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Press Issue Final Warning: "signs Are Bad For Buy-to-let"

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http://observer.guardian.co.uk/cash/story/0,,2109813,00.html

The signs are bad for buy-to-let amateurs

Jill Insley
Sunday June 24, 2007
The Observer
Is the property market heading for a crash? Britain may not be suffering the horrendously high levels of unemployment that sparked the property collapse in the early 1990s, and interest rates are much lower now than they were then, but we have gone through an exceptionally long period of spiralling house prices. They are now so high that many, including the IMF, believe they are unsustainable.
These price increases have been underpinned by buy-to-let investors, who now make up 11 per cent of the market. Over the past few years they have reaped very healthy returns but there are signs that in parts of the country they are beginning to suffer a downturn.
Not only are some landlords struggling to sell their properties; they are now having problems letting them too.
It's not just a problem in the Midlands and the north. Last week smartnewhomes.com, a website that specialises in new build property - the favourite purchase for buy-to-let investors - published research that showed the price of new homes in
London had fallen by 3.7 per cent in just one month.

With London prices falling at full crash speed the prospects for capital Appreciation are nil for at least a decade and no one knows how deep the trough is going to be once Great Crash 2 has completed its business.

The liklihood of a protracted bear market in the financial sector are good which will add to the crisis in London and the SE as HPI has depended heavily on City money.

With IR having a long way to go yet the time to get out has probably long passed. Its going to be a bloodbath.

__________________________________

http://observer.guardian.co.uk/business/st...2109703,00.html

Saving beats being a landlord
Heather Stewart, economics editor
Sunday June 24, 2007
The Observer
New buy-to-let investors are struggling to turn a profit as rents fail to keep pace with soaring house prices. Analysis by HSBC shows the rental yield on the average property had slipped below the return on cash Isa savings products, even before May's rise in interest rates.
Edited by Realistbear

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The bad news for first-time buyers who are struggling to purchase a home is that even if all the amateur buy-to-letters stop buying or even sell up, it probably won't have that much effect on property prices. There just aren't enough of them.

If they are beginning to struggle, so will many others. The knock on effect of falling prices is always greater than anyone expects - e.g. the effect that the dot com companies had on the rest of the market in 2000-2001.

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It needs to. A new development behind my house in south London has been ready for occupation since Easter. According to a local estate agent, most of the flats and town houses have been sold at enormously inflated prices as investment properties. To recoup their costs, landlords have put them up to let at enormously inflated rents - and three months later most are still empty.

The agent has been trying to market one of these properties without success for some time. She says the new builds lack warmth and character - something that prospective tenants demand - and that landlords generally are being 'a bit greedy'. To get business from landlords, agents are being forced to overprice rental property by about £200 a week, and it is backfiring on them.

What a bunch of Canutes.

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http://observer.guardian.co.uk/cash/story/0,,2109813,00.html

The signs are bad for buy-to-let amateurs

On another thread, we have noticed that HIPs have precipitated an interesting issue.

<<Sound Effect -- subdued "elevator" music >>

Seems that landlords lately have put their properties up for sale...(due , no doubt

to poor returns ... they are subsidising the rental business and want to cash

in on the capital gain)....and been unable to sell due to the HIPs effect and

excess properties up for sale.

So .... they have put the houses back up for rent.....

and can't rent them..... due to the flood of rentals.....

<<Sound Effect -- "Pass the Parcel" music >>

The next stage would seem to be ...

put the property back on the market at a reduced price.

Add to this that Gordon Brown is scheming to deprive them of the important

tax break on mortgage interest (on another thread calculated, on average,

as 12% of gross income) and the BTL brigade are well and truly....

scuppered.

<<Sound Effect "Ta Da !" >>

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serves em right.

it's not as if they didn't get any warning

:lol::lol::lol:

True. The secret to making money out of any investment is to sell when you are in profit. Your signature says it all. No point feeling smug while you are sitting in a pile of equity, as that equity may well disappear more quickly than it appeared.

A pound in the bank is worth two in the property ? That may become the truth in the near future.

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Last week smartnewhomes.com, a website that specialises in new build property - the favourite purchase for buy-to-let investors - published research that showed the price of new homes in London had fallen by 3.7 per cent in just one month.

With London prices falling at full crash speed the prospects for capital Appreciation are nil for at least a decade and no one knows how deep the trough is going to be once Great Crash 2 has completed its business.

The liklihood of a protracted bear market in the financial sector are good which will add to the crisis in London and the SE as HPI has depended heavily on City money.

With IR having a long way to go yet the time to get out has probably long passed. Its going to be a bloodbath.

Hang on. This 3.7% fall we are seeing applies to new-build homes. Im sure that the meteoric rise we are seeing in other property types is more than making up for the fall in new builds. New builds have always been the weak link. Poorly built new builds and properties in bad areas are those that are most likely to be affected first. The best properties in the best areas will fall last.

