Why the bad news for landlords is just beginning

MobileSaver

Electrum wrote: »

[2017] Why the bad news for landlords is just beginning

Yawn. You were saying the same thing in 2015! :rotfl:

Electrum wrote: »

[2015] Not a time to be a buy-to-let landlord

Your friends over on HPC have been predicting the end is nigh for landlords for well over a decade however somehow I don't think too many landlords will be crying into their Chardonnay just yet.

GreatApe

Windofchange wrote: »

4) But I thought you just said that most rentals are brought without a mortgage? Oh, but now you are saying there will be 80,000 more BTL with a mortgage this year alone?

I did not say most are purchased without a mortgage, I said most rentals (ie existing ones) have no mortgage at all. Of the ~5 million rentals I recall reading somewhere about 3.5 million have no mortgage

Yes 80,000 BTLs will likely be purchased using a mortgage this year. Out of interest how many did you think would be buying now that the supposed apocalypse has arrived? zero?

Interestingly the CML shows 800,000 purchases with a mortgage last year while the Land Registry shows about 1.1 million purchases last year. So around 300,000 purchases without any mortgage. If the ratio was even between owners and BTLers then it would translate into roughly 80,000 BTLs purchased with a mortgage and around 35,000 BTLs purchased outright

Conrad

I buy using mortgages which represent around 25% of the rental income received.


Example - purchase price £280,000, borrowing 65% fixed at 1.99% for 2 years (I am quite happy refinancing every 2 or 3 years - capital growth is vastly more than mortgage arrangement fees, but sometimes fix for 5 years if the rate is particularly attractive).


Interest only mortgage inc lenders fee = £305.14 pm
Rent £1250 pm


In addition, occasional other expenses amounting to no more than about £30 pm, plus service charge typically £100 pm. I do use Agents.


Total monthly outlay represents £35% of rental income.




WHAT HAPPENS WHEN INTEREST RATES RISE?

Well for a start rents go up each year anyway (M25 area) thus building more margin into the numbers, but if I was caught by sufficiently higher rates I would either accept lower profits or sell a property or two and use proceeds to pay down mortgage debt. Ultimate aim is a portfolio with zero debt.




Most Landlords are pretty sensible and have plenty of margin in my experience.

GreatApe

Conrad wrote: »

I buy using mortgages which represent around 25% of the rental income received.

Example - purchase price £280,000, borrowing 65% fixed at 1.99% for 2 years (I am quite happy refinancing every 2 or 3 years - capital growth is vastly more than mortgage arrangement fees, but sometimes fix for 5 years if the rate is particularly attractive).

Interest only mortgage inc lenders fee = £305.14 pm
Rent £1250 pm

In addition, occasional other expenses amounting to no more than about £30 pm, plus service charge typically £100 pm. I do use Agents.

Total monthly outlay represents £35% of rental income.

WHAT HAPPENS WHEN INTEREST RATES RISE?

Well for a start rents go up each year anyway (M25 area) thus building more margin into the numbers, but if I was caught by sufficiently higher rates I would either accept lower profits or sell a property or two and use proceeds to pay down mortgage debt. Ultimate aim is a portfolio with zero debt.

Most Landlords are pretty sensible and have plenty of margin in my experience.

That is somewhat sugar coating it

A £280,000 purchase with £15,000 transaction including stamp duty

Debt financed using 2% plus £2k fees every 2 years = £575 finance costs + £100 service charge = £675 monthly cost

If your rental amount is £1250 knock 3% off for voids and agent tenant finders you will have some £530 per month positive cash flow into your pocket, pre tax using current ruels. Lower considering their will be annual depreciation which will have a cost down the line

However you paid £295k for a property worth £280k so you need 4% house price increase to cover that or 4 years of rent to cover it if house prices do not go up.

Simply put in London if there is capital gains its very worthwhile, if none its not, if prices go down even a little its a terrible bet

economic

Conrad wrote: »

I buy using mortgages which represent around 25% of the rental income received.


Example - purchase price £280,000, borrowing 65% fixed at 1.99% for 2 years (I am quite happy refinancing every 2 or 3 years - capital growth is vastly more than mortgage arrangement fees, but sometimes fix for 5 years if the rate is particularly attractive).


Interest only mortgage inc lenders fee = £305.14 pm
Rent £1250 pm


In addition, occasional other expenses amounting to no more than about £30 pm, plus service charge typically £100 pm. I do use Agents.


Total monthly outlay represents £35% of rental income.




WHAT HAPPENS WHEN INTEREST RATES RISE?

Well for a start rents go up each year anyway (M25 area) thus building more margin into the numbers, but if I was caught by sufficiently higher rates I would either accept lower profits or sell a property or two and use proceeds to pay down mortgage debt. Ultimate aim is a portfolio with zero debt.




Most Landlords are pretty sensible and have plenty of margin in my experience.

enough margin to take into the increase in taxes to?

economic

GreatApe wrote: »

That is somewhat sugar coating it

A £280,000 purchase with £15,000 transaction including stamp duty

Debt financed using 2% plus £2k fees every 2 years = £575 finance costs + £100 service charge = £675 monthly cost

If your rental amount is £1250 knock 3% off for voids and agent tenant finders you will have some £530 per month positive cash flow into your pocket, pre tax using current ruels. Lower considering their will be annual depreciation which will have a cost down the line

However you paid £295k for a property worth £280k so you need 4% house price increase to cover that or 4 years of rent to cover it if house prices do not go up.

Simply put in London if there is capital gains its very worthwhile, if none its not, if prices go down even a little its a terrible bet

this is exactly my conclusion of london. not buying now as just not worth it. keep in mind Concrad example is a rental yield of 5.3% (gross). you will be very lucky to find that in zone 1-4 london. maybe even lucky to find that in more outer zones.

GreatApe

economic wrote: »

this is exactly my conclusion of london. not buying now as just not worth it. keep in mind Concrad example is a rental yield of 5.3% (gross). you will be very lucky to find that in zone 1-4 london. maybe even lucky to find that in more outer zones.

If I had 500,000 cash I would still put it into inner London property

You are likely to get 5% gross which might not sound a lot but its a lot more than the 0.5% gross you would get with the same money in a bank account

Buying with a mortgage and leveraging up is positive if prices are going up, but horrific if prices are going down. Right now I am not certain of price gains in the short term so I would not buy with leverage but if it were not leveraged I probably would. Also the cost difference, borrowing with cost you 2.5 to 3% while using your own capital is going to cost you the lost interest which is closer to 0.5% these days

Maybe the stock market offers better value but the fact is 90% of the public simply do not trust/understand the stock market while 90% do understand/trust homes so property vs cash in a bank account its not a hard call when its just those two options

GreatApe

economic wrote: »

this is exactly my conclusion of london. not buying now as just not worth it. keep in mind Concrad example is a rental yield of 5.3% (gross). you will be very lucky to find that in zone 1-4 london. maybe even lucky to find that in more outer zones.

most of the lower end even in zone 2 will get you 5%.

economic

GreatApe wrote: »

most of the lower end even in zone 2 will get you 5%.

lower end being?

westernpromise

Can I just observe that the past tense of buy is bought, not "brought", which is the past tense of "bring".