Where Does Buy-to-let Go From Here?

[tuggybear]

Is this the grim future for buy-to-let investors as property prices begin to fall? Just 18 months ago, retired teacher Judith Andrew was convinced by a mortgage broker that a buy-to-let flat would be her ticket to a more comfortable retirement. But now the flat's value has slumped by a quarter, the rent falls far short of the loan payment, and she faces a 50% mortgage increase later this year.

Poor old Judith

Continued : http://www.guardian.co.uk/money/2008/mar/1...gtolet.property

Edited March 15, 2008 by tuggybear

[crash2006]

its getting bad now, BTL =dead

[Moo]

If they bought early enough* then hold on, the rents cover the mortgage, so stay in for the long term. They judged it right, and are ready to become the professional landlords of the future. I salute them. Okay, they've messed me about, but they got it "right", and it would be crass of me to be negative about the clever ones. If they bought after the local drop-dead-date, then they've got two choices.

1 - Don't sell, don't realise any losses, and try and hold on for the long term. After all, they said they were in it for the long term...

2 - Bail out, run, run, run, and don't look back! If there's profit, take it, kiss it, bank it, and be thankful. If there's a loss, don't be bitter. Either way, learn.

* IMHO, for the more western bits of Surrey, about 2001. Everything else? Buggered if I know, I don't live there, so I don't know how the prices rose.

[housespider]

So, looks like Buy-to-let will become more a case of Buy-to-let-Go

[DinosaursAreAwesome]

If they bought early enough* then hold on, the rents cover the mortgage, so stay in for the long term. They judged it right, and are ready to become the professional landlords of the future. I salute them. Okay, they've messed me about, but they got it "right", and it would be crass of me to be negative about the clever ones. If they bought after the local drop-dead-date, then they've got two choices.

1 - Don't sell, don't realise any losses, and try and hold on for the long term. After all, they said they were in it for the long term...

2 - Bail out, run, run, run, and don't look back! If there's profit, take it, kiss it, bank it, and be thankful. If there's a loss, don't be bitter. Either way, learn.

* IMHO, for the more western bits of Surrey, about 2001. Everything else? Buggered if I know, I don't live there, so I don't know how the prices rose.

3 - Do your best to ignore all the bad news, complain at every opportunity about the meeja and the bears for talking their 'pension' down, try to hold with option 1 until its completely obvious that the market is dead, the HPC is the main story on the news and thier friends are sympathetic rather than impressed- then, and only then- its time to throw in the towel, take the loss and blame it all on Brown.

[ZeroSumGame]

3 - Do your best to ignore all the bad news, complain at every opportunity about the meeja and the bears for talking their 'pension' down, try to hold with option 1 until its completely obvious that the market is dead, the HPC is the main story on the news and thier friends are sympathetic rather than impressed- then, and only then- its time to throw in the towel, take the loss and blame it all on Brown.

You just gotta wonder - how many of these BTL no-nos are drifting about out there right now ???

[Moo]

The new lower tax rates make the "take the money and run" option alot more attractive.

Hmm, that presumes that a whole lot of them don't dump at once. Depending on the property and personal financial circumstances (i.e. can they continue to subsidise), a heavily leveraged BTLer who can "hang in there" for the long term might actually be better off holding on to their property in the event of a mass dump in their area.

The market will soon bring back affordable prices- give it 2-3 years

I agree entirely on the timescale.

[Pindar]

Well it serves these people right to think that they can get something for nothing. The traditional way of funding ones retirement is hard work and saving, not being a parasite on the back of some poor youngster in a dead end job, living in a rice-paper newbuild and handing over 30% of their take home to some smug b***ard. Death to BTL and all who sail in her.

[Bardon]

* IMHO, for the more western bits of Surrey, about 2001. Everything else? Buggered if I know, I don't live there, so I don't know how the prices rose.

According to the graph on this website house prices started to rise above the long term trend in 02 so 01 stacks up with your local knowledge and 96 was the perfect time to buy. Although if you extend it out then it also suggests that real pices will drop below this long term trend line in the future so even an 01 purchase will be in -ve territory for a while.

[DinosaursAreAwesome]

According to the graph on this website house prices started to rise above the long term trend in 02 so 01 stacks up with your local knowledge and 96 was the perfect time to buy. Although if you extend it out then it also suggests that real pices will drop below this long term trend line in the future so even an 01 purchase will be in -ve territory for a while.

