Selling Up and Bailing Out

Alan_M_2

brit1234 wrote: »

But to let and lax lending were the main reasons for house price inflation. I look at professionals and amateur landlords as the same thing. They all buy up almost all first time buyer properties with unfair tax advantages which first time buyers don't have.

It's so wrong and almost unbelievable, whole generations being priced out of housing because of greedy investors.

I hope they get badly burnt in this crash.:rotfl:

This is a very naive view.

Who would provide rental properties if it weren't for professional or latterly amateur landlords? They service a necessary part of the population.

Without doubt the BTL phenomenon has exacerbated HPI, but it is by no means the absolute cause of it.

You're suffering from the same misconception as Serena.

Alan_M_2

macaque wrote: »

I can't agree with this. The majority of first time buyers were priced out of the market years ago. Since then the price spiral has been fueled by reckless lenders giving money to reckless BTL landlords.

So as the market rose, BTL's became easier to get due to increased HPI and relaxation of the laws, therefore HPI created the scenario to start with.

Then as the world and his wife we're offered easy credit, it exacerbated the problem and became self fulfilling.

Without an environment of huge capital increase there is no reason to BTL in an economy that provides no (or less than bank rate) investment returns on an annualised basis.

Therefore, for rampant BTL to exist there must be high/excessive HPI to start with.

How come you're all struggling to comprehend that one has to exist before the other can propagate?

SerenaGoode

Alan_M wrote: »

Right so you think the HPI would have continued with or without BTL.

I think the market would have recovered to some degree after the 1990s crash, of course. The housing market has moved in cycles for a long, long time.

Alan_M wrote: »

But you think BTL was the cause of it.

No, I think BTL was the cause of HPI reaching the extent it reached. I believe BTL exacerbated the early stages of the boom, and helped sustain it beyond the usual cyclical ceiling.

Alan_M wrote: »

I agree it's compounded the problem, but it is certainly not the cause of it. It is an effect. The timing and changing of the laws made it possible and easier to obtain these loans....compounding the existing problem further, not causing it.

HPI was pretty low in 1996, so the change in the law and the BTL mortgages didn't compound an existing problem, they helped kick it off as well as compounding it as it developed. The lenders specifically introduced BTL loans to try and revive a moribund (but gradually recovering) market. HPI had started to appear, but at very low rates.

Alan_M wrote: »

You're struggling with cause and effect here aren't you.

No, it would be silly to imagine that one is exclusively the cause and the other exclusively the effect, which is what you are asserting. There are obviously interactions both ways - the first wave of BTL helped kickstart the market, the resulting boom helped boost the popularity of BTL. People started to take a risk on BTL in the mid 90s not because there was roaring HPI, but because they perceived that there was a cycle that was starting to turn. Very few people at that stage expected it to reach the heights it subsequently reached, but some nonetheless chose to invest in property at a market low.

SerenaGoode

Alan_M wrote: »

Without an environment of huge capital increase there is no reason to BTL in an economy that provides no (or less than bank rate) investment returns on an annualised basis.

Therefore, for rampant BTL to exist there must be high/excessive HPI to start with.

Sigh, now I see why you are confused. You imagine that the only possible motive for property investment is large capital gains.

It's not at all, that is merely the characteristic sign of a market that has risen too high. In the mid 1990s one could invest in property and attain a yield that was significantly over bank rate, which is why people started to do it, in spite of the negative image that property investment had at the time. They were then delighted (and often a bit surprised) to see big additional returns from capital growth over the next few years.

However as BTL turned into a national mania, house prices rose to the point where it was no longer possible to attain a yield in most areas that made sense as an investment. At this stage, it became irrational to invest in BTL except in the expectation that high HPI would continue.

Your error is to forget that the primary benchmark of property investment was (and should be) the yield, not the bubble gambler's expectation of inevitable capital gains.

fc123

pinkshoes wrote: »

Having rented for 10 years, I can't put a price on finally having a home! I NEVER want to go back into rented!

Mortgage interest is less than renting the same apartment, and in 20 years time, I'll be mortgage free.

To the OP - if this decision is right for you, then good for you. Let's just hope that all your landlords-to-be aren't planning to sell their properties too, which would see you being turfed from house to house.

