Monday, March 10, 2008

BTL is dead!

Buy-to-let: House rents up 4%

One of the last BTL lies is also crumbling "data from the Association of Retail Letting Agents (ARLA) reveal in the south-east rents for houses were down two per cent to £1,361 and down five per cent for flats to £882" AHHHA HAHAHHA "The rise in immigration is causing one particular headache for buy-to-let landlords – as it is harder to obtain references" AHAHHA HAHHAH

Posted by confused76 @ 11:38 AM (1320 views)
Please complete the required fields.



18 thoughts on “BTL is dead!

  • We shouldn’t get carried away, BTL (as conducted for the past few years at least) is certainly dead, killed off by evaporating yields (thanks to bubble purchase prices and expensive mortgages) as well as tightened lending conditions.

    But in general rents should start to increase at a time (such as now) when people are reluctant to buy, yet still need to move around (for work etc) not to mention young people growing up looking for places to live, and yes, immigrants (anecdotal evidence suggests some are going home but they have hardly disappeared altogether …!)

    I may have to move soon and chances of me getting the rental deal I have now (£500k – asking price – worth of house for £1000pcm) are minimal, I’m looking at 25-30% more to get an equivalent in the areas I’m looking at. (It’s on the market because the yield is curently extremely negative – I calculate this place has been losing value at £5000 a month since last summer, and that doesn’t include the £600 a month the landlord is putting into the mortgage on top of my £1000 in rent).

    Rents – and yields – must increase in coming months, though whether that will be enough to save the recent BTL mob from wipe-out is another question entirely …. I doubt it myself (see above – even 25% rise in rent isn’t going to help much).

    But do expect rents to rise and with them, yields. This is the other side of the HPC and like it or not, some BTLers will benefit.

    Reply
    Please complete the required fields.



  • ontheotherhand says:

    Have a look at the source ARLA survey. http://www.arla.co.uk/news/100308.htm

    Page 13 “the average price of a rented house in Prime Central London has fallen quite sharply by 10.3%”

    Page 15 “Within that overall change, the average value of rented flats in Prime Central London has fallen by 5.9% whilst that for the Rest of the South East has fallen by 5.2%. Conversely, the average price of a rented flat in the Rest of the UK has risen by 5.0%.”

    Page 47, “almost two out of ten respondents (19%) think landlords are decreasing their net investment by selling properties, a figure which compares with just 7% who think landlords are increasing their netinvestment by buying more properties”

    Reply
    Please complete the required fields.



  • Just anecdotaly the rent for my 2 bed flat went up from £700 to £715 after the first year, and then to £730 in the second year.

    This is in Surrey very close to a large regional hospital so it’s not as if the demand has suddenly dried up. Looking at comparable properties’ asking rents it would seem that this amount is the going rate for the area. Hardly spiraling upwards, is it (unlike landlord’s mortgage will be).

    Reply
    Please complete the required fields.



  • So house prices are dropping, the yield to loan ratio rises and subsequently so do rents, but only in nominal terms.

    If you have a £200k house on which you charge £1k per rent month (you’d be lucky though!) then the rental yield to loan ratio is 0.5%.

    Now, if the house drops in value to say £190k, and you’re still charging £1k per month then the rental yield to loan ratio increases to 0.52%. Wooohooo! Don’t spend it all at once (although actually you’re still receiving the same amount of money).

    Talk about dressing up bad news as good.

    Reply
    Please complete the required fields.



  • fahrenheit451 says:

    @ montesquieu:
    Your landlord must be short sighted to put £600 per month into the property to top up your rent. Thought about doing a private purchase to take it of his hands and (a) save the estate agents fees, and (b) quick sale means less losses for the vendor. I’d offer him 80% of the “current” market value and get a cash back of 10% to cover your deposit.

    @ ontheotherhand:
    We’re seeing a divided market here as well, prime rentals are going as soon as they come on the market and pushing the rent up, sub-prime rentals are getting big discounts. GBH and out little Darling have well messed up this one, and the inflation figures are rocketing, forget about the governments Indexes that take into account cheaper luxury items, to push down the RPI or the CPI. If you can’t afford any luxuries these items are irrelevant. Not sure but think inflation is nearer 8% than 5% in real terms.

