Wednesday, November 7, 2007

It’s their pension, not a get rich quick scheme

Buy to let landlords still bullish

"Residential property investment is not a means of getting rich quick." - David Salusbury NLA. Erm, can we respectfully ask then "what's the point"? We thought that was the whole point. Oh sorry we get it, buy to let landlords are in it for their pension (yawn) and to put back into society the much needed 'bridge' for those in between; jobs, decisions, life changes and to plug a gap that only the private sector could....What's next, landlords asking for charitable status?

Posted by converted lurker @ 04:30 PM (781 views)
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5 thoughts on “It’s their pension, not a get rich quick scheme

  • I really do not want to point out the obvious, but if any BTL has not MEWed for at least 4 years, then their LTV is going to be no more than 60%. Provided they started with no more than 85% LTV, which is a reasonable “business investor” starting point and not too ambitious.

    At this point a ?10% drop? in property prices is not going to affect them at all.
    Rents seem to be rising in prime or even semi-prime locations, so increases in the base rate have been absorbed, but without increasing income in line with inflation.

    Any newer BTL’s could easily feel the crunch.
    Any over ambitious BTL’s with LTV of more than 80% may be best advised to sell if property prices look as if they might drop in their area.
    Anyone with a LTV of 90% is a Muppet.

    Any BTL investor should probably sell up and leave.
    Any BTL businessman should evaluate their position and see are looking for in terms of Capital Growth v Rental Income.

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  • The responses you’ll get to this kind of survey are highly dependent on who is being asked.

    People who bought their buy-toi-let properties seven years ago are beyond being dragged down immediately, until prices really start falling like in the US.

    As I understand that vast majority of BTL bandwagoners have joined the party in the last three years though – and they are really exposed.

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  • converted lurker says:

    Paul, without a doubt the BTL bug caught fire when folk ‘got it’, or at least they thought they did. The herd piled in when they realised it was safe ‘cos everyone was doing it. By that time (2004-2005) all the juicy gains had been made. What is/was left is the froth. The mortgage stats prove that BTL went ballistic from 2005 onwards, since 2004 nearly half of all BTL mortgages have been done and these BTL players have been done, like kippers.

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  • farenheit451: You’re right about those who bought 4+ years ago and haven’t since MEWed. However, many early landlords would have MEWed the rise in their first property to use as a deposit on the second property, and so on.

    The bigger problem is that a lot more people invested in the last four years, and at higher prices than ever, and with smaller Loan-To-Value ratios than ever. There are even those who bought a flat for e.g. £170,000 which was marketed as a “£200,000 flat with 15% builder discount”, and therefore qualified for 85% LTV loans from the bank. This means their effective LTV is 100%, giving them no breathing room.

    Also you say “as a reasonable business investor starting point”. Well exactly: many of those investing recently are not financial experts but mere amateurs in the game.

    Finally, your comment about a 10% drop; well this would barely wipe out the last year’s worth of gains, that is true. However many of us believe that this is just the start, a 10% fall next year might be followed by a 15-20% drop in 2009, etc.

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  • The bubble has been caused by BTLers MEWing their first property to fund another purchase, which has helped push prices up. That is exactly why it is a speculative bubble – because prices have been increasing simply because prices have been increasing. I don’t think that too many BTLers are on 60% LTV.

    Besides, if I have 60% LTV on a £200k property, and prices started coming down, do you really think I am going to sit their smugly and think “I can sit here and do nothing even if prices fall 40% and I lose the whole of my £80k equity” ?? No – they will try to get out at the top – causing a speculative bust. A race to the bottom. Even BTLers with no mortgage would be wise to sell.

    I really don’t think the level of equity matters at all.

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