Wednesday, May 30, 2007

Oh Dear – In for the long term then?

Rents soar as rate rises squeeze buy-to-lets

RICS economist David Stubbs said ... "with borrowing rates now at 5.5pc and rising, most buy-to-let mortgages were costing comfortably more than a landlord could hope to make from the rental."Say it all really. I wonder what will happen next?

Posted by talking rot @ 07:41 AM (578 views)
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25 thoughts on “Oh Dear – In for the long term then?

  • Yet again we see RICS trying to buoy up the rental market by talking rents up. It’s no use though, rents are static.

    And BTW, how on earth would a group of surveyors know anything about the rents that their owners charge??!

    But later we see the desperate truth of it:

    “RICS said gross yields fell for the third successive quarter, with the pace of decline the fastest in three years. Its measure of yields dropped to -19pc. Mr Stubbs said that, with borrowing rates now at 5.5pc and rising, most buy-to-let mortgages were costing comfortably more than a landlord could hope to make from the rental.”

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  • When people had a proper long term tenancy landlords were restricted in rent rises I believe. Buy to letters using 6 month short assured tenancies can just let the six months run and then double the rent by re-letting at the new price. I guess the limiting factor now is that there is a lot of supply so the landlords may be restricted by competition instead

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  • Matt_the_hat says:

    I have just started (feb) a short term tenancy (6 months) and already I am paying over the odds. Flats that were £825 pm when I was looking are now £600, this article does not reflect what I see happening in the market. If things continue it will be me demanding a reduction in rent to thye market rate after 6 months not the landlord trying to increase. This to me is a perfect market where supply and demasnd are working perfectly and the landlords are accepting a loss just so their property does not stay vacant for another month.

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  • Over supply of rental property is keeping rents broadly static. Landlords would prefer a stable, lower paying tennent than long void periods. Renting is great value at the moment and the quality of property is of a very high standard, many being brand new homes. Take advantage of landlords subsidising your living costs if, like me, you do not expect property prices to continue to rise in light of increasing interst reates coupled with ever falling affordability.

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  • “…The Royal Institution of Chartered Surveyors said tenants are experiencing the biggest and most sustained increase in rents since it first started measuring them in 1998. It added that the recent increases were similar to those in the late 1980s that preceded Britain’s last major housing crash…”

    Oh dear, oh dear oh dear oh dear…. where will it end? And if rates go up even another 1/4 point? then those BTL mortgages cost a further 5%! However I predict them being 7.5% by next year.

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  • Robh,

    The answer is to get a 24 month let and then go to the Rent Assessment Tribunal afterwards.

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  • My current 9 month contract ends in September. I fully intend to present my landlord with a list of identical flats which are being let out for less (there are plenty to choose from) and say “lower the rent or I move”.

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  • Yeah a six month tenancy works both ways, I’m afraid, because it would also potentially mean a lot of void periods for the landlord (when their tenants find a better deal).

    Point is, rents re not going up and are not likely to.

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  • do not forget that the cost is very uneven for landlords. those who have bought on a moderate leverage at lower price in 1998-2002 can afford to take rents down and in order to stay occupied do so. thus increasing rent for the marginal landlord is not going to be easy

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  • Lets not be completely blind folded either. Rent in my area (Hamsptead – London) have gone up in the past year by a substential amount.
    I currently pay £360/week. If I move out and try to find something similar, I will have to pay roughly £410/week.
    Another property I looked at 2 years ago for £325/week is now on the market for £450/week.
    So yes, rents are going up in some part of the country.

    However, price of properties in the same area have gone up masively. The rate of increase is still significantly higher than the rent rate of increase. Therefore, renting is still somehow justifiable even if it’s a lot of money.

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  • Very roughly, as a ‘ball park’ figure, a rate rise of 0.25% needs a rent rise of about 6% to compensate if the landlord has a BTL mortgage (taking into account void periods etc.)

    Remember that for the market to collapse, landlords don’t need to be persuaded to sell up – they only need to be persuaded to stop buying more properties.

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  • george monsoon says:

    Rents aren’t going up here in the North West, supply is high and rents are falling.
    As stated, a landlord would prefer a property to be generating some income rather than nothing..

    The way things are going, it won’t be long before the majority of potential first time buyers on “normal” wages will be prefering to sit it out and rent for half what they could be paying to buy a house of the same calbre.

