Not a time to be a buy-to-let landlord

buglawton

So that's anywhere on the London tube sytem then, "where moving a few miles down the road is the difference between a decent life and a horrible one". A few miles (or one change less) in overcrowded, congested London can add 1 hour of commuting per day.

Thrugelmir

buglawton wrote: »

A large part of that is going to be mopped up - for those who rent - by landlords raising rent. The most hard pressed landlords will try raising it speculatively, to see what the market will bear. They might be surprised, in many rental hotspots, how far they can go.

Unleveraged property owners will have a price advantage. Be able to price competitively and select the quality tenants. Every lever that gets pulled has multiple influences somewhere down the line. Business isn't always about charging the highest price to be the most profitable.

westernpromise

Generali wrote: »

Hmm. Given that a lot of rents come from already stretched pockets and HB that simply isn't going to pay more, I wonder where you think this extra money is going to come from. Your customers can't afford to pay more than they can afford and I suspect that if you tried a rent increase that genuinely compensates you for the tax rise a lot of your tenants would simply walk away and go somewhere cheaper, depending on your own circumstances of course.

Lest we forget, there is a great range of indebtedness among landlords from none to over 100% LTV. Those landlords will be facing very different costs in future so the LLs with low debt levels can up rents a little and still attract the better tenants. LLs with higher costs simply won't be able to compete and will go bust.

So the net result? IMHO it means slightly lower house prices than would otherwise be the case (NB that doesn't have to mean lower house prices it may simply mean smaller rises) and rents which are higher but by less than the amount of the tax, probably significantly less.

These tax changes are pretty messed up IMO but they are what they are and landlords are going to have to live with the changes they engender. Most simply it is likely to mean that if you have a big LTV mortgage on a property you are going to have to be pretty certain about the capital gains coming your way to make the numbers stack up.

Worse, many people with debt will find that they have to find a substantial amount of cash each month in order to hold on to the houses, especially as interest rates rise. There's a calculator on 118 that should be very sobering for anyone that thinks that holding property with a lot of debt is a good idea.

I think you're broadly right. A handful of over-leveraged landlords will not be able to dictate rental prices because they'll be competing for solvent tenants with other landlords who don't have the same cost structure.

At the same time, there is plenty of room for rents to rise. The obvious way is to sueeze more people into the same space. I have let four properties over the last 20 years (though never had more than two at a time to let) and my observation was that they are always let to the same of a larger number of occupants than there were when the owner lived there. This foots with what I understand about OO vs rented density generally. So a place that used to hold 1 owner and is now let to 2 people will have to hold 3.

There's nothing fundamentally impossible about this. It's akin to a conversation I had with an estate agent in about 2004 when she valued my flat at £450 and said that she could see it doubling in a few years (she was right). I asked how anybody could contemplate paying £900k for a 2-bedroom flat and she replied that in Notting Hill and Holland Park they already did, so why wouldn't white stucco W9 be next?

On balance though anybody who followed advice like this

http://www.amazon.co.uk/Property-Magic-5th-Peoples-Experience-ebook/dp/B0100XP0KG/ref=sr_1_sc_1?ie=UTF8&qid=1451396625&sr=8-1-spell&keywords=zutschi

is now completely screwed; his advice / strategy was to tell people to borrow 75% of the price then remortage after 6 months for 100% of it and then buy another and another, spending the equity as you went. Anyone who's done that can't afford to hold and can't afford to sell.

westernpromise

mwpt wrote: »

I'm sorry, I just don't believe you anymore. I think you're full of it.

It's your loss. I was there last time and I remember exactly what it was like. I'd never missed a mortgage payment yet I had £12k of negative equity and no prospect of getting out of this hole ever. At 15% interest rates it takes 5 years to pay down 3% of a mortgage. I needed to pay off 20%.

People like myself, recent FTBs, who sold up just in time thought they'd be better off, but found they couldn't buy because their equity was eaten up by the rental deposit and the rent was as ruinous as the mortgage would have been (of course). Mortgage lenders wanted a 30 or 35% deposit and no recent or FTB had this. The only people who did well were landlords and people who'd bought about 10 years before me.

Broadly speaking, if you want to know who'll own property after a downturn, look at who owns it before. It'll be the same people.

cells

Generali wrote: »

Hmm. Given that a lot of rents come from already stretched pockets and HB that simply isn't going to pay more, I wonder where you think this extra money is going to come from. Your customers can't afford to pay more than they can afford and I suspect that if you tried a rent increase that genuinely compensates you for the tax rise a lot of your tenants would simply walk away and go somewhere cheaper, depending on your own circumstances of course.

Tenants set rents not landlords.

They bid against each other (sometimes literally) until one is left standing and that is the clearing price.

In London where population growth is the strongest in the country the rental sector needs to expand (and has been doing so rapidly since 2004) to accommodate the new arrivals. For the rental sector to expand i think it has to be cash flow positive.

