Tuesday, June 24, 2008

Erm… WTF?

Buy-to-let continues to boom

Demand for rented accommodation boomed in May, according to new data from estate agent Your Move. The UK lettings agent found that lease commencements were up 41 per cent in May 2008 from May 2007. Managing director of Your Move estate agents, David Newnes, said “Buy-to-let will grow this year. Opportunities to invest are ripe for professional landlords able to secure financing. “With rising tenant demand comes rising rents, buy-to-let yields will consequently improve. House prices are under pressure at the moment, and there’s scope for buy-to-let investors with collateral to get good deals to expand their portfolios.”

Posted by little professor @ 12:27 PM (4022 views)
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23 thoughts on “Erm… WTF?

  • Just propoganda.. unless the expected redundant 440,000 “City Workers” are all going to become Rigsby’s. The last gasp of a dying Swan.

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  • We have to concede that we are yet to see widespread attrition in the BTL sector. Certainly the CGT change which many thought might spark a crash for BTL had little impact. Personally I think much of the pain will unravel over the coming 3 years as the amateru landlords’ fixed rates come to an end and they are unable to refinance.

    Having said that I think most of the forced BTL sales will just be bought up by bigger landlords with more cash/equity/credit available, at least in the medium term.

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  • Amusing to see the phrase ‘professional landlord’ used yet again – trying to imply that the big boys are still playing, so the little guys needn’t worry; or worse, step up to the mark and play at the big boys table.

    Good advice: Anyone playing at ‘landlording’ on borrowed cash should get out now or face ruin.

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  • The big worry for the regulars on this blog is whether inflation will take off big time. If it does, a house has always been a good hedge against inflation for the average person, so BTL will continue to the best investment.
    If this boom-bust cycle turns out to be a repeat of the 1970’s we will all have egg on our faces and we will have to start a site called generaleconomycrash.co.uk
    Obviously the unions are not as strong as they once were, and public services are often privatised. I think there is a good chance that the contractors will give in to staff wage demands, and push the cost on to the public sector (or shed staff). This will lead to the traditional wage-price spiral.

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  • Charlie Brroker says:

    In the short tern this is undeniably good news for BTLers.Beyond that its disasterous.

    Any savvy first time buyer will know by now that they should wait for the crash before buying. That means renting in the interim. Once house prices have crashed, FTB’s move out of their rented hovels into newly affordable homes of their own.

    The exodus out of renting causes a secondary collapse wiping those smug smiles off BTLers faces.

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  • Cyril,

    High inflation is a nuisance, but we lived with it quite well in the past; it’s status as one of the great economic evils has been a little over-stated.

    However, it does result in higher interest rates; and while the corresponding wage inflation results in the burden lightening more rapidly as time goes on, it can make for a tough first year or two for FTB’s.

    Of course, that assumes they havn’t over-borrowed, and that’s where the problem now lies. There is no quick fix for those who have got themselves into mega debt, and the consequences of renewed high inflation would include unprecented levels of insolvency.

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  • mark wadsworth says:

    I think that this is mainly relates to people who would like to sell/move but refuse to cut asking prices so they rent out old home instead. Obviously, they can’t find anything worth buying wherevevr it is that they want to move to (in terms of size or location) so they become tenants instead.

    Is there an official abbreviation for this yet? “Let-to-rent” perhaps?

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  • Professional landlord or not, house price falls affect everyone. On the same day that we have a record low in mortgage lending, anyone who thinks now is a good time to buy property is an idiot. This correction has barely started.

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  • Hopefully this will just suck in a few more or replace those that have decided to cut and run…….hmmm could that be the reason? If it does this will only prolong the pain for the BTLs.

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  • In my market many of the houses for sale are BTLs, but the landlords are still looking for 4-5% yields, so capital values have to drop an appreciable amount before the buisiness starts to stack up.

    Some of these are BTLs serving the student market, where rentals are not increasing.

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  • “Any savvy first time buyer will know by now that they should wait for the crash before buying. That means renting in the interim. Once house prices have crashed, FTB’s move out of their rented hovels into newly affordable homes of their own. ”

    Charlie, that’s the first sensible thing I’ve read on here about BTL. It makes a nice change from the usual “BTL’ers are all going to go bankrupt tomorrow” nonsense.

