Sunday, April 15, 2007

interest rates have yet to peak.

Is buy-to-let primed for a fall?

"A buy-to-let mortgage is not that dissimilar from a private equity buy-out," says Mike Lenhoff, chief strategist at Brewin Dolphin Securities. "Both are leveraged instruments. With any leveraged deal, if your income is not covering the cost of the debt taken on, then that's clearly not a good position to be in. If interest rates rise, the situation gets worse. It all comes down to cashflow. And the message coming out from central banks all over the world appears to be that interest rates have yet to peak."

Posted by cheeky charlie @ 11:38 AM (493 views)
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4 thoughts on “interest rates have yet to peak.

  • The supply / demand argument for BTL is horses**t, since, if it was a “landlord market”, the marginal landlord would be able to cover at costs (interests and maintenance) and make a profit on the rent. Instead the rental market is a “tenant” market and the BTLers that make a profit are those who entered a few years ago (paid lower house prices and probably got on low fixed rate mortgages).
    BUT… I also do not buy the argument that in case of property price plateau / or small decrease BTLers will “sit through”. There are now over a million BTLers, many of whom entered the market a few years ago. I bet many will want to take profit when the market slows down…. and I can see here in central London many of the earlier BTLers are selling…
    I personally know two large BTLers who had to “sit through” the soft market of 2004/05 (with empty properties for 6 months and eventually offering tenants 25% off the asking rental —- This is personal experience, I am one of their tenants!!)
    These landlords are now offloading their properties for a profit, and will not hesitate to sell more if they feel the market has peaked. BTW, this explains the “buy-to-sit” phenomenon, when landlords do not want tenants since they want to be able to “flip” their properties at the right time.
    In summary, the biggest threat for new landlords are the old landlords who can sell off (and will not “sit through” a market slowdown)

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  • The Baldman says:

    When holding an asset like shares sitting through is a possibility as potentially there is only the cash flow cost. Sitting through a BTL can be much more expensive if the property is empty e.g. community charge, insurance, maintenance, some standing charges

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  • Confused76, are you really renting in central London? That must cost a fortune. What do you do?

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  • tony marshall says:

    “The typical buy-to-let investor will only borrow 65 per cent of the property’s value, he says, which reduces the impact of increased mortgage costs. ”

    This is absolute rubbish – where do they get the other 35% from? – from re-mortgaging their home, of course! (Or their other BTL properties). These people don’t have £50k or so just sitting about the house – they are MEWing to raise the deposit! But this is conveniently overlooked by the lenders on the BTL’s because they don’t much care if the borrower loses their home.

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