Why the bad news for landlords is just beginning

GreatApe

Windofchange wrote: »

Anecdotally a couple of flats on my road have sat empty for a good few months now. The one I am looking at opposite me as I type this was on the market for £2600 pcm, then £2500 pcm, then £2250 pcm. It has just been moved into last weekend and I would imagine the new tenants made an offer too so unlikely it went for £2250. Not sure what it was rented at previously, but I should imagine the landlord thought hey how about a cheeky increase. didn't work hey.

Large amount of empty rental properties, or ones that are no longer profitable after section 24 comes in over the next few years could start to turn into sales. Lot's of ex BTL turns up on the market in one go and it will put a downward pressure on prices. When factored in with what else is happening in the economy with Brexit and prime London crashing to mention two others and it could pick up pace very quickly.

You can argue about sentiment in the wider market, but BTL is entirely sentiment driven - people aren't buying up houses out of the kindness of their heart. If your second home is no longer appreciating in capital value and is also costing you each month then how long are you going to hold onto it for? Interesting times ahead.

Landlords are both big buyers and big sellers. The tax changes reduced buying for sure, especially the +3% stamp duty however it has also to a lessor extent reduced selling.

I do not see a big mass sell off, it did not happen in 2008 when prices were falling the landlords did not panic at all and in fact added to their ownership level and that was despite much harder mortgage conditions at the time.

Lower rents are for new rentals, most landlords keep tenants for a number of years so will not be seeing lower rentals. Plus the figures are presumably based on a year to year analysis. If a landlord had a tenant that had rented for 5 years and was vacating just now, maybe the landlord will be getting 5-10% less than they would have last year but most likely they will be getting more than they got 5 years ago when the previous tenant took the place. So for them their rents have not gone down they will see that they get a higher rent than 5 years ago.

Plus most landlords seem to own outright or with small mortgages. They really are in it for the long term.

Not forgetting the only realistic alternative for Mr&Mrs Landlord is a savings account that pays 0.5%
Selling the 5% yield property to get 0.5% in the bank and that is after paying taxes and selling costs. No thanks

AG47

K4yl5 wrote: »

Haha!!! My landlord just increased my rent by 8.6% to bring it up to "market value"...

Do you live in Wales? This is the only place going up, London and the South East are falling like a rock.

An equalising is taking place. The smart money is selling up in overvalued London and buying undervalued areas.

Its simple supply and demand. The number of properties to let has grown significantly in recent months. Last month, there were 10% more properties available to let across the UK than in February 2016. The figure for London was 18%.

At the same time, the number of tenants looking for properties hasn’t budged by much. In fact, in London it’s fallen by about 3%.

So demand is weakening as people move away from London and the largest property building boom in living memory is adding even more new properties to the supply. And the number of available properties already around has gone up. As we all know, if supply goes up, and demand falls, then you get falling prices.

So is this likely to continue? Have we reached a turning point? I suspect that we might have – for renters, at least.

I don’t see this oversupply of property vanishing particularly quickly. There are still too many extra blocks of luxury flats being built on every little corner of London that they can. Also, I suspect that we might see a rise in the number of distressed landlords before too long.

Windofchange

GreatApe wrote: »

Landlords are both big buyers and big sellers. The tax changes reduced buying for sure, especially the +3% stamp duty however it has also to a lessor extent reduced selling.

I do not see a big mass sell off, it did not happen in 2008 when prices were falling the landlords did not panic at all and in fact added to their ownership level and that was despite much harder mortgage conditions at the time.

Lower rents are for new rentals, most landlords keep tenants for a number of years so will not be seeing lower rentals. Plus the figures are presumably based on a year to year analysis. If a landlord had a tenant that had rented for 5 years and was vacating just now, maybe the landlord will be getting 5-10% less than they would have last year but most likely they will be getting more than they got 5 years ago when the previous tenant took the place. So for them their rents have not gone down they will see that they get a higher rent than 5 years ago.

Plus most landlords seem to own outright or with small mortgages. They really are in it for the long term.

Not forgetting the only realistic alternative for Mr&Mrs Landlord is a savings account that pays 0.5%
Selling the 5% yield property to get 0.5% in the bank and that is after paying taxes and selling costs. No thanks

NUMBER 1

Except that 37% of renting London households moved in the last year alone:

http://blog.shelter.org.uk/2016/02/renting-families-move-so-often-they-are-nearly-nomadic-new-research/

Where do you get your supposition that people stay put for decades in rental properties?