This could be the "start", however, I just dont see this as being the case. YoY figures for the whole country and London are still very positive.

http://observer.guardian.co.uk/business/st...2109703,00.html

Saving beats being a landlord

Heather Stewart, economics editor

Sunday June 24, 2007

The Observer

New buy-to-let investors are struggling to turn a profit as rents fail to keep pace with soaring house prices. Analysis by HSBC shows the rental yield on the average property had slipped below the return on cash Isa savings products, even before May's rise in interest rates.

The recent rise of the BTL amateur landlord doesnt necessarily seek rental income/yield. What he/she seeks is capital gain. The fact that rental yields are so low wont bother many amateur BTL LLs. It certainly wont put them off from buying property and cause a slowdown in the speed at which properties are flying off the shelves, in London at least. You must remember, that these BTL amateur landlords, dont mind subsidising rents; the only thing that will scare them is the lack of capital appreciation, as that is the sole reason they are buying the property in the first instance - the belief that they can sell the property for more money than the purchase/running costs of the property. Some of these landlords have made this so abundantly clear that they wont even bother putting the property up for letting - they buy today, keep the property empty and sell in 6 months, at a much higher price.

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If BTL can still turn any kind of monthly cashflow profit at the outset then BTL will continue for quite a while IMO...

It's when the average BTL starts going cashflow negative by £100s per month that they will get rattled. That will take quite a few IR hikes before it happens.

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Guest grumpy-old-man
If BTL can still turn any kind of monthly cashflow profit at the outset then BTL will continue for quite a while IMO...

It's when the average BTL starts going cashflow negative by £100s per month that they will get rattled. That will take quite a few IR hikes before it happens.

nope, unless quite a few actually means 2. ;) (or one raise of .5%)

6% will start the proper collapse imo.

The people who are struggling right now are the very heavily in debt, when rates hit 6-6.25% for xmas this year, you will see the vast majority who took mortgages (especially IO ones) out in 2005 (& a fair few who have bought a lot earlier but have MED'd) get hit badly in Sept-Dec when they reset. :o:D

What you are witnessing now is the start, comparable to 1989ish imo. :ph34r:

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It's when the average BTL starts going cashflow negative by £100s per month that they will get rattled. That will take quite a few IR hikes before it happens.

Interest rate markets are pricing in another 3 rate rises. That will take us over the peak of income spent on mortgages in 1989.

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The recent rise of the BTL amateur landlord doesnt necessarily seek rental income/yield. What he/she seeks is capital gain. The fact that rental yields are so low wont bother many amateur BTL LLs. It certainly wont put them off from buying property and cause a slowdown in the speed at which properties are flying off the shelves, in London at least. You must remember, that these BTL amateur landlords, dont mind subsidising rents; the only thing that will scare them is the lack of capital appreciation, as that is the sole reason they are buying the property in the first instance - the belief that they can sell the property for more money than the purchase/running costs of the property. Some of these landlords have made this so abundantly clear that they wont even bother putting the property up for letting - they buy today, keep the property empty and sell in 6 months, at a much higher price.

i agree- these BTL landlords are in in for capital appreciation- they dont mind forking out a couple of hundred every month as long as they think the value of their investment will increase- however those landlords who have several properties will feel the crunch more than a landlord with a single property in their portfolio.

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i agree- these BTL landlords are in in for capital appreciation- they dont mind forking out a couple of hundred every month as long as they think the value of their investment will increase- however those landlords who have several properties will feel the crunch more than a landlord with a single property in their portfolio.

...provided all those properties were bought in the past 4 years or so.

Properties bought earlier than that will usually be in profit and could in theory be used to subsidise the ones bought more recently.

Still, I'm expecting and very much looking forward to a meltdown in BTL :)

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nope, unless quite a few actually means 2. ;) (or one raise of .5%)

6% will start the proper collapse imo.

The people who are struggling right now are the very heavily in debt, when rates hit 6-6.25% for xmas this year, you will see the vast majority who took mortgages (especially IO ones) out in 2005 (& a fair few who have bought a lot earlier but have MED'd) get hit badly in Sept-Dec when they reset. :o:D

What you are witnessing now is the start, comparable to 1989ish imo. :ph34r:

I shall remember that one GOM.

"6% will start the proper collapse."

My own belief is that if IRs are going to cause a massive correction, then they need to hit 8%+.

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I shall remember that one GOM.

"6% will start the proper collapse."

My own belief is that if IRs are going to cause a massive correction, then they need to hit 8%+.

