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How buy-to-let turned into a mug’s game
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brit1234
Posts: 5,385 Forumite
How buy-to-let turned into a mug’s game
By Jonathan Guthrie
Published: October 15 2008 19:15 | Last updated: October 15 2008 19:15
The financial crisis has killed off punterism – grassroots financial opportunism – in the UK as surely as leveraged investment banking. Its most recent incarnation was in a bovine stampede into buy-to-let property. Tens of thousands of landlords are now stumbling over a financial cliff. :rotfl:
An effigy of a buy-to-let investor (circa 2007) will soon appear in the Wax Museum of Popular Capitalism alongside such other historical mugs as the share-dealing ’80s cabbie and the dotbomb day trader of the 1990s.
Punterism is not in itself a bad thing. An alternative business dictionary might define it by its justifying clich!: “If you don’t do yourself a bit of good, no one else will.” At its best, punterism inspires shrewd individuals to tuck into free lunches that others disdain. Some pioneers become multi-millionaires. That triggers the related phenomenon of mug punterism, in which rash wannabes rush in after the original window of opportunity has closed. They come spectacularly unstuck pour encourager les autres.
Andreas Panayiotou, a prominent property entrepreneur, helpfully predicted the death of the buy-to-let boom to FT readers last August. That was 13 months before the withdrawal of dominant lender Bradford & Bingley last month. The numbers no longer made sense, Mr Panayiotou said back then. Residential property prices would fall 20 per cent.
They probably have. The widely quoted figure of a 12.4 per cent decline over 12 months is based on thin volumes and may conceal a bigger drop. Mr Panayiotou, who started out as a developer in Hackney in 1996, told me recently that he had sold most of his once vast residential property portfolio, realising around £750m. Two other well-known buy-to-let investors, former maths teachers Judith and Fergus Wilson, have announced that they will sell off 900 properties.
Canny operators first came into the buy-to-let market in response to an improvement in landlords’ rights in 1996. Then, rental yields were above 10 per cent, interest charges were around 7 per cent and the property bubble was still inflating. Buy-to-let, in the words of bloke rockers Dire Straits, was “money for nothing and your chicks for free”. But by 2007 it was becoming a mug’s game. Rental yields had fallen to 3 per cent, below the typical two-year fixed mortgage rate of 4.5 per cent, and prices were starting to peak.
Now the capital gains that lured latecomers have evaporated, swallowing their deposits and leaving some with negative equity. :rotfl:They are coming off fixed rates on to variable charges of around 6.5 per cent at a time when their incomes are threatened by recession. Their nest egg investments have hatched into cuckoos. There is little respite for them in the government’s requirement for banks it has part-nationalised to resume mortgage lending at 2007 levels. The focus here will be on owner occupiers.
Patricia, a single mother I encountered recently, is typical of buy-to-let casualties. Her mortgage costs on five buy-to-let apartments will shortly jump by £1,000 a month. Her rents do not even cover current interest and the capital value of the flats has fallen 20 per cent. “I’ve just lost my job and I’m temping, so my income is reduced,” she said. “I don’t know what to do. It’s horrendous.” She is likely to lose all her properties, including her home, and crystallise an unpayable £60,000 debt.:eek:
Mr Panayiotou expects lenders to start pursuing struggling buy-to-let landlords more aggressively over the next few months, as their own credit crisis starts to abate. :rotfl:Statistics from the Council of Mortgage Lenders show that lenders doled out 300,000 buy-to-let mortgages in 2006 and 2007. My authoritative guesstimate is that tens of thousands of the UK’s half a million buy-to-let landlords will face financial difficulties. It will take more than last week’s half-point base rate cut to bail them out.
Rearguard defenders of buy-to-let who point to healthy demand for rental property are whistling in the dark. The income of many tenants will shrink as the recession bites. The Hotel de Mum and Dad will become a thrifty alternative to a rented pad. Vacant city centre flats targeted at young professionals will rebrand as “affordable” housing. They will yield a fraction of original target rents when occupied by welfare claimants. Some will slump into slumhood.:rotfl:
I am myself a buy-to-let investor, sitting halfway along the curve between pioneer and mug. My wife and I now spend our evenings playing the new parlour game of Assessing Our Downside Liabilities. It is so much more zeitgeisty than Canasta.
