FSA Warns of Dangers of BTL

socrates

IveSeenTheLight wrote: »

Not in my VI area.
Rentals prices are up.

As for yield, if the house value decreases and rental prices remain the same or increase, then the yield goes up

Rental Yield = (monthly rental x 12) / Value x 100%

e.g. (800 x 12) / £160k x 100% = 6% Rental Yield
if the price goes down £10k then
(800 x 12) / £150k x 100% = 6.4% Rental Yield

I thought rental yield was based on your outgoings for a particular year compared to your income. Or if you own the property outright how much it cost you to buy compared to income

If the price goes up or down it is not relevant

I do not see how the value going up or down relates

Wookster

IveSeenTheLight wrote: »

Not in my VI area.
Rentals prices are up.

As for yield, if the house value decreases and rental prices remain the same or increase, then the yield goes up

Rental Yield = (monthly rental x 12) / Value x 100%

e.g. (800 x 12) / £160k x 100% = 6% Rental Yield
if the price goes down £10k then
(800 x 12) / £150k x 100% = 6.4% Rental Yield

I'm afraid I think your calculation is absolutely spurious.

You should be calculating your return on the value you paid for the property rather than the property's market value.

socrates

Wookster wrote: »

I'm afraid I think your calculation is absolutely spurious.

You should be calculating your return on the value you paid for the property rather than the property's market value.

I think I may have understood his point.

If you buy a new property that previously cost more and now the same property is priced lower and the rents have remained the same THEN the yield goes up.

However that is not true either - as price of BTL mortgages has gone up.

Unless I can see any opportunities that are giving a near 10% yield on BTL - then I would not touch a thing - especially as IR will be higher for a lot longer than they are lower.

dunstonh

Mortaged buy to lets have always been classed as a high risk transaction. Its just that a lot of newbie landlords werent aware of the risks they were taking.

chucky

it depends how you calculate your yield.

you can calculate it from:

price paid for property vs income
outstanding loan vs rental income
estimated property value vs rental income

all 3 are useful and different ways to calculate yield and are important to see what your yield actually is.

socrates

dunstonh wrote: »

Mortaged buy to lets have always been classed as a high risk transaction. Its just that a lot of newbie landlords werent aware of the risks they were taking.

They were classed as high risk transactions at the wrong times in my opinion - I had a property in the 90's that produced £11k income and was priced at £58k - the bank said that it was not commercially viable and they would only lend against 30k of it. It was 50/50 residential - commercial

I asked them to find me a medium to high risk investment that would pay 10% or so at minimum and 20% at the other end. With an asset in place. Obviously they could not

By the time the lenders caught on this - the prices had gone up the yields gone down - and then they started lending like mad to all and sundry.

If they had all stuck to the 20-25% deposit on any lending criteria everything would be fine (and if the country had stayed out of a few wars in the meantime)

socrates

chucky wrote: »

it depends how you calculate your yield.

you can calculate it from:

price paid for property vs income
outstanding loan vs rental income
estimated property value vs rental income

all 3 are useful and different ways to calculate yield and are important to see what your yield actually is.

I agree with the first two - are you basing the 3rd one on a prospective purchase or existing?

chucky

socrates wrote: »

I agree with the first two - are you basing the 3rd one on a prospective purchase or existing?

existing - the last one is more to see what position that you are in rather than an actual figure.
an estimated value will always be an estimated value and you have to very careful with this.

it allows you to see if values have gone up and obviously yield will have gone down if that's the case. if this is the case it may be time to sell up and look at properties with a better yield.

dunstonh

They were classed as high risk transactions at the wrong times in my opinion

They are always high risk. Like any high risk investment (in any asset class or type) there are often better and worse times to invest.

However, the risk shouldnt reflect potential but reflect what can happen if it goes wrong and the impact on you. Risk is not so much looking at the upside but the downside and assuming the worst.

socrates

dunstonh wrote: »

They are always high risk. Like any high risk investment (in any asset class or type) there are often better and worse times to invest.

However, the risk shouldnt reflect potential but reflect what can happen if it goes wrong and the impact on you. Risk is not so much looking at the upside but the downside and assuming the worst.

As I said even if the commercial part was empty the residential would always be occupied (and incidentally has been for the last 15 years) and has always produced a minimum 10% yield.

But I accept your point of worst case scenario.