IMO the next few IR rises will hit the BTL market directly and the owner occupier market indirectly, through bringing about a general recession. They might have to rise to 7% before significant numbers of OOs are forced to sell due to innaffordability of payments alone. But the knock-on effects of a recession will begin to bite OOs at 6% or so.

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i agree- these BTL landlords are in in for capital appreciation- they dont mind forking out a couple of hundred every month as long as they think the value of their investment will increase- however those landlords who have several properties will feel the crunch more than a landlord with a single property in their portfolio.

This is the classic definition of a speculative bubble. Buying something not because you derive an economic benefit, but because you believe someone will pay more in the future. Exactly the same thinking drove the dot-com bubble, people bought companies that would never make money on the assumption that the share price would keep rising.

BTL landlords who buy properties where the rent doesn't cover the running costs and mortgage are doing the same.

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Guest grumpy-old-man
I shall remember that one GOM.

"6% will start the proper collapse."

My own belief is that if IRs are going to cause a massive correction, then they need to hit 8%+.

is this your idea of a crash:

Sunday night & the interest rates are 7.95% & all is well.

Monday morning they are raised to 8% & the market crashes.

???

It's starting to crash right now & this IS backed up by approx 50% of England is experiencing falls (albeit small in some areas), but the point is that we have reached saturation point. I mean it had to happen sometime & that is right now.

I personally know people now at work who have downgraded their company cars as they just can't afford to run them, ok it's anecdotal & very small instances at that. I appreciate this will be ignored by the majority on here but I live in the real world where people don't earn £100,000 & have family with £1 million pound properties.

the people I know & talk to have 3 bed terraced & semi's & holiday by putting it on their credit cards or MEWing it onto their mortgages, they have cars on loans & shop at Netto & The Aldi. These are the people that will help make this crash, not the highly paid leafy backwater types.

Every person I speak to, hairdressers, sales people, tradesmen, etc etc, they nearly all have 1-2 btl's, I kid you not. Try to find someone who hasn't got a btl, it's harder than you think.

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Every person I speak to, hairdressers, sales people, tradesmen, etc etc, they nearly all have 1-2 btl's, I kid you not. Try to find someone who hasn't got a btl, it's harder than you think.

All the tradesmen who've come to do work on my flat have BTLs. They're not bright but they've been able to make loadsamoney by being in the right place at the right time.

They seem to get a kick out of being able to fleece young professional, capable, middle-class renters.

Hopefully, the recession will sort the wheat from the chaff.

Edited by bugged bunny

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anyone left with a large btl portfolio is an amateur- bound to learn alot

(an intentionally provocative statement)

probably about to receive an expensive education. of the type only their parents could have dreamed about.

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Guest grumpy-old-man
is this your idea of a crash:

Sunday night & the interest rates are 7.95% & all is well.

Monday morning they are raised to 8% & the market crashes.

???

It's starting to crash right now & this IS backed up by approx 50% of England is experiencing falls (albeit small in some areas), but the point is that we have reached saturation point. I mean it had to happen sometime & that is right now.

I personally know people now at work who have downgraded their company cars as they just can't afford to run them, ok it's anecdotal & very small instances at that. I appreciate this will be ignored by the majority on here but I live in the real world where people don't earn £100,000 & have family with £1 million pound properties.

the people I know & talk to have 3 bed terraced & semi's & holiday by putting it on their credit cards or MEWing it onto their mortgages, they have cars on loans & shop at Netto & The Aldi. These are the people that will help make this crash, not the highly paid leafy backwater types.

Every person I speak to, hairdressers, sales people, tradesmen, etc etc, they nearly all have 1-2 btl's, I kid you not. Try to find someone who hasn't got a btl, it's harder than you think.

sunama, edited to add:

my reply reads a bit patronising, which wasn't my intention. :)

I appreciate what you are saying & I agree in principle that 8% will definetly crash the market. We will be at 8% in 2 years imo. The historic norm of the last 50 years being approx 10% iirc ??

but my point is that every crash has a starting point & it's not the "you were right" applause I'm personally looking for (although I do have a lot of fun with the Q1 2007 stuff) I want the market to crash so that we return to the norm & people can afford to buy a property to call their home.

I don't care if the greedy get hurt in this crash, they get all they deserve imo.

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Guest grumpy-old-man
All the tradesmen who've come to do work on my flat have BTLs. They're not bright but they've been able to make loadsamoney by being in the right place at the right time.

They seem to get a kick out of being able to fleece young professional, capable, middle-class renters.

Hopefully, the recession will sort the wheat from the chaff.

yes, those sh1tty tradesmen really p1ss me off. The majority are not even proper tradesmen, they are jobbing labourers imo. <_<

They don't look after the properties at all, they are just counting the virtual beans every month. The good thing is the vast majority will get caught out in this crash, as the greed takes over & they will invest to enlarge their portfolio.

