BTL dreams go up in smoke

stephen163

IveSeenTheLight wrote: »

Therefore the rental yield becomes

6.4% = £800 x 12 / £150,000 x 100%

As the assett value decreases from £200k to £150k, the rental yield in this scenario increases from 4.8% to 6.4%

In this scenario, it would be better to hold on to the property rather than sell and have to make up the loss of £50k

Normally though, you will find that there are bigger deposits on BTL and the negative equity you are relating too will be the exception, not the norm

I don't understand this. From an investment perspective, if the house drops by £50k and a BTLer sells, won't they lose £50k regardless of the size of their initial deposit?

What am I missing here?

Would it not be the case that factoring in an increased yield because of reductions in house prices is actually quite meaningless as any BTLer would stand to make a net loss of [purchase price-selling price]. You would only ever want to do this is your were taking a massive hit on a month by month basis.

If you are desparate to ignore the falls in the capital value of your investment, I think a better appraisal of the strength of a current BTL would be to compare the mortgage payments (and other LL expenditure) with the rental income. This may seem rather good at the moment, but think about what happens when interest rates inevitably increase back to long term levels.

StevieJ

I do not have BTL's myself but I find they provide a service to the community in providing accomodation to people who cannot afford or wish to buy.
I wonder what the the monkey Macaque does for a living? as he is very disparaging about a lot of other peoples jobs :cool:

chucky

stevetodd wrote: »

I have just started looking a bit more seriously, I saw (on the net) a 3 bed flat in battersea yesterday for only £245k (above commercial premises but still a nice location and nothing too off putting about the shop it was above). I would have viewed it but it's under offer.

I have quite a bit of cash freeing up from a fixed rate bond in mid March and I am not going to tie it up as I suspect that I may want to buy within 12 months.

i see these properties as prime for lettings.

you don't have the added competion of a lot of people being interested in these properties. on the down side it means that it's slower to move if you ever try to sell it on... but a good rental investment.

Pssst

Quarter of a million pounds for a crummy flat above a shop? that just illustrates all thats wrong with housing in this country.

RomansProperties

stevetodd wrote: »

I have just started looking a bit more seriously, I saw (on the net) a 3 bed flat in battersea yesterday for only £245k (above commercial premises but still a nice location and nothing too off putting about the shop it was above). I would have viewed it but it's under offer.

How much rent would you get for this property?

Thrugelmir

These apparently are the 10 areas forecast to be hardest hit.

1. Cornwall, the Lake District and other holiday destinations
Prediction: Prices to fall another 23 per cent
Nick Leeming of propertyfinder.com, the website, says: "Holiday and second homes in places such as Cornwall, Norfolk and the Isle of Wight will be badly hit. These were often bought by bankers with their bonuses - but in a recession, such discretionary spends are not an option."
2. Northern Ireland
Prediction: Prices to fall another 22 per cent
Martin Ellis, Chief Economist at Halifax, says: “Northern Ireland has seen spectacular increases in house prices, the biggest gains in the UK, since about 2003.
“In 2003 prices increased by 14 per cent; in 2004 it increased by 24 per cent; in 2005 by 14 per cent and in 2006 by 52 per cent. It is no surprise that prices here should now be falling the most.”
3. Central London
Prediction: Prices to fall another 20 per cent
Prime central London locations such as Mayfair, Knightsbridge, St John’s Wood, Hampstead and Kensington are amongst the places with the furthest left to fall in house prices. In the last quarter of 2008 central London prices fell by around 8 per cent, according to Jones Lang Lasalle, who predict a further 16 to 20 per cent fall in these areas in 2009.
James Thomas at Jones Lang Lasalle, a real estate firm, says: “With many wealthy UK and overseas individuals significantly impacted by the global credit and economic crisis and the marked fall in asset prices, potential demand is even thinner than usual.”

4. Buy-to-let areas such as the Docklands, east London
Prediction: Prices to fall another 18 per cent
Landlords have been amongst the hardest hit by the credit crunch. A total of 4,000 buy-to-let homes were repossessed last year, compared to 2,000 the year before, according to the Council of Mortgage Lenders.
The Docklands in east London and city centres such as Manchester, Leeds and Cardiff – where landlords have purchased the most properties – may see increasing numbers of distressed sales.
5. Manchester, Newcastle and other city centres with over-supply of new build flats
Prediction: Prices to fall another 19 per cent
The glut of two-bedroom new-built apartments has been disastrous for some towns as supply has massively outstripped demand. Many housing developments have ground to a halt. Manchester, Leeds, Newcastle, Norwich, Ipswitch, Bristol and Cardiff have all seen large amounts of new-builds, with developers now desperate to shift their stock.
6. Greater London
Prediction: Prices to fall another 17 per cent
London boroughs such as Wandsworth, Hammersmith and Fulham – home to financial services employees – are set to face further falls as the recession and banking crisis deepens.

