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Ft: Rate Rises Fail To Halt Uk Buy-to-let Rush

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*Quote of the week:

--------------------------------------------------

http://www.ft.com/cms/s/0/50ac8996-5271-11...00779fd2ac.html

Rate rises fail to halt UK buy-to-let rush

By Jim Pickard, Commercial Property Correspondent

Published: August 24 2007 20:14 | Last updated: August 24 2007 20:14

Investors are continuing to plough money into the buy-to-let market, despite fears that rising interest rates have made the sector unsustainable.

Five increases in the cost of borrowing since last summer mean that the rent on a typical property no longer covers its mortgage costs, unless the buyer puts down a huge deposit.

Yet this has failed to dent the enthusiasm of Britain’s growing army of landlords.

Recent volatile movements in the stock market may, if anything, encourage even more people into the apparent security of the property market. But lenders, struggling to raise finance for risky mortgages, are likely to make borrowing more difficult for buy-to-let investors in the near future.

The sector accounted for 12 per cent of new loans in the first half of 2007, recent figures show. Landlords took out 171,800 buy-to-let loans in the period, raising the total number of such mortgages to 940,000, according to the Council of Mortgage Lenders.

Overall, the sector has grown from comprising 3 per cent of mortgage lending in 2002 to 10 per cent today, after a loosening of lending standards by many banks. Some now offer buy-to-let mortgages without requiring minimum rental cover or income proof, despite rental returns hitting record lows.

On the one hand, rental “yields” – rent as a proportion of a building’s cost – have plummeted due to fast-rising prices and more sluggish rents. On the other, borrowing costs are now typically 30 per cent higher than 18 months ago because of interest rate rises.

This means a typical landlord may buy a property on a 5 per cent gross yield, but receive only a 3.5 per cent net yield after costs such as maintenance and voids – well below a typical mortgage rate.

Anthony Lock, non-executive director of the National Landlords’ Association, said he had been “tidying up” his own portfolio, cutting it from 15 to 10 London properties. “When I started 15 years ago you could get a yield of 12 or 13 per cent – now it’s about 4 per cent,” he said. “A lot of professional landlords are neither going to increase their portfolios nor decrease them.”

Many buy-to-let investors are therefore reliant on capital growth to make a profit.

Pierre Williams, of Instant Access Properties, an advisory group, said investors were still confident of capital growth. But he added: “The era of automatically making money, regardless of the type and location of property bought, is over.”

Andreas Panayiotou, of the Ability Group, a private company that has developed 2,500 flats in London, said the maths on buy-to-let no longer made sense. Many investors were “not really clued up to what’s going on”. :lol:

For now, however, buy-to-let mortgages remain robust, with lower levels of default than conventional mortgages. And on the plus side, rents have been picking up after several flat years. In London, Knight Frank property agents say tenants are now paying 12 per cent more than this time last year.

Copyright The Financial Times Limited 2007

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*Quote of the week:

--------------------------------------------------

http://www.ft.com/cms/s/0/50ac8996-5271-11...00779fd2ac.html

On the one hand, rental “yields” – rent as a proportion of a building’s cost – have plummeted due to fast-rising prices and more sluggish rents. On the other, borrowing costs are now typically 30 per cent higher than 18 months ago because of interest rate rises.

This means a typical landlord may buy a property on a 5 per cent gross yield, but receive only a 3.5 per cent net yield after costs such as maintenance and voids – well below a typical mortgage rate.

For now, however, buy-to-let mortgages remain robust, with lower levels of default than conventional mortgages. And on the plus side, rents have been picking up after several flat years. In London, Knight Frank property agents say tenants are now paying 12 per cent more than this time last year.

Copyright The Financial Times Limited 2007

12% more for prime central London locations I bet!

I'm not surprised that the default levels are low. They are running a business and would subsidize the 5% yield BTL business with their other businesses / their main salary.

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Strange, because CPI currently stands at 1.9% <_<

Ah yes but didn't salaries rise by 12% to compensate for the higher rents? Or was it that we all have less to spend on rent due to higher cost of lving in relation to fuel, council tax, credit card debt, food inflation, train tickets.....................

VI propaganda designed to keep "investors" investing.