    Reply
    Please complete the required fields.



  • I have a mate, who is a BTL’er and he let the place out to some workmen from Poland, who seemed very friendly & nice. They didn’t have much deposit and pleaded for him to give them the flat. He did, and after 3 weeks of not being able to find work – and not paying rent – moved out and left the place in a right mess.

    BTL’ing isn’t all plain sailing ya know!

    Reply
    Please complete the required fields.



  • George Monsoon says:

    1,361 per month!! thats more than I bring home.

    disgraceful !

    I think anyone south of Brimingham don’t know they are born, if they can afford to rent at that corrupt price!!

    Feeling extremely bitter today, If you are a BTL investor, post your telephone number on here, so I can vent my anger.

    Reply
    Please complete the required fields.



  • Hold on @Farenheit …..

    Even at 80% of £400,000, @montesquieu would still end up paying around twice (£1,900 : Halifax best INTEREST-ONLY starter rate) as much as he does now. Plus he would have all the maintenance costs to cover. When comparing rents to mortgage costs, it just does not make any sense to buy at the moment.

    Rents are, and always will be, controlled by how much we actually earn, but house prices WERE a result of how much banks were willing to lend. That willingness to lend (especially at cheap rates) has now gone (and is unlikely to return), and so prices will revert (albeit slowly) to reflect people’s ability to pay. In that sense, even 80% for @montesquieu’s house would be well over the odds.

    Reply
    Please complete the required fields.



  • My rent is 40% of the current equivalent monthly mortgage repayments at its valuation at the start of this year.

    Go figure.

    Reply
    Please complete the required fields.



  • montesquieu says:

    @farenheit

    About the place I currently rent (large 4bed 3 reception double garage, one of 5 houses developed in gap site in Somerset village with hills and forest at the back door)

    * Landlord bought for £346k new build in 2003, I’ve been renting since 2005, £1000 pcm
    * Put up for sale (after landlord remortgaged and went ‘ouch!’) in June 2007 for £495k, dropped to £475k three months later, total of four viewers in all that time
    * Offered by landlord to me for £400k a month ago (20% already off his initial asking price – not exactly a great return for him in Britain’s biggest every property boom)
    * I still can’t afford to buy it at that price (limit of what I can buy on 3.5 multiple plus what deposit I have availble – post divorce – is £320,000) despite a salary above £80k – and as uncle chris said, why would I want to double my outgoings in a falling market anyway?

    I’d rather keep saving for a bigger deposit, I’ll get a better deal later. If not this place (which will probably get reposessed at some point) then somewhere else. I would buy this place at £320k but wouldn’t be interested at any more than that.

    I took a conscious decision not to buy after moving loctation for work in 2005 as I thought there was a bubble THEN. Glad it’s happening at last and the bigger the fall the better.

    The biggest laugh in all this is that this new site ‘zoopla’ put this house’s value at £537k (straight percentages on the new price) … which just goes to show how rubbish their data model is.

    Reply
    Please complete the required fields.



  • Agree with montesquieu: Zoopla is meritless.

    Reply
    Please complete the required fields.



  • Thanks to Montesquieu for giving us all the financial details. So his landlord is getting a 3.5% gross rental yield, even on what he paid in 2003, and from that we must subtract letting agents’ fees, allowance for void periods and renovation between tenants. My landlord is in a similar position – a three-storey three-bedroomed town house in Durham, £297,500 new in 2006, and rent of £675 per month. So even if he got the rumoured 10% cashback from the builders in each of the first two years, making the true price of the house £238,000, he is still getting a gross rental yield of 3.4%.

    The minimum rental yield any serious investor should be looking at is 6%, and 8% would be better to allow for Ben Graham’s “margin of safety”. I am a PhD in Finance, and I can’t understand why any landlord could think 3.5% is a good deal. My neighbour, a Professor of Accounting who is renting in similar circumstances on the same estate, is equally mystified. it would be interesting to interview these landlords to get them to explain how exactly they thought they could possibly make money on such a deal. Other than hoping to sell to a greater fool prepared to accept an even lower rental yield. Current prices only make sense if you assume prices will continue to rise forever – the classic definition of a bubble.