We have yet to succumb to reverse punterism – a scramble among private investors to lay off risk that is as frantic as the previous rush to take it on. The worst worrywarts have been panic-buying krugerrands. From there, it is but a short step to oiling the hammers of Grandad’s shotgun in preparation for the collapse of civil society.
Will “BTL” signify no more in years to come than a muddled acronym for a popular sandwich filling? Not a bit of it. Ajay Ahuja, a pioneering buy-to-let investor, told me he plans to buy hundreds of cheap properties when prices stabilise. :mad: Other bargain hunters will follow his lead. Like John Barleycorn in the old harvest song, punterism always rises again. But given the scale of economic shocks, the fallow period could be protracted this time.
[EMAIL="jonathan.guthrie@ft.com"]jonathan.guthrie@ft.com[/EMAIL]
http://www.ft.com/cms/s/0/f6482962-9abb-11dd-a653-000077b07658.html
By Jonathan Guthrie
Published: October 15 2008 19:15 | Last updated: October 15 2008 19:15
The financial crisis has killed off punterism – grassroots financial opportunism – in the UK as surely as leveraged investment banking. Its most recent incarnation was in a bovine stampede into buy-to-let property. Tens of thousands of landlords are now stumbling over a financial cliff. :rotfl:
An effigy of a buy-to-let investor (circa 2007) will soon appear in the Wax Museum of Popular Capitalism alongside such other historical mugs as the share-dealing ’80s cabbie and the dotbomb day trader of the 1990s.
Punterism is not in itself a bad thing. An alternative business dictionary might define it by its justifying clich!: “If you don’t do yourself a bit of good, no one else will.” At its best, punterism inspires shrewd individuals to tuck into free lunches that others disdain. Some pioneers become multi-millionaires. That triggers the related phenomenon of mug punterism, in which rash wannabes rush in after the original window of opportunity has closed. They come spectacularly unstuck pour encourager les autres.
Andreas Panayiotou, a prominent property entrepreneur, helpfully predicted the death of the buy-to-let boom to FT readers last August. That was 13 months before the withdrawal of dominant lender Bradford & Bingley last month. The numbers no longer made sense, Mr Panayiotou said back then. Residential property prices would fall 20 per cent.
They probably have. The widely quoted figure of a 12.4 per cent decline over 12 months is based on thin volumes and may conceal a bigger drop. Mr Panayiotou, who started out as a developer in Hackney in 1996, told me recently that he had sold most of his once vast residential property portfolio, realising around £750m. Two other well-known buy-to-let investors, former maths teachers Judith and Fergus Wilson, have announced that they will sell off 900 properties.
Canny operators first came into the buy-to-let market in response to an improvement in landlords’ rights in 1996. Then, rental yields were above 10 per cent, interest charges were around 7 per cent and the property bubble was still inflating. Buy-to-let, in the words of bloke rockers Dire Straits, was “money for nothing and your chicks for free”. But by 2007 it was becoming a mug’s game. Rental yields had fallen to 3 per cent, below the typical two-year fixed mortgage rate of 4.5 per cent, and prices were starting to peak.
Now the capital gains that lured latecomers have evaporated, swallowing their deposits and leaving some with negative equity. :rotfl:They are coming off fixed rates on to variable charges of around 6.5 per cent at a time when their incomes are threatened by recession. Their nest egg investments have hatched into cuckoos. There is little respite for them in the government’s requirement for banks it has part-nationalised to resume mortgage lending at 2007 levels. The focus here will be on owner occupiers.
