Buy to let advice - would you go ahead in the current market?

Derfel

Hi folks,

Having read a lot of the threads I would appreciate your comments/advice/opinion as to whether you would still go ahead with a first time buy to let in the current market.

We finally paid off our mortgage in the Summer and decided to invest in a 3 bed terrace property on a buy to let basis mostly as a long term investment. Due to a problem with the first financial advisor (long story!) we're only now on the verge of completion yet all the recent "horror" stories are starting to give us cold feet at the very last moment. We're due to exchange next week but are having serious doubts whether we're doing the right thing.

Any rent will just about cover the buy to let mortage but we'll have to cover the extras (management fees, insurance etc) which comes to around £180 per month. We can afford this and looking long term (10 - 15 years) like to believe that increase in house prices will cover what we pay out and leave a decent sum for retirement.

Friends advise us we're doing the right thing investing in property as does our new financial advisor BUT having read several articles in the press and on forums like this we've not been sleeping too well over the last few evenings.

The house we are buying is in excellent condition and doesn't need any work doing on it so we're hopeful of renting quickly but down south these houses don't come cheap and it seems hard to imagine the price increase being the same in the next 10/15 years. We also have a conscience and are also worried about pulling out now having had our sellers wait so long.

Any thoughts / comments / advice / guidance etc much appreciated

Thanks in advance

Gorgeous_George

The ´current climate´covers a multitude of sins. What matters are the yield and potential capital gains. At the start of the ´business´yield is key as you won´t realise any capital gains for many years. if ever.

The figures you suggest make the business unprofitable as you will be subsidising the business. This is possibly ok in a strong, rising market and there may still be pockets of the UK where these markets can be found. If you live in one such area, maybe you could manage the let yourself to keep costs down. However, I think it is more than likely that now is not a good time to start.

Have another look in February. Winter is never a good time for house price growth and you may see a continuing levelling off of prices. Maybe even a fall making the potential yield more viable.

GG

paulrn_2

I freely admit I cannot give you the advice that you need, but many on here will offer doom and gloom predictions, and over time I have learned that they have no more idea of what is going to happen than the rest of us, many of them seem to relish the thought of a crash in prices and are doing their best to undermine confidence, some sort of perverse glee that you get on many forums.
Some are genuine, I look at it like this. If it is a long term investment then you probably will at least not lose your money, and what else can you do with it. Saveing it in investments funds must be in some cases as dodgey as the housing market, other safe funds offer low rates and what is safe if we have a recession, the answer must be nothing, even banks can go under, and any government safety net is only as good as the funds they have, and we give them those in taxes.

my belief is that in some areas there will be large adjustments in prices in others less so, and when the season of gloom is over and we have other things on our mind then talk will turn to something else. i do believe that the chance of making huge amounts of money6 is gone for some time. But I will say again I have no idea. There is a reported shortage of houses to rent in the south, so maybe rents will go up as people cash in. I would assess your risk and make your own decisions. I am buying now, but as a home not an investment.

Hoario54

Unfortunately none of us, bear or bull, have a crystal ball.

Mind you, someone much wiser than me once said "when you can clearly see a bandwagon you have already missed the opportunity".

Dithering_Dad

If you no longer have a mortgage on your current property and have the money in place to subside the BTL, could you not start paying down the BTL mortgage to a point where the rent covers the mortgage and the ancillary expenses such as Buildings Insurance, Management fees, etc. ? Incidently these expenses seem quite high at £180 per month. You could reduce this considerably by managing the property yourselves.

Alternatively, you could look at other investments that won't mean putting all your financial eggs into one basket and if you're not knowledgable about investing, you could find an IFA to manage your investments for you and at a much lower charge than the £180 per month. You also don't have issues with bad tenants, legal costs, gas & electricity costs, building repairs, no rent periods with shares!

lypsey

Ask your self this:-

If you are losing 180 quid a month , so are most other new BTL investors. I think any sane person will not do this on a falling market. This effectively means BTL is DEAD

Now look at FTB'er , normally the market is made up of 35% FTB'er but with house prices this high it is now only 10% (ish)

Therefore with no-one "on the bottom rung" the whole market will collapse

Lastly if you look at the numbers of approved mortgages it was DOWN 37% on last year. This will have a massive impact on the market in about 2 months

I still believe we will see a 40 to 50% correction

Dithering_Dad

Even if house prices continue to rise, you still have to pay the £180 per month regardless. Then when you try to cash in your investment (i.e. sell the house) you are hit with a huge capital gains tax, solicitor costs, estate agent costs and the hassle of finding a buyer.

Compare this to putting your money into an ISA. Completely tax free and a £15 fee for selling your shares (even if you sell £100,000 worth). For me, BTL was dead even in the boom - so much hassle to gather rent, fix leaking taps and broken boilers, redecorate after a tenant leaves, seek legal advice if they won't leave (and don't pay rent), pay building insurance, a premium rate mortgage rate, etc. etc. Then difficult to get your hands on any gains when you sell up.

BTL is not for me thanks for asking (not that you did, but you should have cos I have feelings too and it's not fair to ignore me like this). Cheers all the same.

kissingthepink

I think that your biggest regret will be not buying this property. Over a 10-15 year time frame you are bound to ride out any clycles in the market and be able to sell at a point where you can make a profit. This is my view, and the reason why I am buying at the moment.

MissMoneypenny

paulrn wrote: »

IThere is a reported shortage of houses to rent in the south, so maybe rents will go up as people cash in.

I have just rented down south. When I was looking, I found there was a glut of rented houses. In the end, I just asked to look at the empty rentals. Tons of flats too that the EA said they struggled to rent out.

dunstonh

Property investment funds are a good indication historically of how things are doing. Until July of this year, we had 16 years with not a single quarterly loss. Since July, each month has seen property funds drop in value. This last happened in 1991 and four months later house prices started to drop steadily for the next four years. Sept 07 so the house price index report a drop as did October.

I think that your biggest regret will not be buying this property. Over a 10-15 year time frame you are bound to ride out any clycles in the market and be able to sell at a point where you can make a profit. This is my view, and the reason why I am buying at the moment.

The last property price correction took 6 years if you include the period of stagnation before hand. It then took another 12 years to recover in some areas. So, lets say a house price correction does occur that mirrors the last one (and that was after a smaller house price surge than we have seen) 10-15 years isnt enough to see any profit.

Unless you can get a good rental yield it isnt worth doing at this time.

granville_2

IMO the smart money left BTL sometime ago, leaving it for the 'greater fools' to rush in.

I know a couple of people who purchased BTL properties in the mid-late 90s and have done extremely well. However said people would not even consider entering the market now (this is in London).

You are relying on capital growth to make any form of profit and would be subsidizing the property to the tune of ~£180 per month. With property prices seemingly grinding to a halt and the financial system in flux, you have to ask yourself if it really is a good plan at the moment.

Have a look for other investment opportunities that are less hassle!

YMMV.