    Reply
    Please complete the required fields.



  • montesquieu says:

    My view is that the landlord’s situation wasn’t ‘BTL’ per se, more a bumbling, slightly greedy brainwave when moving house .. ‘hey if we can find someone to rent the old place and pay its mortgage instead of selling, we’ll have two houses paid for when we retire instead of one’. I doubt if he ever made a yield calculation, or even understands how to make one.

    A friend of mine – 30-something guy with a £40k a year IT job and three kids, not exactly a city trader – did the same end of last year, on some very simplistic reasoning. I failed to talk him out of it as he thought it was a no brainer – someone pays your mortgage, and HPI leaves you a millionaire at the end, simple innit? Free money!

    Reply
    Please complete the required fields.



  • stillthinking says:

    I think rents will go up, because people can always live somewhere smaller. There are already two people in studios flats in London. There is a housing shortage, even with the impending dramatic crash, there is a real housing shortage.
    Why do you think that the government has introduced an effective wage increase for key workers (not really key, just Labour voting public sector workers, do the same job in the private sector more effectively and you won’t get anything).
    -However-, rents won’t go up much because they are close to a limit of affordability which is itself going down due to rising living costs.
    The spike in rents is temporary and reflects a large number of people looking to sell, so;
    1) They can keep going, and they know that as the sale price goes down their effective yield goes up so they keep renting.
    2) They can’t afford to keep going with rising living costs and they become forced sellers, also -temporarily- driving up rents but driving down prices.
    3) A recession eventually arrives, both house prices and rents fall.
    The people in group 1) are essentially those who bought a long time ago who are concerned how much they stand to gain rather than how much they stand to lose. I don’t think they are a big group.
    The house price crash will be dramatic if rents are brought down through inability to pay, and I think this is going to happen this year, but slowly as usual. There are many layers in the rental market and the first sign of a collapse in rents will be an increase in the price of cheaper properties due to demand. However, the difference in price between, say, a one bed and a two bed property is already very slim so cheap one bed properties cannot increase in price much, because then they hit two bed properties.
    Essentially, I think that a rise in rents is going to be short lived but I do believe that there will be one. If you are a landlord, you are losing around a grand a month all the time you attempting to sell, so either you are going to drop your sale price or go back to renting.
    I personally believe that these are the stages of behaviour at the margin.
    Looking to sell->Can’t sell at acceptable price->Perceived advantage in renting->Rents collapse->Looking to sell…
    All of the unsold properties at the moment are going to either collapse prices or rents, because they are empty stock currently available. Where are they going to go?

    Reply
    Please complete the required fields.



  • George Monsoon – dude, move.

    Reply
    Please complete the required fields.



  • mark wadsworth says:

    Hiccups notwithstanding, the most stable variable in the housing market is rents, which are a pretty constant percentage of average earnings, housing being a ‘normal good’ and all.

    My former letting agent confirmed as much, rents for the same flat have gone up maybe 50% or something in ten years, much in line with wage increases (for London). If you are a sell-to-renter, it is a question of who blinks first, and I am not going to even open my eyes for the next two years, let alone blink.

    Reply
    Please complete the required fields.



  • fahrenheit451 says:

    Sorry montesquieu, looks like you have a better deal just paying the rent.
    Hope you manage to save enough for a deposit when it goes to auction !!!

    Who provides the prices for Zoopla, Estate Agents / Vendors ???
    Looks a bit dodgy …

    Reply
    Please complete the required fields.



  • rental increases in central london were staple of first half of 2007. now game is over and landlords are begging tenants not to move out, offering discounts. if not, just move and you find plenty of desperate landlords with flats empty for three months or more who will change the carpet, the dishwasher and the bath tub on demand. situation is quite grim here where i live, the second most expensive borough of the most expensive city in the world. MAU HAAAHH AH HHAHHAHAHAHH

    Reply
    Please complete the required fields.



Add a comment

  • Your email address is required so we can verify that the comment is genuine. It will not be posted anywhere on the site, will be stored confidentially by us and never given out to any third party.
  • Please note that any viewpoints published here as comments are user´s views and not the views of HousePriceCrash.co.uk.
  • Please adhere to the Guidelines

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes:

<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>