You are a bull?

I thought you guys looked at the graph and used a ruler to draw a line to infinity

[Bardon]

You are a bull?

I thought you guys looked at the graph and used a ruler to draw a line to infinity

I am bullish about life

Yes I am a bull but you have to understand that not all of us draw straight lines on graphs. I beleive in the property cycle and would use that to guide me with any buy or sell decision.

Dont forget that there are many different property and other cycles at play around the world and some of them are in bull phases.

Edited March 15, 2008 by Bardon

[Realistbear]

I have a short message for BTL :

Wake up people, its over.

We are entering a period not dissimilar to the GD of 1929-36. Assett prices are about to crash commensurate to their unsustainable rise. BTL was "the" speculative buy of the Brown years. It was the smartest sell around a year or so ago.

Why can't the BTL people get it. The economy is cyclical. Ours is boom and bust. Yesterday's buy is today's sell--nothing lasts forever. Buy too much of yesterday's hot ticket and you lose. Big time.

[Realistbear]

2-3 years is the normal time frame of the most rapid phase of declines

in major bear markets

Agree. 2008 will be "bad" for property prices (20-30% down from peak). 2009 will be awful (another 15-25% down). 2010 will be grim (10-20% down). Then a few years of flatline followed by who knows what.

I am planning of getting back in around 2011--if all goes according to plan (houses drop 50-60% and stewrling down 25% relative to the US$).

I am hoping that the future will be ruled by a time tested formula for borrowing to buy a house: 2.5 to 3 times sustainable income.

[DoctorJ]

2-3 years is the normal time frame of the most rapid phase of declines

in major bear markets

what about Japan? Are we expecting 'normal' crash characteristics in the UK?

I'm not so sure. Be vigilant.

[jonpo]

That's it man, game over man, game over! What the ****** are we gonna do now? What are we gonna do?

Maybe we could build a fire, sing a couple of songs, huh? Why don't we try that?

[doh]

Is this the grim future for buy-to-let investors as property prices begin to fall? Just 18 months ago, retired teacher Judith Andrew was convinced by a mortgage broker that a buy-to-let flat would be her ticket to a more comfortable retirement. But now the flat's value has slumped by a quarter, the rent falls far short of the loan payment, and she faces a 50% mortgage increase later this year.

Meanwhile, the UK's biggest property investment club, Inside Track, last week decided to suspend its buy-to-let "Become a property millionaire" seminars, and one of the biggest lenders in the market, Paragon, is axing 93 jobs.

The Royal Institution of Chartered Surveyors also revealed that the credit crunch has led to a reduction in the number of buy-to-let mortgage deals on offer, and has also prompted lenders to be more cautious about who they lend to.

Some investor landlords are bailing out because their mortgage payments are now higher than their income from rent.

Judith Andrew bought her buy-to-let property in summer 2006. "The broker said 'buy a flat, rent it to cover the mortgage and, after a few years, sell at a profit'. It was never a get-rich-quick scheme - I accepted I would have to wait before gaining," she says.

The broker pointed Judith towards Sheffield-based Pimlico Property Investments which sold her a flat in a Bradford mill conversion. "Pimlico told me to hurry up in case I lost it - it offered a £22,000 subsidy on its £200,000 price for a quick sale."

So she stumped up £178,000 to buy the flat, borrowing the money from GMAC, a specialist buy-to-let lender via a broker.

The two-year fixed-rate interest-only loan cost her £850 a month, and was based on a valuation from Connells, part of a major estate agency chain, which advised her the property had "a market value of £199,995" and an "expected rental income" of £860.

"The rent should have covered the interest. But all I get is £500 a month out of which I pay £120 in service charges and £50 to the estate agent, leaving just £330. I can't see where Connells found tenants paying the sort of money they said I would get."

Calls to Bradford estate agents confirm that £500 a month is a good return for the area and type of flat.

"I didn't worry about the rent levels at first, as Pimlico paid me £350 a month for 12 months as a rent subsidy. Now I am very concerned."