I think that means so long as population grow is strong in London rents will go up to keep cashflow positive for landlords.

cells

westernpromise wrote: »

It's your loss. I was there last time and I remember exactly what it was like. I'd never missed a mortgage payment yet I had £12k of negative equity and no prospect of getting out of this hole ever. At 15% interest rates it takes 5 years to pay down 3% of a mortgage. I needed to pay off 20%.

People like myself, recent FTBs, who sold up just in time thought they'd be better off, but found they couldn't buy because their equity was eaten up by the rental deposit and the rent was as ruinous as the mortgage would have been (of course). Mortgage lenders wanted a 30 or 35% deposit and no recent or FTB had this. The only people who did well were landlords and people who'd bought about 10 years before me.

Broadly speaking, if you want to know who'll own property after a downturn, look at who owns it before. It'll be the same people.

The crash-wishers have just had a crash in the form of 2008-2009 and what happened was that volumes fell prices dipped a bit and for a couple of years mortgages were rationed

There was no mass buying by renters they largely missed or ignored it.

A lot of the crash-wishers would not buy almost irrespective of the price.

They could also look into next door Ireland which had a much bigger nominal crash. 100% ownership now? No.

Most likely the reality is that crashes result in a small transfer of wealth from those who were going to sell anyway to those who were going to buy anyway. As per your observation if you want to know who will own after a crash just look at who owns before the crash...

HornetSaver

For me this isn't a left-right issue (who'd have thought the Tories would take the first step in reducing buy to let support?) but one of numbers. If the population increases 200000 a year, 200000 more people need housing. That means you need to build nearly 100000 a year just to maintain the status quo. Add to that a growing number of households with two generations of adults over the age of 25 - I.e. people who are living with parents as its currently their best option - and you would literally need to build 1 home for every 1 extra adult in Britain for the next decade to reach any sort of equilibrium.

Rent controls and or subsidized housing helps certain people, namely the unemployed, underemployed and disabled/carers, and that support should be there in all situations. But when the system doesn't work for full time employed people on median earnings, the only viable solution is to flood the market with extra homes.

There would be financial losers (those who see property as a synonym for retirement planning and do not have the good sense to diversify), but that's life. It needs to be done whoever the losers, and I say that knowing that I'm buying within 5 years, and if house prices were to crash in 7 or 8 years I'd be in negative equity.

This country is very good at modernising in the national interest in the full knowledge that a relatively small number of modest earners will get hurt very badly, but all hell breaks loose if modernisation hits a similar number of people with higher net worth.

HornetSaver

(Previous post related to the problem of inflation busting rent rises, I guess not directly on topic but certainly relevant. At least you roughly know where I stand on the issue).

As for this change, it should hit the worst landlords hardest. Those who jump in highly leveraged - often with good intentions it's only fair to add - but when they realise highly leveraged property is not quite the cash cow it seems, then will do whatever it takes to make that work with little regard for the consequences on the tenants and in some cases the law. It should also slightly decrease BTL as a proportion of total stock, when you take into account new homes built being owner-occupied, housing association or shared ownership in higher proportions than existing stock.

The impact that will have on the rent/buy/prices "balance" is harder to say, but my presumption is that it will slow down BTL buying enough to get some renters onto the housing ladder who in any sane market would already have gotten into it years ago, thereby having no net impact on demand but reducing the proportion of 'cream of the crop tenants'.

(Using predictive text, and somehow tenants' became Germany's ��

lush_walrus

Generali wrote: »

Hmm. Given that a lot of rents come from already stretched pockets and HB that simply isn't going to pay more, I wonder where you think this extra money is going to come from. Your customers can't afford to pay more than they can afford and I suspect that if you tried a rent increase that genuinely compensates you for the tax rise a lot of your tenants would simply walk away and go somewhere cheaper, depending on your own circumstances of course.

Lest we forget, there is a great range of indebtedness among landlords from none to over 100% LTV. Those landlords will be facing very different costs in future so the LLs with low debt levels can up rents a little and still attract the better tenants. LLs with higher costs simply won't be able to compete and will go bust.

With regards to stretched rents, that will not have an affect on the rent charged or rent rises. What happens now and has always happened is people move to a cheaper area they can afford. So where as now they may be renting a 2 bed near to a train station, any rent rises beyond their affordability will give them a choice - cut back costs elsewhere, or change to a 1 bed or move further away from the station to an area that is cheaper. And so on. I think most landlords are aware of that process and without a concern there is always a fresh person to come and fill the gap for them as they push up rents to cover costs. Supply and demand, the demand will not change the cost will just pass down the line.

Generali

buglawton wrote: »

So that's anywhere on the London tube sytem then, "where moving a few miles down the road is the difference between a decent life and a horrible one". A few miles (or one change less) in overcrowded, congested London can add 1 hour of commuting per day.

Not in the real London, only the one that exists in forums.

In reality, if you move from Clapham to Tooting for example it'll add a few minutes to your commute, probably less as you can afford closer to the Tube station and still pay less rent.