Patricia, a single mother I encountered recently, is typical of buy-to-let casualties. Her mortgage costs on five buy-to-let apartments will shortly jump by £1,000 a month. Her rents do not even cover current interest and the capital value of the flats has fallen 20 per cent. “I’ve just lost my job and I’m temping, so my income is reduced,” she said. “I don’t know what to do. It’s horrendous.” She is likely to lose all her properties, including her home, and crystallise an unpayable £60,000 debt.:eek:
Mr Panayiotou expects lenders to start pursuing struggling buy-to-let landlords more aggressively over the next few months, as their own credit crisis starts to abate. :rotfl:Statistics from the Council of Mortgage Lenders show that lenders doled out 300,000 buy-to-let mortgages in 2006 and 2007. My authoritative guesstimate is that tens of thousands of the UK’s half a million buy-to-let landlords will face financial difficulties. It will take more than last week’s half-point base rate cut to bail them out.
Rearguard defenders of buy-to-let who point to healthy demand for rental property are whistling in the dark. The income of many tenants will shrink as the recession bites. The Hotel de Mum and Dad will become a thrifty alternative to a rented pad. Vacant city centre flats targeted at young professionals will rebrand as “affordable” housing. They will yield a fraction of original target rents when occupied by welfare claimants. Some will slump into slumhood.:rotfl:
I am myself a buy-to-let investor, sitting halfway along the curve between pioneer and mug. My wife and I now spend our evenings playing the new parlour game of Assessing Our Downside Liabilities. It is so much more zeitgeisty than Canasta.
We have yet to succumb to reverse punterism – a scramble among private investors to lay off risk that is as frantic as the previous rush to take it on. The worst worrywarts have been panic-buying krugerrands. From there, it is but a short step to oiling the hammers of Grandad’s shotgun in preparation for the collapse of civil society.
Will “BTL” signify no more in years to come than a muddled acronym for a popular sandwich filling? Not a bit of it. Ajay Ahuja, a pioneering buy-to-let investor, told me he plans to buy hundreds of cheap properties when prices stabilise. :mad: Other bargain hunters will follow his lead. Like John Barleycorn in the old harvest song, punterism always rises again. But given the scale of economic shocks, the fallow period could be protracted this time.
[EMAIL="jonathan.guthrie@ft.com"]jonathan.guthrie@ft.com[/EMAIL]
http://www.ft.com/cms/s/0/f6482962-9abb-11dd-a653-000077b07658.html
Landlord Wall of Shame
Ajay Ahuja - Idiot:mad:
Judith and Fergus Wilson - Almost Bust:rotfl:
Gary McCausland - Gay & female MSE member Icon
Grant Bovey and Anthea Turner BUST:rotfl:
Ajay Ahuja - Idiot:mad:
Judith and Fergus Wilson - Almost Bust:rotfl:
Gary McCausland - Gay & female MSE member Icon
Grant Bovey and Anthea Turner BUST:rotfl:
:exclamatiScams - Shared Equity, Shared Ownership, Newbuy, Firstbuy and Help to Buy.
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Comments
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Some good stuff in that article. I personally know another journo who MEW'ed for a BTL in 2006, in the area I want to buy in. Ha-ha.
This will sink in soon for the BTL hordes (strange to see it in a newspaper article for the first time). It will become a reality for the landlords counting on a set rent and it not falling. People will find alternative accommodation when unemployment and pay-cuts bit... which they increasingly are doing.Rearguard defenders of buy-to-let who point to healthy demand for rental property are whistling in the dark. The income of many tenants will shrink as the recession bites. The Hotel de Mum and Dad will become a thrifty alternative to a rented pad.
Cram in with friends to share costs, lodgers, caravans, back to parents, turn to DSS (who will also have less money to meet high rents/accommodation costs).
