BTL's and renters

macaque_2

The bulls talk about renters throwing their money away but this is really nonsense. Rent is payment for a service. The person who owns the property has capital tied up and/or interest charges to service. On top of this, they have insurance, administration costs/time, buying/selling costs, property repairs and (where applicable) agent's commission.

Perhaps the biggest service that landlords provide at a time like this is underwriting risk. If IHS are right, the next 6 -8 months will see a property slide of 5%. This comes on top of a 1.4% fall over the past 12 months. When all the costs of renting plus voids are added to these capital losses, the BTL game is not looking at all pretty at the moment. Like renters, BTL's are having a bad time. The banks are smiling as usual.

If prices fall by much more than 5%, many of the BTL's will be forced out of the market as their leverage dries up. That would force more property onto the market and then I suspect that the banks would really lose their smile.

Howard Archer, chief UK and European economist at IHS Global Insight, said the DCLG’s figures support its belief that house prices will soften over the coming months as a result of low consumer confidence and weak economic fundamentals, and it predicts that prices will fall around 5% by mid-2012.

http://www.citywire.co.uk/money/uk-house-prices-down-again-says-government/a542395

matbe

macaque wrote: »

The bulls talk about renters throwing their money away but this is really nonsense. Rent is payment for a service. The person who owns the property has capital tied up and/or interest charges to service. On top of this, they have insurance, administration costs/time, buying/selling costs, property repairs and (where applicable) agent's commission.

Perhaps the biggest service that landlords provide at a time like this is underwriting risk. If IHS are right, the next 6 -8 months will see a property slide of 5%. This comes on top of a 1.4% fall over the past 12 months. When all the costs of renting plus voids are added to these capital losses, the BTL game is not looking at all pretty at the moment. Like renters, BTL's are having a bad time. The banks are smiling as usual.

If prices fall by much more than 5%, many of the BTL's will be forced out of the market as their leverage dries up. That would force more property onto the market and then I suspect that the banks would really lose their smile.



http://www.citywire.co.uk/money/uk-house-prices-down-again-says-government/a542395

house prices dont matter to landlords unless they have to remortgage.

Do you think rents will fall 5%?

ruggedtoast

Why will they be forced out of the market? Its their tenants who are paying their mortgages.

I dont actually think being a landlord is especially difficult, few of mine ever gave me much impression that they particularly let it interfere with their day to life.

PasturesNew

Rents are being picked up by the benefits bill in a lot of cases; they're underpinned by the Govt. If the dole will pay £X then that's underpinning the floor.

Round my way £X for a 1-bed flat is £450/month. Add on council tax (single person, 25% single person discount taken off) and it's another £85/month. That means somebody on the dole has an income equivalent to £450 + £85 + £292.50 (JSA) = £827/month.

In many areas it's almost impossible to find a job that pays that much, in fact I have just enquired about one which pays over 10% above minimum wage and is only a £868/month takehome. A worker can't afford the rent, therefore it's a nonsense.

andybenw

I will be hopefully purchasing a BTL within the next couple of years. If the property value falls over the short term I will not be overly worried as I will be looking long term. What would worry me would be a large fall in rental income. This along with interest rates would certainly be the main worry of BTL landlords who are covering mortgages. With an ever rising population and a government still unwilling to build I doubt very much that rents will fall too much.

MrRee_2

BTL Landlords don't give a monkeys about House Prices ... the asset is being bought for them by the renter, to think otherwise is foolish.

Even if the property, in 20 years time, is the very same price as the BLT Landlord paid for it - and if it has been bought by renters .... who cares? The property is, at that time, free of debt and can be cashed in by the Landlord.

In essence, renters are saving for the Landlord - the landlord takes all that saving in the future.

It really is a no-brainer.

The Landlord is so sure of that - and you cannot have a winner without a runner-up.

The renter is always the runner-up .... you note I do not say loser, as that would be very unfair on those who have no other option but to rent.