Mr Thomas says: “Greater London witnessed among the highest price falls in the UK during the last quarter of 2008 – 6 per cent compared to the national average of 5.1 per cent.
“Greater London house prices will fall a little faster during 2009 than elsewhere in the UK, with prices declining in the region of 15-17 per cent compared to an average UK fall of 13-15 per cent.”
7. Alderley Edge and other WAG haunts
Prediction: Prices to fall another 16 per cent
Mr. Pryor says: “Places such as Alderley Edge in Cheshire and Sandbanks in Poole, once called the fourth most expensive place to live in the world, have seen enormously inflated price increases in recent years because they have become the haunt of premier league footballers and other celebrities. It is only natural that they should see marked price falls as the market adjusts.”
8. North-east, south-Wales and other areas with high unemployment
Prediction: Prices to fall another 16 per cent
Mr. Pryor says: “Car manufacturing towns and other places particularly hit by the recession and rising levels of unemployment will not see house prices recover soon.”
Around 3.4 per cent of the working population claim jobseeker’s allowance, according to the Office of National Statistics, but this figure is much higher in certain parts of the UK.
Middlesborough and South Tyneside (6.4 per cent), Blaenau Gwent in south Wales (7.3 per cent) and Liverpool and Birmingham (6.6 per cent) all have higher than average unemployment levels.
9. Areas around Gatwick and Heathrow
Prediction: Prices to fall another 14 per cent
Mr. Pryor says: “The ongoing uncertainty surrounding expansion and runway plans at these airports will have an affect of surrounding house prices. It is the threat of the unknown that worries buyers.”
10. East London
Prediction: Prices to fall another 13 per cent
Whilst the 2012 Olympics is providing Stratford with some much-needed regeneration, experts say that the creation of the new Olympic Park will have a detrimental affect on house prices in the Stratford area over the next few years whilst the building work is completed.

On the back of Romans post regarding LHA's. I looked up my local area. For a 2 bed house the average gross rental yield is only around 6% to 7%.

Plenty of property to buy and rent which suggests lack of confidence and demand due to uncertainty of both employment prospects and house prices.
Without doubt on a local level there is a squeeze on pay rates. Which currently suggests further downward pressure on property prices yet.

Pobby

One thing I am noticing is the amount of " To let " signs outside new build properties. There are some houses that were recently on the market for a quarter of a million. I notice a number of letting signs up right now. Not sure I would want to be in the shoes of the person who bought.

Also an example. Mate of mine, normally quite sensible, has bought in Dublin, mortgage @ 1,700 euro per month. Rent achieved, 1,000 euro. he seems to be quite happy subsidising his tenant by 700 euro a month. He tells me he is in it for the long term.

IveSeenTheLight

stephen163 wrote: »

I don't understand this. From an investment perspective, if the house drops by £50k and a BTLer sells, won't they lose £50k regardless of the size of their initial deposit?

What am I missing here?

If a property was bought for £50k and increased to £200k and is now at £150k, then they have not lost the £50k.
Sure, they could have made more is sold atthe peak but they have not lost that £50k

stephen163 wrote: »

Would it not be the case that factoring in an increased yield because of reductions in house prices is actually quite meaningless as any BTLer would stand to make a net loss of [purchase price-selling price]. You would only ever want to do this is your were taking a massive hit on a month by month basis.

I don't think BTLers factor in house price drops.
They generally realise that prices go up and down and they are looking at a rental yield.
Capital appreciation is only realised when you no longer invest in that property.
As long as the capital meets inflation (which houses have shown to do so over the lon term) then it is irrelevant

stephen163 wrote: »

If you are desparate to ignore the falls in the capital value of your investment, I think a better appraisal of the strength of a current BTL would be to compare the mortgage payments (and other LL expenditure) with the rental income. This may seem rather good at the moment, but think about what happens when interest rates inevitably increase back to long term levels.

Its not a case of being deperate to ignore falling house prices.
We all know they will recover and exceed the 2007 point, just nobody knows when.

You are correct in comparing rent to mortgage interest and that is part of what the banks assess on when approving a BTL mortgage.
The lower interest rates are good if you are on a tracker, but again I would think generally, most BTL's will be fixed.
Those on tracker should be regularly monitoring the tields and if rates start to rise be looking to secure at a fixed to secure the yield.

RomansProperties

Thrugelmir wrote: »

On the back of Romans post regarding LHA's. I looked up my local area. For a 2 bed house the average gross rental yield is only around 6% to 7%.

Plenty of property to buy and rent which suggests lack of confidence and demand due to uncertainty of both employment prospects and house prices.
Without doubt on a local level there is a squeeze on pay rates. Which currently suggests further downward pressure on property prices yet.

I am not sugguesting buying property at these returns.
I think for it to work and provide an income you need about 10% returns.
I would forget capital appreciation thats a bonus

stevetodd

RomansProperties wrote: »

How much rent would you get for this property?

About £1,650 a month. Another one I have just rang up about has just gone under offer. I am beginning to think if you can get about 10% of a realistically priced property now might be the time to buy. This is a change of stance for me.