Jump to content
House Price Crash Forum
Sign in to follow this  
The Masked Tulip

Is Buy-to-let On The Brink Of Collapse?

Recommended Posts

I don't think BTL will truly collapse until another hair brain fashion fad investment scheme becomes popular.

The people I know who have them know nothing about rental yields and some are not even aware that with an interest only mortgage they are not repaying any capital.

What it does give them is something to brag about down the pub or at dinner.

Share this post


Link to post
Share on other sites
Buy-to-let landlords made an average return of 16% last year, according to Birmingham Midshires. The average landlord's return on their property was more than double the 7% growth of the FTSE 100 index during 2007 and was mainly driven by a 10.9% rise in house prices. However, the report excludes the costs of letting fees and mortgage interest costs, both of which would substantially eat into investors' returns.

There you go; so the average yield is 5.1% p.a. excluding capital growth. From the horse's mouth.

Thank you for that insight Birmingham Midshires. In the meantime, I'll be shoving my money somewhere with a better return and more safety. Tulip farms, for example.

[edit; I can't subtract correctly]

Edited by Paddles

Share this post


Link to post
Share on other sites
There you go; so the average yield is 5.1% p.a. excluding capital growth. From the horse's mouth.

Thank you for that insight Birmingham Midshires. In the meantime, I'll be shoving my money somewhere with a better return and more safety. Tulip farms, for example.

[edit; I can't subtract correctly]

That's very kind of you. I accept cash or cheques.

Share this post


Link to post
Share on other sites
However, the report excludes the costs of letting fees and mortgage interest costs, both of which would substantially eat into investors' returns.

:blink:

So, if I exclude the purchase and insurance costs, I can afford that Bentley :lol:

Share this post


Link to post
Share on other sites
Guest Skint Academic

The money has to go somewhere. Your average person in the street buys into property because they understand it. But if they sell, what do they do with the money? Stocks and other investments scare them. They don't want to invest in something that they can't see and touch only for that money to dissappear without them understanding why. So either people are forced to sell or else understandable but with more 'whizz-bang' needs to come along.

Share this post


Link to post
Share on other sites

They've got a quiz. I love quizzes

I think these are reall telling questions...

If the ability to offset buy-to-let mortgage interest against tax on rental income was abolished, would you still be able to comfortably cover your monthly bills?

[is this likely to ever happen?]

Yes

No

QUESTION FIVE

If your property failed to rise in value, could you hold your investment for the next five to ten years?

Yes

No

[in it for the long term is a big mantra we have heard so much of.... but how many people really could? ]

Are you buying a new build one or two-bedroom flat outside of London? (These have risen in value far less than other properties over recent years)

Yes

No

{and are likely to be first to fall massively]

QUESTION TEN

If the boiler, or other vital equipment, breaks could you afford to replace it immediately?

Yes

No

{Are the government planning on stregthening tenants rights?]

Share this post


Link to post
Share on other sites

Yes, when lenders have calculated that they've taken as much deposit money as they're likely to get from fools with 15-25% deposits. Thereafter you'll still get BTL mortgages (if 'on balance sheet' from lenders, cos the funny money has gone). Clock is ticking on lenders calcs, I'll give it 2 months before only the brave and or terminally insane stay in buy to let.

Share this post


Link to post
Share on other sites
The money has to go somewhere. Your average person in the street buys into property because they understand it. But if they sell, what do they do with the money? Stocks and other investments scare them. They don't want to invest in something that they can't see and touch only for that money to dissappear without them understanding why. So either people are forced to sell or else understandable but with more 'whizz-bang' needs to come along.

Yup - theres always the yellow stuff.

[no, not yellow cake uranium!!! doh]

Share this post


Link to post
Share on other sites
In January 2002, the average rental yield, according to buy-to-let lender Paragon, was 9.84%,

Ahhh Paragon :lol: , the UK's 3rd biggest BTL mortgage provider who are now almost bust and i believe hav'nt got the funding any more to issue even more BTL mortgages . More old Paragon...........

Share this post


Link to post
Share on other sites
Yes, when lenders have calculated that they've taken as much deposit money as they're likely to get from fools with 15-25% deposits. Thereafter you'll still get BTL mortgages (if 'on balance sheet' from lenders, cos the funny money has gone). Clock is ticking on lenders calcs, I'll give it 2 months before only the brave and or terminally insane stay in buy to let.

They're still piling in at the moment though; I know two folk who are in the process of "starting a portfolio". I guess it makes them feel grown up and clever, although a Cohiba and a glass of single malt while completing the Telegraph crossword would be a cheaper way of achieving the same effect.

[edit; error with my grandma]

Edited by Paddles

Share this post


Link to post
Share on other sites

Buy To Let is certainly dead today, but will it stay dead in the future?

I don't think so.