Some reality from the FT

http://www.ft.com/cms/s/0/51814ff0-5271-11...00779fd2ac.html

UK house prices hit by rate rises

By Jim "James" Pickard and Chris "Christopher" Giles

Published: August 24 2007 20:04 | Last updated: August 24 2007 20:04
House prices have been falling in parts of the UK this summer
as mortgage costs have become more expensive, according to research from the FT house price index.
They include Carmarthenshire, down 11.8 per cent; Hartlepool, down 6 per cent, Monmouthshire, down 4 per cent, and Powys, down 3.7 per cent in the three months to June.
..../
The south-west was the
only
region where prices were still accelerating
, with prices in Bournemouth, on the south coast, rising 16 per cent over the past three months. In five other regions of England and Wales where house price inflation remained high, price growth was nevertheless slowing.
In the Midlands and East Anglia the
annualised growth rate was 1.1
per cent or below. And in Wales and the north, prices fell.
:o
In the north-east’s Teesside, for example,
house prices dropped by more than 2 per cent
or more in Hartlepool, Redcar and Middlesbrough.
In Anglesey, the island off Wales,
prices fell 9.8 per cent
in the three months to June, after rising 280 per cent since January 2000. The fall has returned prices to levels of a year ago, wiping out last autumn’s gains.
.../
But given the the financial crisis that has gripped the City during the past month there are now
questions over the sustainability of London’s boom.
“We feel in the industry that buyers are becoming more and more cautious,” says John Young of Humberts, the agents. Mr Young says that deals have been falling through, which is a rarity.
“I feel this is a sign of things to come,” he says. “With all of the uneasiness in the City, our
normal risk-takers are sitting back a little more
and waiting to see what happens as opposed to taking a gamble.”
The Royal Institution of Chartered Surveyors confirmed this sentiment in its July survey. Most of the
underlying measures of housing market strength have turned since the spring.
The number of sales per surveyor were
10.3 per cent lower in July
than a year ago and stocks of properties on estate agents’ books have started to rise. Meanwhile newly agreed sales fell at their fastest pace since November 2004 and new buyer inquiries were falling at their fastest pace since August 2004.

When the VIs say the BTL market is picking up don't believe a word of it.

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There was some numpty on another thread yesterday claiming that BTL didn't contribute to HPI.

The article in BTLLTD's original post states there are 970,000 BTL mortgages.

10 years ago there were 28,000 BTL mortgages.

That's 942,000 properties which have been bought for investment.

I doubt that 942,000 potential owner occupiers stopped wanting to buy, there is just extra competition.

Coincidentally, 942,000 is roughly the number of additional homes (over and above what would have been built anyway) that the government announced would be built by 2020.

Of course it is the banks etc. that have made cheap money available to enable BTL. Thy have had to grow their profits at any expense. But anyone who thinks BTL hasn't helped push up prices is living in lala land.

Edit - I attributed the OP to RB rather than BTLLTD - RB's was the RICS thread

Edited by the end is nigh

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Many investors were “not really clued up to what’s going on”.

Reminds me of a certain Paul Hardcastle track.

In 1997, the average age of the first time buyer was 26

In 2007, he was 34 :)

Th-Th-Th-Th-Th-Th-Th-Th-34

Th-Th-Th-Th-Th-Th-Th-Th-34

The foreclosures continued today 25 miles north-west of Saigon San Diego

"I wasn't really clued up to what was going on"

In London, the average first time buyer and his mates serve a 30 year mortgage period

And are exposed to rising interest rates nearly every month

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Of course it is the banks etc. that have made cheap money available to enable BTL. Thy have had to grow their profits at any expense. But anyone who thinks BTL hasn't helped push up prices is living in lala land.

Edit - I attributed the OP to RB rather than BTLLTD - RB's was the RICS thread

I still think Prof David Miles was right. He sliced and diced 'demand' between genuine 'house = dwelling' and 'house = ATM' demand (i.e. genuine versus speculative).

According to his figures, the speculative demand accounted for around 50% of overall demand. He also pointed out that this kind of demand is massively influenced by perceptions which can change very easily.

I think his latest report on housing was out around 8 months ago, and he predicted the bubble would deflate within a year to 2.

http://money.independent.co.uk/property/ho...icle2126599.ece

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