HAMISH_MCTAVISH

macaque wrote: »

The bulls talk about renters throwing their money away but this is really nonsense. Rent is payment for a service.

Keep telling yourself that if it makes you feel better.;)

You joined hpc back in what, 2004? 2005? Your hpc username if I remember correctly was "dog", so should be easy enough to confirm.

Yet house prices today, even after the crash, are substantially higher than when you joined hpc, and you've wasted half a decade or more of rent money since then when you could have used that money to buy a house.

If you want to believe that renting hasn't been a waste of money in your case just because you happen to have a roof over your head in return, then fair enough. But any rational person can see that you've added massively to your lifetime housing cost because your gamble failed to pay off.

If IHS are right, the next 6 -8 months will see a property slide of 5%.

IHS have been spectacularly wrong with their predictions for the last 36 months in a row.

Why do you expect that they'll suddenly get one right?

This comes on top of a 1.4% fall over the past 12 months.

Nationwide is showing + 0.6% over the last 12 months.

And even the 1.4% fall you quote wouldn't make up for the extra cost incurred through renting over buying.

The average mortgage rate is 3.5%, some deals are available for 2% or so.

But the average rental yield is 5.5%.

You renters need falls of between 2% and 3.5% a year just to break even with today's buyers on the new, less good, mortgage rates. Or a fair bit more to keep up with the better, pre-crash mortgage rates.

When all the costs of renting plus voids are added to these capital losses, the BTL game is not looking at all pretty at the moment. Like renters, BTL's are having a bad time. The banks are smiling as usual.

The average void length for BTL is now just 11 days.

BTL landlords are making an absolute fortune at the moment. And thanks to mortgage rationing and the consequent lowest house building levels in a century, this looks likely to continue for many years to come.

If prices fall by much more than 5%, many of the BTL's will be forced out of the market as their leverage dries up.

I'd be fascinated to hear how you think that will happen?

Explain the mechanism for why you think a minor fluctuation in asset value will force BTL-s to sell up in large numbers "as their leverage dries up".

Graham_Devon

The suggestion that paying money in rent is wasting money is poor, very poor, and to be expected only from a select number of individuals.

It's akin to suggesting paying money for food is a complete waste of money, or paying for fuel to get to work or heat your home a waste of money as it's all consumed.

It's a very lazy argument for those who find arguing any finer details a little too demanding.

HAMISH_MCTAVISH

MrRee wrote: »

In essence, renters are saving for the Landlord - the landlord takes all that saving in the future.
.

A very good summary.

A landlord puts in 25% of an assets value. Or less in many cases pre-2008.

The renter buys the rest of the asset for him, and throws him a large cash amount on top as rents rise with inflation whilst the landlords purchase cost is locked in.

Even if prices fell by 50% over 20 years, the landlord would still see a profit.

Now you could argue that if the landlord invested his deposit in something else, he might see a bigger profit over 20 years if prices did fall by 50%. And you might be right.

Or he might invest in something nice and safe like Enron, Marconi, Polly Peck, Northern Rock, etc, and lose the lot.

But the reality is there has never been a period of time in recorded UK housing history where house prices have fallen in either real or nominal terms over the term of a 25 year mortgage, so this entire discussion is a bit pointless.

purch

It's a very lazy argument for those who find arguing any finer details a little too demanding

Yes, akin to telling someone they should buy a BMW rather than "waste" money using public transport.

andybenw

Graham_Devon wrote: »

The suggestion that paying money in rent is wasting money is poor, very poor, and to be expected only from a select number of individuals.

It's akin to suggesting paying money for food is a complete waste of money, or paying for fuel to get to work or heat your home a waste of money as it's all consumed.

It's a very lazy argument for those who find arguing any finer details a little too demanding.

Paying rent is not wasting money if you cannot afford to buy. Indeed it is a necessity to keep a roof over your head.

However. If you can afford to buy utilising a mortgage that is well within your comfort zone, then unless rents are exceedingly cheap it is always better to buy. For someone in this position there is a lot to be said for the phrase 'renting is dead money'.