Only about 14% of the private sector work force now have final salary pension schemes, consequently millions of people need to think about how they themselves are going to secure a comfortable retirement without leaving it up to their employers. Most of course will just cross their fingers, hope for the best, and end up working until they're well into their seventies. But some will consider the problem carefully and conclude that, once property prices have fallen, BTL could make good financial sense.

So, BTL is down, but it isn't out.

Share this post


Link to post
Share on other sites
Guest An Bearin Bui

Another interesting article linked to at the end of the buy-to-let one:

I Can't Get Out of My Credit Card Debt

Please help. I have a large debt on credit cards and loans which was mainly due to buying and refurbishing our new house. We had to move as I have two children and I was living in a two bed house.

I can keep up with the payments and am not in arrears. I am a homeowner and have two buy-to-let properties. I work full-time and pay a large amount in nursery fees for my two children.

The problem is that I have always balance transferred in the past to get 0% rates but now due to the credit crunch, no-one will let me balance transfer anymore because they say I have too much debt.

I am paying a silly rate of interest of 24% and am therefore hardly paying back any of the outstanding balances. And I'm paying more than the minimum repayments each month.

I have cut up the cards. All I want to do is pay off the money, but at a lower interest. I'm trying to be responsible but no-one will help.

More insanity - it's truly surreal reading about such people. They are way in over their heads and don't even have the sense to do anything about it e.g. sell off the BTL properties ("it's for my pension!!"). I love the sense of entitlement too: "we had to move as a 2-bed house wasnt big enough, I have to own BTL properties, I have refurbish my house to the highest standard" etc. It's really obscene the amount of money these people have spent, money they clearly never had in the first place...

Share this post


Link to post
Share on other sites
The money has to go somewhere. Your average person in the street buys into property because they understand it. But if they sell, what do they do with the money?

When you say the 'money has to go somewhere' ... what 'money' are you talking about. The 'money' magiced into thin air by the banks and secured against the BTL investor's own property?

Lots of BTL investors have MEWed to raise the deposit on their first BTL and then mewed and mewed again as properties rose in value - to expand their portfolio.

Property prices, despite what anyone says, have been pretty flat for the last 4 years in my area. (Down in 2004/5, back up in 2006/7 - about level now). Anyone who has bought into the BTL dream in the last 4 years - who sold up now - would be lucky to break even. After all the costs are included, including the kindly mortgage/rent subsidy, many of them are down.

People like the woman on the telly a few years ago who had bought 37 houses in Preston in the late 90s on 15 year repayment mortgages that the DSS are paying for her are going to be fine. She bought the houses for between 17k and 37k over the course of a few years and even now they are probably worth north of 100k each. In a few years time she is going to be worth at least 3.7 million and her mortgages have all been paid by us, via the DSS. Clever eh?

But the goons who have signed up to buy flats for 225k and rented them out for £650 a month making a loss of a few hundred pounds a month are going to be ruined. Especially the ones who have bought the Inside Track nonsense and bought a dozen or more. They will lose their shirts.

Share this post


Link to post
Share on other sites
Buy To Let is certainly dead today, but will it stay dead in the future?

I don't think so.

Only about 14% of the private sector work force now have final salary pension schemes, consequently millions of people need to think about how they themselves are going to secure a comfortable retirement without leaving it up to their employers. Most of course will just cross their fingers, hope for the best, and end up working until they're well into their seventies. But some will consider the problem carefully and conclude that, once property prices have fallen, BTL could make good financial sense.

So, BTL is down, but it isn't out.

Yes, but there's only two ways they are going to be able to "invest" in property; with their own money or with someone else's. I don't see banks getting "lending madness" again for a few years yet, do you?

The crazy lending of the late 80's went away and didn't really return until the early noughties. One could argue that it took a generation of new bankers to come through who didn't have the collective memory of GC1 to stoke this current cycle. In which case, it's another 10 years before HPI3.

Share this post


Link to post
Share on other sites
Another interesting article linked to at the end of the buy-to-let one:

"We had to move as I have two children and I was living in a two bed house."

Two words for future reference; "bunk" and "bed".

Share this post


Link to post
Share on other sites
So, BTL is down, but it isn't out.

This would make financial sense, and I for one will consider BTL when yields make sense.

However, don't overlook the irony of sentiment:

At the time when BTL is actually a good investment, nobody will touch it with a barge pole.

But if another bubble develops, plenty will pour their money in; some will gain and many will lose.

Share this post


Link to post
Share on other sites
Guest Skint Academic
When you say the 'money has to go somewhere' ... what 'money' are you talking about. The 'money' magiced into thin air by the banks and secured against the BTL investor's own property?

Lots of BTL investors have MEWed to raise the deposit on their first BTL and then mewed and mewed again as properties rose in value - to expand their portfolio.

