Buy to Let - BBC say "Boomed"

[DimPrawn]

http://news.bbc.co.uk/1/hi/business/6988664.stm

The buy-to-let property market is still booming, despite higher interest rates, according to the Royal Institution of Chartered Surveyors (RICS).
Demand for rented property is rising as high property prices are forcing potential home buyers to remain in rented accommodation, the group said.

The result is that rents are rising at their fastest rate on record.

Meanwhile, buy-to-let mortgages have surged over the past three years as investors make the most of rent rises.

"Current economic uncertainty has created an ideal platform for buy-to-let investors to cash in on rising rental levels," said RICS spokesperson Jeremy Leaf.


Don't tell me bag-o-pus, the crash is next week.

Advice - Buy now whilst you still can. Become a property millionaire next year.

[Ruprect]

They also say this:

http://news.bbc.co.uk/1/hi/business/6987909.stm

[DimPrawn]

Lets take this to a logical conclusion.

Rents are soaring due to house prices rising.

The landlords have a captive market. The tenants cannot afford to buy and they can't live on the streets, so they pay the inflated rents.

The rise in rents makes BTL look realistic again and millions more pile into the BTL miracle. Prices go skyward 10x wage inflation every year.

The rents look cheap in comparison, and the returns fall again, so the army of landlords hike the rents again.

Repeat until the landlords are all millionaires and the renters are all bankrupt.

As long as you are a landlord and not a renter, you are laughing.

[Ruprect]

I can see why you're not Chancellor of the Exchequer.

[DimPrawn]

That's what is happening now.

Everyone said "prices must fall as renting is sooooo much cheaper than buying".

All that has happened is now rents are going through the roof and house prices are rising rapidly again.

This will continue until I have £10M in the bank and everyone else is living rough in the streets.

Let the good times roll!

[Bagpuss]

No there can never be a crash, the fundamentals of economic theory have changed, there are now no ecomomic cycles, interest rates are fixed and the banks have a limitless capability to swallow bad debt. It will go on forever.
Remember Buy high sell low.


TimesMay 27, 2007

Buy-to-let: do the sums add up?
Banks are raising the threshold for would-be landlords, in effect pricing them out of the market

LENDERS are closing the door on new buy-to-let investors amid fears that landlords are struggling to cope with the impact of higher interest rates.

A growing number of lenders, including Mortgage Express, Bradford & Bingley’s buy-to-let arm, as well as Bank of Ireland and Mortgage Works, are restricting their best deals to existing buy-to-let borrowers.

New borrowers must find bigger deposits or go for properties that pay higher rents. With rental yields [income as a proportion of the property’s value] at record lows, this is becoming increasingly difficult, so many new borrowers are in effect being priced out of the market.


Jonathan Moore at Mortgages for Business, a broker, said: “For some people it’s too late to get into buy-to-let, because the sums just won’t add up. If you’re looking to invest for the first time, you’ll have to buy somewhere that will give an above-average rental yield.” Yield ???

Royal Bank of Scotland has also altered its criteria, to weed out borrowers who may struggle with higher rates. The Bank of England has raised interest rates four times since August, from 4.5% to 5.5%, and most economists think there will be another quarter-point hike in the summer, with rates possibly hitting 6% by the end of the year.

RBS will accept just 100% rental cover – your rent has to match your mortgage – but only if the borrower’s household income is above £75,000 a year. Ray Boulger at John Charcol, a broker, said: “It clearly believes that those on higher salaries will have more money to spare and will therefore be in a better position to cover any monthly shortfall if rates go up further.”

Those earning £35,000 to £75,000 will need 110% rental cover, while for anyone on less than £35,000, the rental income will need to equal at least 125% of the mortgage payments.

The moves come as the Financial Services Authority (FSA), the City watchdog, has expressed growing concern about the buy-to-let market. It is monitoring a rising trend in buy-to-let repossessions. In February 2006, 8% of properties sold at auction had been repossessed. By December last year, the figure had risen to 25%, and 80% of those properties were situated in postcodes dominated by buy-to-let, with many being new-build flats. The new-build market has been popular with investors, many of whom bought off-plan – before the property was built – in the hope that the value would rise considerably. However, excess supply in some areas has meant many landlords have had to accept lower rents and have even suffered price falls.
Prices of new-build flats have fallen 4.4% over the past year, according to Paragon Mortgages, a specialist lender, while the market as a whole is up 10.9%.

Damian Qualter, 41, owns 25 buy-to-let properties. One has been hit by falling prices and he has monthly shortfalls, where the rental income doesn’t cover the mortgage, on two others.
Qualter, from Didsbury, south Manchester, said: “I wouldn’t buy in Leeds at the moment. I bought a flat there four years ago, which I have recently had valued and it is worth less than I paid for it.

“I also own two apartments in Stratford, east London, which are losing me £150 a month. But my two bungalows in Colne, Lan-cashire, have very good rental yields and I have surplus income each month, which easily covers the Stratford shortfall.

“My advice to anyone looking to go into buy-to-let is to make sure that for the first property, your rental income comfortably exceeds the mortgage payments. Once your portfolio gets bigger, you can afford to take a shortfall on some properties.”

Mortgage Express normally requires rental income to be at least 125% of the monthly mortgage payment and the maximum people can borrow is 85% of the property’s value.