Estate agents in the city suggest the flat would now fetch around £135,000 - plunging Judith into negative equity by some £45,000 after selling costs. Smaller two-bed flats are on the market at £104,000. But the tumbling value is not her only problem: now the monthly cost of the mortgage is set to rise steeply. When the fixed rate runs out in September, her only option is to stick with GMAC because the flat has fallen in value. Other lenders limit loans to 85% of market value (about £120,000 for the Bradford flat) and restrict monthly payments to 80% of the rent - £400 here.

GMAC will refinance the flat but it says she must pay £1,299 a month (a rate of 8.75%), or nearly £1,000 more than her rental income after costs.

"I am stuck between a rock and a hard place. I can't afford the payments. But if I sell, I'll have to remortgage my home to pay the £45,000 I'd be losing."

Connells would not comment on the gap between its valuation and Judith's experience but stated: "The valuation was by a qualified chartered surveyor and would have been supported by appropriate market evidence."

GMAC says: "We obtain valuations from an independent panel of approved valuers, all major national firms. We have to rely on these valuations when making mortgage offers and on their assessment of the achievable rental income."

Pimlico, and associated company Shevell Properties, were contacted by Guardian Money but did not respond.

There's some great stuff in this article...

You Type We Show

'It was never a get-rich-quick scheme'

'Pimlico told me to hurry up in case I lost it '

'expected rental income of £860.'

'But all I get is £500 a month out of which I pay £120 in service charges and £50 to the estate agent'

'Now I am very concerned'

'the flat would now fetch around £135,000 - plunging Judith into negative equity by some £45,000 '

'GMAC will refinance the flat but it says she must pay £1,299 a month (a rate of 8.75%), or nearly £1,000 more than her rental income after costs.'

'I am stuck between a rock and a hard place'

'Pimlico, and associated company Shevell Properties, were contacted by Guardian Money but did not respond'

[/red]

Did she actually do any research at all before buying?

I feel like I should be sympathetic to her after she's being duped by these companies... but maybe only as sympathetic as she was to FTBs when she bought her second home...

[Scunnered]

Just 18 months ago, retired teacher Judith Andrew was convinced by a mortgage broker that a buy-to-let flat would be her ticket to a more comfortable retirement.

So it's not her fault then? In that case I think she deserves some serious compensation. Oh hold on, let's not bother.

[Bardon]

So it's not her fault then? In that case I think she deserves some serious compensation. Oh hold on, let's not bother.

"Amateurs hope; professionals work."

-Garson Kanin

[Bloo Loo]

She should have kept to singing in the "Sound of Music" IMHO

[Leonard Hatred]

Q: What's the difference between a buy-to-let flat and a Trabant?

A: One is a grossly substandard product forced upon working people by communists. The other is an East German car.

[Sinking Feeling]

The two-year fixed-rate interest-only loan cost her £850 a month, and was based on a valuation from Connells, part of a major estate agency chain, which advised her the property had "a market value of £199,995" and an "expected rental income" of £860.

£860 - £850 = £10 per month. Wow, what a return - don't spend it all at once love!

And what's worse is that this is the initial figure that attracted her to this chance of a lifetime investment. Now I can understand someone investing in something where they expect to make £300-400 per month, but £10?

Edited March 15, 2008 by Sinking Feeling

[Ah-so]

If it could be shown that the valuers were negligent in their valuations they will be liable for the differences. With people like this Judith nursing massive losses that they cannot afford, we should expect to see a few court cases coming up.

[Bardon]

If it could be shown that the valuers were negligent in their valuations they will be liable for the differences. With people like this Judith nursing massive losses that they cannot afford, we should expect to see a few court cases coming up.

This is a hard one to prove especially if they have comparable sales to back it up.

[winkie]

So, looks like Buy-to-let will become more a case of Buy-to-let-Go

Buy to let every other person with a vested interest get rich...and you are left holding the baby.

[conifer]

I have a handful of almost worthless shares in a buy to let company called In House Group (used to be Nadlan).

This company, which is 92% funded by loans, is still buying up properties to let (though acquring other smaller landlords, mainly). The recent property acquisitions all have estimated current values way in excess of the actual purchase prices paid as recently as this month. For example -property acquired for £2.34million, March 08, estimated current value £3.3million (presumably an apartment block). Wishful thinking?

Why have I got shares in this company? I bought them with a few quid left over in my online share dealing account. They were fraction of a penny shares and I took a punt on them. Why haven't I sold them? They are such a small holding it's neither here nor there.

Edited March 15, 2008 by conifer