I was more referring to your average punter on the street who has one or two properties. Most of these are baby boomers who have bought a BTL for their pension. This has pumped up the price as with the younger 'entrepreneurs' who have just mewed like idiots to expand their portfolio. These baby boomers are the ones I am specifically referring to. These are the ones who often want to sell up their BTL or their main house when they retire but don't know what to do with the money if they do, except to plough it back into another property or two. So most of the time they just stick tight.

Share this post


Link to post
Share on other sites
When you say the 'money has to go somewhere' ... what 'money' are you talking about. The 'money' magiced into thin air by the banks and secured against the BTL investor's own property?

I thought that. The money has to come from somewhere as well, and people certainly aren't earning it.

Share this post


Link to post
Share on other sites
This would make financial sense, and I for one will consider BTL when yields make sense.

However, don't overlook the irony of sentiment:

At the time when BTL is actually a good investment, nobody will touch it with a barge pole.

But if another bubble develops, plenty will pour their money in; some will gain and many will lose.

Just make sure you've got 25% deposits. This "yes I'll consider it when its right for me" makes too many assumptions and I havn't got time to cover them all. Assumption number one is that in a flat housing market, after a massive price correction, you'll be able to pick up a bargain and get a good yield based on using cheap bank money with little deposit. One and two possible, point three no chance. However, if you're buying in the dips with cash that's a totally different prospect. I know plenty of cash rich players who will enjoy buying in the dips off the "dick heads who got carried away" over the next decade or so. they'll buy with cash, if they get close on 10% rental yields - always the benchmark of the long term (old school) landlord.

Share this post


Link to post
Share on other sites
When you say the 'money has to go somewhere' ... what 'money' are you talking about. The 'money' magiced into thin air by the banks and secured against the BTL investor's own property?

Lots of BTL investors have MEWed to raise the deposit on their first BTL and then mewed and mewed again as properties rose in value - to expand their portfolio.

Property prices, despite what anyone says, have been pretty flat for the last 4 years in my area. (Down in 2004/5, back up in 2006/7 - about level now). Anyone who has bought into the BTL dream in the last 4 years - who sold up now - would be lucky to break even. After all the costs are included, including the kindly mortgage/rent subsidy, many of them are down.

People like the woman on the telly a few years ago who had bought 37 houses in Preston in the late 90s on 15 year repayment mortgages that the DSS are paying for her are going to be fine. She bought the houses for between 17k and 37k over the course of a few years and even now they are probably worth north of 100k each. In a few years time she is going to be worth at least 3.7 million and her mortgages have all been paid by us, via the DSS. Clever eh?

But the goons who have signed up to buy flats for 225k and rented them out for £650 a month making a loss of a few hundred pounds a month are going to be ruined. Especially the ones who have bought the Inside Track nonsense and bought a dozen or more. They will lose their shirts.

Examples such as that are probably the original 1% of landlords that made up the market, not nec. the recent 'BTL manics'. They were there before BTL and all things property went mainstream and they'll survive long term. The goons to which you refer far outweigh the longstanding landlord property owners IMHO and the 'mew/flexing' scenario you paint is spot on in my experience.

Share this post


Link to post
Share on other sites
Yes, but there's only two ways they are going to be able to "invest" in property; with their own money or with someone else's. I don't see banks getting "lending madness" again for a few years yet, do you?

The crazy lending of the late 80's went away and didn't really return until the early noughties. One could argue that it took a generation of new bankers to come through who didn't have the collective memory of GC1 to stoke this current cycle. In which case, it's another 10 years before HPI3.

I agree that the explosive recent growth in BTL was fuelled by cheap and abundant credit, something which isn't going to come back in the next decade.

However, the BTL model that will most likely flourish in the future, once house prices have declined, is unfortunately a less democratic version. Future landlords will need the financial wherewithal to stump up 10 and 20% deposits. But there's millions of higher earners, who won't have defined benefit/final salary pension schemes, but will have the ability to meet stricter lending conditions. These are the people who will be able to take advantage of the much higher BTL yields that will prevail once this forthcoming housing crash has run its course. And it's precisely because they'll feel there's a practical barrier to competition in the form of tighter credit that they'll be confident enough to re-start BTL. Tomorrow's BTL will essentially be based on rental yields, not on the anticipation of capital appreciation.

Share this post


Link to post
Share on other sites
Just make sure you've got 25% deposits. This "yes I'll consider it when its right for me" makes too many assumptions and I havn't got time to cover them all. Assumption number one is that in a flat housing market, after a massive price correction, you'll be able to pick up a bargain and get a good yield based on using cheap bank money with little deposit. One and two possible, point three no chance.

Agreed.

If my STR fund survives the turmoil of the next few years, and if houses see large nominal falls, making yields attractive, I'd be buying with a great big deposit.

Of course those are big IFs.

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 293 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%



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.