We have rented for the past 2 and a half years (though we rented a LA highrise 20 yrs back) after always owning.
I miss living in my own house EVERY day. It is rented out.
3 yrs back, we went to a mortgage advisor who tapped away at his calculator and, with MEW from family home,said we could buy 2nd home " easily" (his words).
I ran out of the office in fear as the thought of so much
mortgage debt was terrifying! :eek:
We also had huge debts at the time, though on the business but as it is a fully liable one, the debts are the same as personal ones.

We have lived in 3 rentals since and each has been a nightmare (meanwhile my tenants haven't changed being very happy living in my house), the worst being a damp, basement flat (£925pcm) where every appliance was broken or faulty.
OH fell through the rotten floor in the utility room on moving in day (you can't make it up!)...then to be treated like a moaning pain in the butt by the letting agent...end story was I did get a month rent free and everything repaired or replaced.
But the hassle and time involved!
However, are we glad that we don't have a mortgage debt of £400k at the mo!!:D
We were going to sell this spring but with the NR crisis and falling confidence in the housing mkt,decided to renew the tenancy (back in Nov)..this is not because of being "worried" about selling for less but the EA I spoke to said nothing is moving quickly, chains are collapsing etc.

We intend to buy at whatever price our home receives (like for like) but can't afford to have it sitting empty.

So, one day I will not be an amatuer landlord and another family will require housing (they can't afford to buy)
but they rent a £350 - £400k house for £1000pcm (we rent at £1250 pcm a house valued at around £600k, despite the fact it is falling down around our ears). For investors, these sums don't add up at all.
The biggest problem is lack of availability of FAMILY homes (I know when I looked for rentals....hardly any that are suitable)

Just anecdotal, but job losses are already occurring in our sector and area and I can't see them stopping.

A recession affects EVERYONE over time (due to the trickle down effect)....there may be cheaper houses to buy in a few yrs time
but job security, stricter lending criteria will make it just as difficult to buy a home, even if prices go back down.

BTW just want to add that this thread has been really helpful to me

Alan_M_2

SerenaGoode wrote: »

Sigh, now I see why you are confused. You imagine that the only possible motive for property investment is large capital gains.

It's not at all, that is merely the characteristic sign of a market that has risen too high. In the mid 1990s one could invest in property and attain a yield that was significantly over bank rate, which is why people started to do it, in spite of the negative image that property investment had at the time. They were then delighted (and often a bit surprised) to see big additional returns from capital growth over the next few years.

However as BTL turned into a national mania, house prices rose to the point where it was no longer possible to attain a yield in most areas that made sense as an investment. At this stage, it became irrational to invest in BTL except in the expectation that high HPI would continue.

Your error is to forget that the primary benchmark of property investment was (and should be) the yield, not the bubble gambler's expectation of inevitable capital gains.

Of course investment yield is the primary reason to invest in property, I never suggested anything different. Professional investors have been doing so for years particularly in commercial property. In fact only this morning on the news another property fund has locked it's investors from withdrawing all it's investments for a further 12 months.

However, there is a huge difference between what professional investors can and will invest and what amateur investors do.

A good analogy is the .com stock market bubble......the professional investors were in early and drove the market as yeilds and potential returns reached quite disproportionate levels. The average Joe with a bit of spare cash, saw what was going on and jumped on the bandwagon, and in some cases borrowed to invest. Of course, by the this time the sensible money has stopped entering, but the amateur investor, gripped in the knowledge that you can only ever make money on the stock market is still piling money in.

Your description above even describes the phenomena....attached to the housing market.

The problem is, the lenders did nothing to self police what was going on, they've simply jumped on the gravy train, offered risky mortgages to amateurs in a market that has become self fueling.

However, BTL is still less than 10% of all property transactions, without the other 90% of people agreeing to pay inflated prices, the rampant HPI bubble will not continue on its inevitable march towards a big pop.

We agree that the BTL phenomena had exacerbated HPI, but we disagree that it was the fundamental cause......that is simply a financial cycle, always has been, always will be. As each generation grows up and becomes of an age to buy a house but has no recollection of any previous swings in the market the feel good factor returns and we start the roller coaster all over again.

The timing of the law changes with regard to BTL have caught the the swing of HPI on the up and driven it further on the availability of cheap money. However as you point with your highlighted "AT THIS STAGE" it accelerated an already increasing market faster.

