Buy to let rents suffer a big drop

ad9898_3

samsuka wrote: »

but the point is that prices and interest rates are getting to a level that buying a house now, is cheaper than renting, providing you can get that deposit. So as soon as the 10% deposit deals come back it is going to pick up quite quickly.

Leaving the deposit issue aside, it isn't cheaper when you factor in the capital losses, I will say again, one of these place lost 85k !! by your own admission in little over 12 months, and as far as interest rates go, over a typical 25 year mortgage, you know as well as I that the bank base rate will go above 1%. With unemployment on the up and 12 months of recession in front of us, and that's Brown's admission so it will probably be much longer, I don't see things picking up that quickly.

Lets face it 90% LTV is only coming back on the haunched back of the tax payer(it won't work, QE never does, if you have any examples, let me know) , all the banks apart from HSBC are as good as insolvent. And with savers withdrawing record amounts from their accounts for various reasons, the banks balance sheets are going to get worse.

Edale

One thing I would like to add is not to discount the effects of potential deflation in the economy, we are already seeing many people lose their jobs and any pressure on wages is down (see here) this could translate to lower rents and if this becomes endemic it will simply not be enough that you do not rely on capital growth.

It is hard to call where the economy is going but it certainly does not look good at the moment.

stevetodd

Edale wrote: »

it will simply not be enough that you do not rely on capital growth. .

OMG are you serious? you should never rely on capital growth! Property investment should be based on the rental returns stacking up and providing good profitable yields, not capital values increasing.

Edale

stevetodd wrote: »

OMG are you serious? you should never rely on capital growth! Property investment should be based on the rental returns stacking up and providing good profitable yields, not capital values increasing.

I think I used too many double negatives. What I am saying is that even assuming zero capital growth may not be conservative enough if we enter a period of stubborn deflation. If wages decline this has to have a negative effect on rents.

Thinking your business model is safe because it does not rely on capital growth may be wrong. How would it look if rents went down 3-5% pa for the next 5 years with increased voids and with a further 20% loss in capital value? Maybe this is an extreme scenario but it is certainly not an impossible one.

stevetodd

Edale wrote: »

I think I used too many double negatives. What I am saying is that even assuming zero capital growth may not be conservative enough if we enter a period of stubborn deflation. If wages decline this has to have a negative effect on rents.

Thinking your business model is safe because it does not rely on capital growth may be wrong. How would it look if rents went down 3-5% pa for the next 5 years with increased voids and with a further 20% loss in capital value? Maybe this is an extreme scenario but it is certainly not an impossible one.

With quantitive easing about to start I think it's highly improbable rents would decline for 5 years, personaly I have not experienced any falls in rent, although my mortgage costs have been reduced significantly

Edale

So from what you say you would be fine in the scenario I gave, many would not.

Only time will tell but IMO we are behind the curve with interest rate reductions and QE, this makes it much less effective in reflating the economy. The fact that we have got to the stage where QE is needed tells you the desperate state of the economy and these are not normal times.

samsuka

ad9898 wrote: »

Leaving the deposit issue aside, it isn't cheaper when you factor in the capital losses, I will say again, one of these place lost 85k !! by your own admission in little over 12 months, and as far as interest rates go, over a typical 25 year mortgage, you know as well as I that the bank base rate will go above 1%. With unemployment on the up and 12 months of recession in front of us, and that's Brown's admission so it will probably be much longer, I don't see things picking up that quickly.

Lets face it 90% LTV is only coming back on the haunched back of the tax payer(it won't work, QE never does, if you have any examples, let me know) , all the banks apart from HSBC are as good as insolvent. And with savers withdrawing record amounts from their accounts for various reasons, the banks balance sheets are going to get worse.

Yes, thankyou i saw that the first time:T . And saying that 90% LTV is only coming back on the tax payer is incorrect and shows scant knowledge of the financial system. Mortgages don't work like that. The banks are asking for low LTV because they want secure debt and because of falling house prices. As soon as house prices start rising again and banks start lending, the LTV will rise.

The point is that we are now at the stage that as soon as banks lend up to 90%, anyone who can get a deposit will look at the rental market and the buyers market and surmise that it is a lot cheaper to buy than rent and get involved again. With house prices as low as they are and good deals to be found, we may only be a few months away from the bottom of the market.