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  • new user 2007 says:

    I would not dispute that with fewer people buying they must be renting. What I dispute is how great that is for BTL, as

    1) E Europeans are going back
    2) the 1mn BTL properties bought since 2005 (there are around 1mn BTL mortgages and 2mn BTL properties) is far above the increase in rental demand, so demand is still playing catch up with supply
    3) mortgage rates have risen by more
    4) barely covering the mortgage (best case BTL scenario) means nothing if one is losing £1,000s per month on the capital side.

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  • Agree new user 07 – it’s a tangled web but I can’t get my head around how things are going to unfold for the rental sector in general or BTL in particular. Clearly landlords with <15% equity and nothing to fall back on are going to get decimated, but then what happens?

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  • new user 2007 says:

    Pelethar…

    I am seeing a lot of properties coming onto the market that have no onward chain. Unless this is BTL, I feel sorry for the families that obviously have emtpied the house and are now then living in a park:)

    As for seasoned landlords? Who are they? This is a 10 year old business yet to face a downturn. The markets have decided BTL lenders are too risky for a reason!

    And who are the big guys? They reached that by having lots of leverage*. Yes, the ones who got in before 2003 are at the top of the pyramid scheme and did well, and will probably be ok now…

    BUT most entered well after that. It only takes 10% of participants in any market to trigger falls, and this new group is a much larger proportion.

    * Tey built their “big” portfolios with debt based on the rise in the last property. So when they come to remortgage they will need more equity than they did before…most ventures go wrong because of cashflow.

    Lets see what happens when the economy actually turns and the leverage works against them…the “big” guys have £1mn portfolios with 25% equity (if lucky). So prices fall by 10% i.e. 100k of 250k (40% capital loss!)

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  • new user 2007 says:

    Then real (rather than asking) prices fall by more and more:)

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  • new user 2007 says:

    Cyril…

    In which case, interest rates will rise and BTL will continue to subsidise my rent by even more (they can’t raise rents if Eastern Europeans are leaving and people are losing their jobs). All while they are making capital losses:)

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  • No chain? Yep, that’s on the description of my home up for sale – priced a good 25% lower than anything else in the EA’s window, but still no viewings!
    It’s no chain, simply because (and how many others are?) I’m getting my educated, over-taxed, under-appreciated ass off of this septic isle of surveillance. My job’s gone to Singapore and the USA (chemical industry), so I’m off to pursue it.

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  • wealthyvagrant says:

    Haha an amusing thread, some hidden BTLers I think 🙂

    Most BTLers can only survive if they pay less in interest than what they get in rent. For many that entered the game late this will be very difficult when they come to renew their mortgage and find the interest rate is twice or more what they had previously. At this point they can put up rent to try and cover it, but people are so thinnly stretched at the moment, they are likely to lose their tenant and for many missing out on rent for even one month would spell real trouble.
    A BTLer would argue that people have to live somewhere, which is true but there will be others landlords without such tight finances who can afford to put up the rent by a small amount to attract tentant quickly. Also people have come to the UK because there’s been jobs here for the last decade, expect the flow of people to reverse as the jobs dry up and cost of living becomes unbearable for many.

    It’s true that wage inflation erodes the expense of a mortgage, but that’s only benefical when wages are going up, quicker than houses is going down and that’s nowhere near happening yet. At that point yes it’s a great time to buy a house but there’s a long way to go until we get to there.

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  • The day the people of this country stop becoming money grabbing lowlife and start building community and respect for each other is the day I will feel proud to be English and happy to live in this country. Until then – I want to live in Canada

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  • Eh? Who do you think is a secret BTLer on this thread then?

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  • I question the data. A 41% increase in just one year? That sounds fishy to me! It could just be that YourMove have been growing fast, opening lots of new offices and securing new instructions. Or it could be that amateur landlords are struggling to find tenants directly (e.g. the traditional way through small ads) so they are having to go via letting agents instead. This isn’t an independent market survey, there are far too many complicating factors.

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  • Independent market survey you say…. interesting idea. Does such a thing exist?

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  • Letsgetreadytotumble says:

    “Mortgage finance is hard to come by these days, the rental market is definitely picking up the slack.”
    So where were these people living before. Just cuz they can’t afford/ get a mortgage don’t mean they are desperate to rent.
    I’ve been following Rightmove cuz I have to move soon. There are a lot of houses for my area (Cornwall) and the turnover is slooooooow.
    The rents asked seem to be going up, but there is no reason for this. Guess it means the stock will remain empty longer.

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