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  • Landlords can only put the rent up to reflect their increased costs if they all stick together in a cartel. But I expect this is what’s happening because estate agents do a lot of the letting.

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  • Landlords can only put the rent up to reflect their increased costs if they all stick together in a cartel. But I expect this is what’s happening because estate agents do a lot of the letting.

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  • In Surrey my rent went up 2.1% after a year, so the RICS claims don’t seem to stack up.

    If they say that rents are increasing to cover the landlords mortgages increases, does that mean that rents were below the market rate before ?

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  • cyril,
    there can be no cartel of landlords, cartels require coordination but also penalties in case of breach.
    every week the property is void costs the landlord 2% of the effective asking price for the entire 12 months to come, that is 8% in a month. there is a strong incentive to sign with a tenant within the first month of vacancy. and if you are not one of the landlords who bought in the last year, you stand to make a decent yield anyhow

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  • C'mon Correction says:

    Rents in my area are still broadly what they were over eight years ago. This is fact. My rent has never risen in the last three years and I too may push for lower rent. There are many, many examples of £250k-£300k cost-to-buy properties around here which can be rented for £600-£700 pcm. Only a fool would buy – that goes for both Ftb’s and Btlers.

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  • Does anyone remember the Young Ones?

    Rick – Just need a bit of information really, why did you throw the toilet out of the window?
    Vivian – To lower the rent”
    Rick – Of course, stupid old me. Just one thing; what are you talking about?
    Vivian – Well now we can go to a rent tribunal. You don’t have to pay as much for a house with an outside lavy.
    Rick – Really, well I think you did it on purpose because you know I have a runny bottom.

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  • I believe rents went up at this rate just before the last crash in 89; the death throws of the BTLs.

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  • I can also confirm that my rent hasn’t gone up for coming on 3 years now and neither is it likely to as there is a huge amount of local choice when it comes to renting. I keep my eye on the market and there is a definite price barrier of around £425-£450, above which propereties struggle to rent. I suspect this is entirely down to the average wage in the area being significantly lower than the national average. After all, why would anyone choose to pay rent at a level that would take you deeper into debt. And yet there are 40+ 2-bed new-build flats that have been sitting empty for months priced at £525. Even at that price I reackon the landlords are losing money – I really cannot understand why they do it.

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  • I pushed for lower rent – successfully – in central london (more expensive than hampstead) in 2003 and again in 2004. I reduced rent by 5% each of the two years. It has the prospect of a void flat is a BTLer’s nightmare. before negotiating the lower rent I posed as a BTLer and visited a few EAs in my area. When they confirmed that “landlords have to be realistic” I knew it was time to push for a reduction

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  • tyrellcorporation says:

    As I’ve mentioned many times in the past I’m renting a 4 bed modern terraced property in a very nice development in Exeter; It costs me £950 a month. To buy the same house would be about £2000 a month in mortgage payments!!! Go figure!

    Sice moving in we have also had the odd-job man round about 4 times fixing various things – all free to me!

    I’m sitting tight…

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  • From the Telegraph. look at the second part of the statement by RICS. Rents may increase now, but is it sustainable?? Rental demand will suffer (i.e. you will not see people sleeping on sidewalks, but relocating to cheaper areas, perhaps more distant from their work)

    http://www.telegraph.co.uk/money/main.jhtml;jsessionid=HTMMMFUKYD3GBQFIQMFSFFWAVCBQ0IV0?xml=/money/2007/05/30/cnlets30.xml

    “We are seeing significant rent increases across the country which will allow landlords to claw back a lot of this extra expense,” he said.
    “That can’t do anything but slow down buy-to-let growth as time goes on. Buy-to-let lending has exploded since 1998, but it really has been slowing down recently. The easy money has already been made. People made an absolute killing at the start, but now the sums don’t add up so well.”
    Easy money been made…. not really… just the few that have cashed out… asset money is not real money until you sell

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  • Albertini Albertino says:

    Just as an anecdote, my mate’s landlord tried to put his rent up 19% at lease-renewal. They settled on 14%.

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  • dohousescrashinthewoods says:

    I concur with wage slave, we are paying an extra 3-4%. Our landlord bought ages ago and is now out of the country so isn’t being squeezed as far as I can tell.
    Sitting tight while things play out.

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