And before I get attacked for wishing ill on landlords.... if BTL-ers are such good business people as they often claim, then they won't be affected as they will have made provisions for economic downturns and falling property values in any business plan. If not... then only blame yourselves.0 -
How buy-to-let turned into a mug’s game
I asked you before but you probably missed my message I would love to take advantage of another mug i.e. the bookmaker who is offering those odds that you have copied onto your signature. Please tell me where these odds are available as they are full of errors, it's obvious the office juniuor has priced this market up and these prices won't be available for long, I need to act fast to get on0 -
And before I get attacked for wishing ill on landlords.... if BTL-ers are such good business people as they often claim, then they won't be affected as they will have made provisions for economic downturns and falling property values in any business plan. If not... then only blame yourselves.
Couldn't agree more0 -
I asked you before but you probably missed my message I would love to take advantage of another mug i.e. the bookmaker who is offering those odds that you have copied onto your signature. Please tell me where these odds are available as they are full of errors, it's obvious the office juniuor has priced this market up and these prices won't be available for long, I need to act fast to get on
Yeah they seem to be made up odds.
The real bets were available at the start of the year.
Due to someone elses nod (in this forum) I got on at Ladbrokes.
5/6 for prices to fall at least 10% during 2008 on the Halifax index (3 month average figures Dec07 vs Dec 08)
:T0 -
JonnyBravo wrote: »Yeah they seem to be made up odds.
The real bets were available at the start of the year.
Due to someone elses nod (in this forum) I got on at Ladbrokes.
5/6 for prices to fall at least 10% during 2008 on the Halifax index (3 month average figures Dec07 vs Dec 08)
:T
You can get combined odds of almost 6/4 for up to and incl 50%. That 6/4 is great value but the real schoolboy error is that if the actual drop happens to land on 30% or 40% you get paid on 2 bets not just one!
Also the prices are betting to no profit margin! It is a flat book!0 -
JonnyBravo wrote: »Couldn't agree more
me too, and I am a landlord. A clean out of amateurs can only be good for the market and those left in it (incl tenants)
0 -
JonnyBravo wrote: »Yeah they seem to be made up odds.
The real bets were available at the start of the year.
Due to someone elses nod (in this forum) I got on at Ladbrokes.
5/6 for prices to fall at least 10% during 2008 on the Halifax index (3 month average figures Dec07 vs Dec 08)
:T
I didn't realize Ladbrokes bet on this, do you have any latest odds from them on the housing market?0 -
I didn't realize Ladbrokes bet on this, do you have any latest odds from them on the housing market?
They closed the book early on in the year. The often have a couple of bets in the "Financials" section on their website.
At the time I bet they were offering 5/6 for at least 10% falls and 8-1 for at least 20% falls in the stated time period and for the stated index. (they also had prices for 0-10% falls and small growth but can't remember them)
Thought the 20% was out of the question in only one year esp with the 3 month averaging.... actually looks like it'll be close but won't make it.... going to be closer than I thought though.
Just looked thru my posts and found I actually put this on in April!!! Quite late really looking back.
Ah the benefit of hindsight.
Just seen it was kennyboy66 who tipped it.... he still posts round here I think. Cheers kennyboy660 -
JonnyBravo wrote: »They closed the book early on in the year. The often have a couple of bets in the "Financials" section on their website.
At the time I bet they were offering 5/6 for at least 10% falls and 8-1 for at least 20% falls in the stated time period and for the stated index. (they also had prices for 0-10% falls and small growth but can't remember them)
Thought the 20% was out of the question in only one year esp with the 3 month averaging.... actually looks like it'll be close but won't make it.... going to be closer than I thought though.
Just looked thru my posts and found I actually put this on in April!!! Quite late really looking back.
Ah the benefit of hindsight.
Just seen it was kennyboy66 who tipped it.... he still posts round here I think. Cheers kennyboy66
so when is the end date Dec 31st or was it for the financial year (ie April 6th if that is the end of the tax year). That was a good price well done to you for taking it and Kennyboy for flagging it up0 -
Also the prices are betting to no profit margin! It is a flat book!
What does "flat book" mean?...much enquiry having been made concerning a gentleman, who had quitted a company where Johnson was, and no information being obtained; at last Johnson observed, that 'he did not care to speak ill of any man behind his back, but he believed the gentleman was an attorney'.0
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