I have some great anecdotal:

I advised a BT sales guy who has 2 btl properties, 1 house & 1 flat. he advertised the flat at 90k & recieved an offer of full asking price 2 months ago. The couple then called back up the same day & offered 87k instead, he turned it down & held out for the 90k, they then called again & re-offered the full asking price again of 90k.

iirc a couple of days later the couple withdrew their offer & his property is still on the market @ 90k. (not sure why, perhaps they struggled to get the extra 3k?) The moral of the story, don't be greedy!!

The daft thing is, I told him about the crash, he listened which was good, but then he has defeated the object by wanting the extra 3k. He has a rental void in the proiperty as he hasn't got anyone in it as he didn't renew the lease, so he is paying the mortgage every month, I don't know how much it is but I know they are both on IO & I bet with no deposit (I don't actually know this for sure though).

For the sake of 3k this guy has probably lost the sale of this flat now & when he realises in about 3-4 months time that no-one wants flats any more he will reduce to sell. How much do you want to bet that this flat sells for less than 87k ;)

GOM's anecdotal is 100% accurate, I promise. I ask virtually eveyone I meet for their opinions, what they do for a living, if they have btl's etc etc, much to my wifes embarassment :rolleyes:

Edited by grumpy-old-man

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A sign of how seriously some recent investors are taking their BTL "business":

My landlord Dale bought the property within the last year for 160k. He is a builder (a specialist roofing contractor). All the paperwork was arranged by an agency whom he was employing I think just for tenant finding & legal stuff.

1) When I first met him shortly after signing the contract I asked for his bank account details to pay me rent by direct debit. He (eventually) got round to giving me the details but had no idea how much rent I'd signed up to pay - I had to tell him (It's £575 monthly = 4.3% gross).

2) When there was a big storm, water started dripping from the ceiling. Dale (to his credit) did visit within a few days and fix the roof lining (which he said had been put together wrong). But I conclude: He didn't get a survey, and he, a roofing specialist, didn't bother to look at the roof when he bought.

3) I recently phoned him to give him notice (I have also written). He later called back to say he couldn't find any contact details of the letting agency, did I have them? I did. Nothing wrong with that except that it seemed to typify how disorganised and uninterested he is.

He's a likeable guy but there are still repairs outstanding from when I moved in 6 months ago. I don't lose any sleep over the thought that he's unlikely to make the fortune he hopes out of BTL.

Edit: And I don't think he'll enjoy it if he finds a less undemanding tenant than me!

Edited by Selling up

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yes, those sh1tty tradesmen really p1ss me off. The majority are not even proper tradesmen, they are jobbing labourers imo. <_<

:(

We're not all that bad!. Some of us do take pride in our work.

What pisses us off, is the fact that people think they can pay us crap money for skilled work!. As a chippy, i work for £150 a day if I'm lucky.

*edit* Vehicle fuel/tax/depreciation tool replacement, is large slice of that too (which are costs i cannot avoid - i can't walk to work etc)

Edited by maffo in oxford

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Guest Cletus VanDamme
All the tradesmen who've come to do work on my flat have BTLs. They're not bright but they've been able to make loadsamoney by being in the right place at the right time.

They seem to get a kick out of being able to fleece young professional, capable, middle-class renters.

This has been the triumph of NuLabour: the destruction of the educated middle class (as has always been done by all autocratic regimes).

Reduce the value of degrees so that someone graduating from Anywhere College in media studies in 2007 is seen as equivalent to someone who had a degree back when it meant something, while simultaneously rewarding fecklessness via the tax and benefits system, then enrich them via the great council house sell-off.

If you're a young professional you're laughed at now, ridiculed for studying hard when all it will get you is the privilege of renting a scummy flat off some white van man and paying tax to GB, while said van man pays none yet gets tax credits just to rub the salt into the wound.

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This has been the triumph of NuLabour: the destruction of the educated middle class (as has always been done by all autocratic regimes).

Reduce the value of degrees so that someone graduating from Anywhere College in media studies in 2007 is seen as equivalent to someone who had a degree back when it meant something, while simultaneously rewarding fecklessness via the tax and benefits system, then enrich them via the great council house sell-off.

If you're a young professional you're laughed at now, ridiculed for studying hard when all it will get you is the privilege of renting a scummy flat off some white van man and paying tax to GB, while said van man pays none yet gets tax credits just to rub the salt into the wound.

That's it in a nutshell.

Eventually parasites that are too greedy become a victim of their own success.

Well, this host is fecking off to a better country.

I plan to buy two holiday apartments mortgage-free with my £60K STR fund, in a lovely resort in Calabria where no English is spoken and most of the tourists are Italian (bliss). I shall live in one apartment and holiday-let the other. I shall endeavour to be a good landlady!

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