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" Declining Yields Mean Investors Should Move Out Of Buy-to-let"


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http://www.thebusiness.co.uk/the-magazine/...-buytolet.thtml

Declining yields mean investors should move out of buy-to-let

Cheryl "Cherie" Taylor Wednesday, 24th October 2007

These are worrying times for residential property investors: higher mortgage rates, new regulations for landlords, tighter rules about multiple occupancy properties and a weakening housing market have left many buy-to-let owners worried about their future.
Many are being squeezed between higher mortgage rates and declining yields.
“Interest rates are now double net residential yields [the amount landlords earn after income tax and running costs],” says Jacqui Daly of Savills Research, part of the Savills estate agency group. “This is an extreme position historically.”
Net yields on newly built homes can be as low as 2.5%. With Bank of England interest rates at 5.75%, it is becoming uneconomical in large parts of the country to invest in buy-to-let property, with net rents too low to cover mortgage payments.
The first segment of the market likely to suffer is geared buy-to-let investment, while the rest of the market will follow.
To make matters worse, several surveys have now showed that house prices are falling, which means the strategy some cash-rich buy-to-let investors chose to pursue over the past few years – tolerate modest losses for a couple of years for the promise of huge capital gains – no longer works.
The latest report from the
Royal Institution of Chartered Surveyors found that prices slumped at their fastest pace in two years last month.
The number of estate agents reporting price declines in September outnumbered those reporting gains by 15%, compared with 3% in August.
With the International Monetary Fund (IMF) warning last week that house prices in Britain could be up to
40% overvalued, it makes sense for buy-to-let investors to consider their positions closely.
Charles Collyns, an IMF economist, rightly argues that the ratio of house prices to rents and the ratio of house prices to incomes confirm that property prices in Britain are more overvalued even than in America
.
..../
Buy-to-let has been hit by a huge increase in bureaucracy. Deposits (for rent up to £25,000 – $50,816, e35,814 – per annum) must now be protected by a tenancy deposit protection scheme.
..../
The trouble is that lower taxes on capital gains are all well and good – but only when an investor is actually increasing the value of his assets. With net yields unhealthily low and the housing market grinding to a halt, the buy-to-let market is no longer the place to be.

There we have it, straight from the donkey's ****, Savills!

BTL looks like it will be the first pillar in Gordon's miracle to collapse bringing the rest down with it. Not even Gordon's plan to help BTL with favourable tax relief is gong to work.

Fellow bears, I think its "GAME OVER" for the miracle economy consisting of the three great pillars of HPI-MEW-BTL.

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So far this year with BTL we have gone from a blinking warning light on the control panel to the emergency kalxon sounding and the emergency lighting coming on!

The message from the BTL crowd on Singing Pig is “bring it on”. They think, because yields will rise from prices falling faster than rents, that they will make money from the bear market. ..

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The message from the BTL crowd on Singing Pig is “bring it on”. They think, because yields will rise from prices falling faster than rents, that they will make money from the bear market. ..

A friend of mine was absolutely ecstatic when the internet boom crashed. The yield on some of his shares soared from 0.1% to a massive 0.4%!

Something to look forward to.

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The message from the BTL crowd on Singing Pig is “bring it on”. They think, because yields will rise from prices falling faster than rents, that they will make money from the bear market. ..

It will be a tricky one to call - why buy a property in 6 months for 5% less than today's prices, when you could wait 3 years and get for 40%...? Will the rental yield in the intervening 2.5 years make up the difference? Answers on a postcard to "Don't be greedy short-term inc."

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The message from the BTL crowd on Singing Pig is “bring it on”. They think, because yields will rise from prices falling faster than rents, that they will make money from the bear market. ..

Actual yields will only rise if they continue to buy property as prices decline, ie. average down. This is easy enough to do with shares, less simple with property at £200k a pop.

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“Interest rates are now double net residential yields [the amount landlords earn after income tax and running costs],” says Jacqui Daly of Savills Research, part of the Savills estate agency group. “This is an extreme position historically.”

Net yields on newly built homes can be as low as 2.5%. With Bank of England interest rates at 5.75%, it is becoming uneconomical in large parts of the country to invest in buy-to-let property, with net rents too low to cover mortgage payments. The first segment of the market likely to suffer is geared buy-to-let investment, while the rest of the market will follow.

To make matters worse, several surveys have now showed that house prices are falling, which means the strategy some cash-rich buy-to-let investors chose to pursue over the past few years – tolerate modest losses for a couple of years for the promise of huge capital gains – no longer works.

Gosh.

;)

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Actual yields will only rise if they continue to buy property as prices decline, ie. average down. This is easy enough to do with shares, less simple with property at £200k a pop.

Yeah, that could work if they have deep pockets and balls of steel.

Losers average losers - the best hedge is to sell.

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These are worrying times for residential property investors: higher mortgage rates, new regulations for landlords, tighter rules about multiple occupancy properties and a weakening housing market have left many buy-to-let owners worried about their future.
But I thought they were all "in it for the long term" so there is nothing to worry about here....
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  • 441 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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