NUMBER 2

But buy to let has already collapsed / is falling and do you think that this going to reverse given the changes in tax coming?

http://www.telegraph.co.uk/property/house-prices/revealed-extent-buy-to-let-market-collapse/

NUMBER 3

What data are you drawing on when you state most BTL is either paid for or has very little mortgage left? Did you take into account a lot of BTL is held on interest only mortgages? Have they been paying down their capital?

NUMBER 4

No big sell off in 2008 because it was bailed out and there were no changes to the fundamentals of the market. With the tax changes there will be A LOT of people thrown into uncertainty at best, debt / who knows what at worst.

carslet

Not all landlords try for the maximum rent
For example I charge about 20% under the going rate for my area, this has enabled me to have 1 tenant for the the last 7 years and still in and only 2 different in the other house for the last 5 years
It is cheap and they don't want to leave

Rent would have to fall more than 0.6% to hurt many LL.

chucknorris

carslet wrote: »

Not all landlords try for the maximum rent
For example I charge about 20% under the going rate for my area, this has enabled me to have 1 tenant for the the last 7 years and still in and only 2 different in the other house for the last 5 years
It is cheap and they don't want to leave

Rent would have to fall more than 0.6% to hurt many LL.

We are the same, we would much rather have long standing tenants (over 11 years, same tenant is our record so far), than sweat the property.

In other news, we had some good news today, we accepted a cash offer on a 2 bed flat in Battersea, and we are also expecting to exchange on a 4 bed house in Hackney this Friday. Our Tottenham Hale tenants have offered to buy that house from us, but that is a property that we want to hang onto.

economic

chucknorris wrote: »

We are the same, we would much rather have long standing tenants (over 11 years, same tenant is our record so far), than sweat the property.

In other news, we had some good news today, we accepted a cash offer on a 2 bed flat in Battersea, and we are also expecting to exchange on a 4 bed house in Hackney this Friday. Our Tottenham Hale tenants have offered to buy that house from us, but that is a property that we want to hang onto.

looks like sales market is still healthy and active. despite all the doomsayers.

chucknorris

economic wrote: »

looks like sales market is still healthy and active. despite all the doomsayers.

To be honest I think the market has dampened, it is hard to tell, because when both those properties went onto the market (at optimistic asking prices) they both went under offer within a week for the asking price, but then both buyers dropped out about 5/6 weeks later. We ended up getting 7-9% gross less (if they go through), but as I said that was from initial very optimistic asking prices.

I might (I'm thinking it over) stall the selling slightly, because I did start a little earlier than I originally planned, and the properties are more profitable than dividend income.

economic

chucknorris wrote: »

To be honest I think the market has dampened, it is hard to tell, because when both those properties went onto the market (at optimistic asking prices) they both went under offer within a week for the asking price, but then both buyers dropped out about 5/6 weeks later. We ended up getting 7-9% gross less (if they go through), but as I said that was from initial very optimistic asking prices.

I might (I'm thinking it over) stall the selling slightly, because I did start a little earlier than I originally planned, and the properties are more profitable than dividend income.

why are they more profitible then dividend income? because of the CGT you have to pay on selling (meaning less to invest for dividend income)?

chucknorris

economic wrote: »

why are they more profitible then dividend income? because of the CGT you have to pay on selling (meaning less to invest for dividend income)?

The CGT is a big part of it. But also I must admit that when I did my initial analysis about a year ago comparing dividend income to rental income. I used dividend income from VUKE (which is an etf for the ftse 100), the problem with this is that the ftse 100 is not diverse, and therefore is not really suitable for representing substantial amounts of your portfolio. More suitable etf's (or funds) would typically pay less than the (approx) 4.1% dividend yield of the ftse 100.

economic

chucknorris wrote: »

The CGT is a big part of it. But also I must admit that when I did my initial analysis about a year ago comparing dividend income to rental income. I used dividend income from VUKE (which is an etf for the ftse 100), the problem with this is that the ftse 100 is not diverse, and therefore is not really suitable for representing substantial amounts of your portfolio. More suitable etf's (or funds) would typically pay less than the (approx) 4.1% dividend yield of the ftse 100.

true however a portfolio of london properties isnt diverse either. i would have thought by far the biggest reason to sacrifice income by moving to equities is the hassle factor in owning properties.