buyers mainly went variable, rates low, more flexible, lower set up fees. Maybe they are now starting to think, maybe they should go fixed...but remember, what is that fee, and if you need to exit quickly, what will it cost you?

Maybe you will win, maybe you won't.