So you agree with me that it wasn't the cause, it was actually consequence (all be it accelerated with a law change).

harryhound

backtomum wrote: »

We sold and are now renting, paid off all of our debts and and can now sleep at night. We've a wad in the bank and we are waiting until the market dips. We rent at £550 per month in a house that would probably cost £140k upwards to buy. We've been here nearly 18 months now - I'm not pretending doing this is easy - the house is shabby and there is always the uncertainty that the landlord will bail out but it was something we thought about really carefully. I cannot emphasise enough how our life has changed. We were both ill, couldn't sleep and our quality of life was bad when we had the debts. Good luck in what you decide.

Someone I know, sold her Buy To Let investment, with tenants in place.
The deal was "you be nice to the buyers I bring round and I will give you a modest cash 'bonus' off the last month's rent." Everyone was a winner.

The carefully selected appropriate tenants were an asset that enhanced the value of the property to the investor who bought it.

No void, no need to spend a month paying to have the place tarted up, just "do you want another 6 months".
If there are a load more BTL defaults, I do hope the mortgage lenders will have the good sense to evaluate the tenants they inherit before giving them their marching orders. Let's face it by the time a mortgage lender has foreclosed, ripped out the furniture if any, cut off the utilities, fussed about putting the place on the market, found a buyer, the best part of 6 months would have gone by anyway.

Who knows the rich tenant might be able to buy the place anyway.

I wonder if having to have the deposit guaranteed these days would add to the complexity?

Harry

SerenaGoode

Alan_M wrote: »

We agree that the BTL phenomena had exacerbated HPI, but we disagree that it was the fundamental cause......that is simply a financial cycle, always has been, always will be. As each generation grows up and becomes of an age to buy a house but has no recollection of any previous swings in the market the feel good factor returns and we start the roller coaster all over again.

The timing of the law changes with regard to BTL have caught the the swing of HPI on the up and driven it further on the availability of cheap money. However as you point with your highlighted "AT THIS STAGE" it accelerated an already increasing market faster.

So you agree with me that it wasn't the cause, it was actually consequence (all be it accelerated with a law change).

A fair attempt to reconcile our views so I won't niggle too much. The only things I'd say:

You said:

"Therefore, for rampant BTL to exist there must be high/excessive HPI to start with."

Yes, for "rampant BTL" maybe, but not necessarily for BTL at a level that helped push a slowly recovering market into a boom.

Alan_M wrote: »

The timing of the law changes with regard to BTL have caught the the swing of HPI on the up and driven it further on the availability of cheap money. However as you point with your highlighted "AT THIS STAGE" it accelerated an already increasing market faster.

That I can't agree with. All the relevant changes to the law and mortgage availability preceded the boom. As I said, the mortgage companies specifically introduced BTL and promoted it as a solution to a market that was still pretty slow in spite of improved fundamentals.

Alan_M wrote: »

So you agree with me that it wasn't the cause, it was actually consequence (all be it accelerated with a law change).

No I certainly wouldn't go that far. I'd say it first helped kickstart the boom, then helped sustain and prolong it. Inevitably there is a feedback loop - high HPI makes banks even more careless, BTL looks profitable so more people jump in etc. High HPI and the BTL bubble fed off each other. We can agree that the market would have recovered to some degree anyway, but I think it's important to recognise that the change in conditions for BTL and ensuing BTL activity played a major role in the boom.

We probably won't 100% agree, but I guess we've made our respective opinions clear anyway, so thanks for taking the time.

Alan_M_2

Always enjoy a good debate, nothing wrong with a difference of opinion at all, it makes life that little more interesting.

500Triumph650

pinkshoes wrote: »

Having rented for 10 years, I can't put a price on finally having a home! I NEVER want to go back into rented!

Mortgage interest is less than renting the same apartment, and in 20 years time, I'll be mortgage free.

To the OP - if this decision is right for you, then good for you. Let's just hope that all your landlords-to-be aren't planning to sell their properties too, which would see you being turfed from house to house.

Oh dear. I would imagine that you are putting a price on it now.

All the landlords round here want to sell their properties but are renting because they can't find a buyer. We rented our first house in a rush but had no problems with it or the landlord. When the 6 months were up we moved to a better place and, once again, no problems. Rents have started to drop almost as fast as house prices so we will not be staying here. Come June I expect to be able to gain a third bedroom and shave £50 to £100 off the rent.