However, last week it launched a deal where borrowers with a deposit of 15% or more needed rental cover of only 110% – but only those who have had a buy-to-let mortgage for a year or more are eligible.

An established landlord borrowing £85,000 to buy a £100,000 property would have monthly interest payments of £425 at a rate of 6%, so they would need a rental income of £467.50. However, a new landlord would need £531 to meet the rental-cover requirements. But with yields averaging 6.1%, according to Paragon, the expected monthly rent would be £432 – £99 less than is needed.

Gus Park at Mortgage Express said: “We are simply taking the view that people who have done buy-to-let before are more likely to understand the costs and risks involved. We believe anyone investing for the first time should really have a bigger safety net.” Mortgage payments are about 20% higher than they were this time last year, as a result of four interest-rate rises, but rents have only gone up by about 5%, according to Paragon. This is putting landlords under pressure. If their rent no longer covers their mortgage they will either have to cover the shortfall with savings, or use surplus income from other rental properties.

Melanie Bien at Savills Private Finance, a broker, said: “Some clients are happy to subsidise the monthly costs because they are investing for long-term capital growth rather than income. The danger is people who have overstretched themselves and don’t have much savings, because they may find they’re unable to keep up their mortgage payments.”

However, buy-to-let bulls point out that only 0.59% of buy-to-let mortgages were three months or more in arrears in the second half of 2006, compared with 0.89% of the wider market, according to figures from the Council of Mortgage Lenders.


Have your say

Mark,
Please, please... if John Meadows' landlord had bought with his own money...
Had he put that capital into a saving account he would be making £4000 per month. John is paying only £2k.
As for the capital appreciation, I doubt his house price is growing at £2k per month (i.e. the difference)

Michele, Richmond,

RICS says 5% BTL properties are on the market. That does not mean that 1 in 20 landlords is selling.
Landlords own on average 4 properties each, so it is 1 in 5 FIVE (= 20 / 4) landlords who are selling one of their properties.
if that is not the beginning of a stampede!

Michele, Richmond,

John Meadows: your web search doesn't say whether your landlord used borrowed money or his own, or a mix of the two. If he bought it 'cash' and has no mortgage on it, he's making £2k per month, PLUS any capital growth. Not bad I think you'll agree.

Mark, London, England

Although street sleeping isnt a huge problem at the moment, it isnt the only form of homelessness.
How many people in their late 20's or early 30's still live at home with parents?
They're all waiting for any blip and then they'll prop up the market.

Dominic, Tameside, UK

Since returning from Australia in 2001 I have been constantly told I was an idiot not to be investing in property, I preferred stock picking and buying into the gold market... People laughed at me as if I was a freak because I couldn't see the supply and demand metrics of the housing market and the win win situation of the insatiable demand for housing because of 'the shortage' of property.

To those that have taunted me during this time a single question; Is there a large number of Joe Public sleeping in the street because they have nowhere to live?... No of course not, there is no 'huge' property shortage. Put simply the ownership of a large chunk of the UK property bank has shifted from private individuals/councils to private landlords who rent them out. The landlords are the self fulfilling demand that has kept prices high, the yield on rental property is now horrendous when compared to the value of the property itself, the great buy to let swindle is over!

Chris K, Lingfield, Surrey

I am renting a 4 bed detached house. I looked at nethouseprices.com what the owner paid for this house. The interest only on the cost of capital cost him £4000 a month, my rent is only £2000 a month. That is a big subsidy every month for a bet that house prices will continue to go up. I am happy to rent and invest my money elsewhere which is a lot less risky. Let see if after 5 years of subsidy the BTL owner will still hold on to his property in the hope of capital gains.
John Meadows, Lewes, UK


Inexperienced buyers were offered mortgages and "guaranteed yields" for one or two years but these were just expensive cashbacks all dressed up. Sale prices and rentals have now dropped through the floor because many of the flats have no parking facilities and or way too small.
Thus they are increasingly being let by pressed landlords to Social Housing tenants (many of whom are economic migrants) with some entirely predictable and quite depressing results.
See: Extraordinary Popular Delusions & the Madness of Crowds, especially the chapters on economic bubbles. (First published 1841)

Brian Hobbs, Kingston, UK

Are people actually buying properties where the rent only covers the mortgage payments? What about maintenance (5-10%%?), 'ullage' periods when they have no tenants (10%?), the cost of an agent for marketing and perhaps looking after it (10-15%), solicitor's and accountant's charges?

I commend their willingness to subsidise their tenants.

Russell Gilbert, Islington, UK




The future will prove these people Economic masterminds

[sasguru]

Why do you care, Puss. It's all theoretical to you anyway ...

[shaunbhoy]

The future will prove these people Economic masterminds

Never mind that Baggy, has your mum put up the rent she charges you for living at home with her?

[VectraMan]

Seems to me there's two completely seperate positions on BTL. 1. You have the cash, is BTL a good way of investing that cash? And the answer is maybe. And 2. You don't have the cash, but think it's worth taking out a mortgage for a BTL which will be covered by the rent. And the answer is: you're a muppet.

[scooterscot]

http://news.bbc.co.uk/1/hi/business/6988664.stm


Advice - Buy now whilst you still can. Become a property millionaire next year.

Let me get this straight... people could not afford to buy so they rent...

Now people cannot afford to rent so they...? Ah leave the country.

Who would want to stay on such an expensive little island.