Falling prices and BTL opportunities

abaxas

'Only monkeys, pick bottoms'

nobblyned

Have to say that I think that the rest of the country has further to fall (% wise) than London. The ratio of London prices to rest of country prices is still historically at the lower end of the scale, though having grown over the last year. The previous couple of years before the South was mostly static whilst the rest of the country roared ahead.

There are some surprisingly expensive 'ordinary' houses in the north for example, where the average wages are nowhere near being supportive of these levels.

scrummy_mummy_2

silvercar wrote: »

The problem being predicting when we have hit the bottom. No point buying in 6 months time if prices will be cheaper a year later.

I agree with your sentiment. There should also be some opportunity to buy and rent back.

I'm with Silvercar, I think the next opportunity for investor Landlords will be either buying in whole or part buying properties from homeowners who don't want to move but, because of the credit debt we all seems to love so much, are being forced to. I'm not sure of any mortgage schemes that offer this 'idea' yet, but I'd bet on this becoming a new market segment.

Conrad

7% gross yield is my aim (I dont use agents - too costly), which I struggle to get in the UK currently. Looking to invest again in UK property in the next 2 years if I can find such a yield. In the meantime I enjoy 20% yield from Germany and hope my Moroccan property will yield 9%+ once built (no income tax there either and most investors keep such income offshore).

dannyboycey

It's an interesting question regarding calling the bottom of the market. It may well be 6 or 7 years away. However, BTL yields are a little more black and white. Once it becomes financially viable to re-enter the market, it doesn't matter quite as much where the bottom is. The issue will be do you have the capital to re-enter the market, because the lenders will be a lot, lot stricter next time around, and borrowing 100%+ will not be an option as it has been.

Pennywise

Falling house prices may not cause a surge in the BTL sector. I understand the majority of recent BTL-ers have raised the deposit monies from re-mortgaging their home or existing BTLs. If there is a general fall in house prices, these same people won't be able to remortgage in the same way to fund the deposit, so unless they have savings, they won't be able to acquire new BTL properties.

The housing market, and especially the BTL market is a stack of cards just ready to be pushed down. I can't realistically see a stampede of BTL'ers going into the market as prices fall, and without them, the falls will be steeper.

dolce_vita

Pennywise wrote: »

Falling house prices may not cause a surge in the BTL sector. I understand the majority of recent BTL-ers have raised the deposit monies from re-mortgaging their home or existing BTLs. If there is a general fall in house prices, these same people won't be able to remortgage in the same way to fund the deposit, so unless they have savings, they won't be able to acquire new BTL properties.

The housing market, and especially the BTL market is a stack of cards just ready to be pushed down. I can't realistically see a stampede of BTL'ers going into the market as prices fall, and without them, the falls will be steeper.

Absolutely correct.

Most of these johnny come lately landlords haven't got a pot to p1ss in and have only been able to raise money due to the boom in house prices and the cheap and easy credit available.

Now that both have been switched off they will find that the market is a completely different animal on the way down and they will soon be getting a lesson in economic cycles.

HammersFan

Pennywise. I think you are over-generalising rather a lot there. Landlords are only really going to struggle month-to-month if they can't rent their property. Rental demand looks good - especially if people aren't buying. There will be some horror stories from people who went over the top on city-centre flats, but generally the BTL model is robust to demand for housing. If lots of people buying its possible to cash in on some equity because prices on the way up. If lots of people not buying rents are solid enough and voids low. Also, BTL'ers on trackers (BoE rather than LIBOR ones) have just benefitted from a cut in rates. There is a small minority of big risk-takers who might take a hit, but I think quite a lot will be in good shape - especially those in for the medium-to-long term. Its just my opinion but I think that those hoping that a mass exodus from the BTL market will force down prices will be dissapointed.

carolt

Disagree, HammersFan. As the prices fall and credit crunch continues to hit, more people will be forced into renting out a room or their existing property if they can't sell - there will be more supply and therefore lower rental prices. All those who'd bought as BTL, but not let as unable to at desired prices, or couldn't be bothered eg flippers, will have to sell or make more effort to let at reasonable prices.

Many BTL landlords are waiting till April and new CGT regime to sell then - I expect a lot of sales then, pushing down prices and in turn, causing more and more BTLetters to sell, as the sums, based on capital appreciation only rather than yield, cease to add up. But that won't push rents up - after all, these houses will be sold to SOMEONE who will live in them eg homebuyers able to now buy at the lower prices, or larger landlords able to raise cash despite the credit crunch - the housing stock won't just 'disappear' if landlords sell....

But all the johny-come-lately small landlords with no head for maths will be hard hit.

HugoSP

Hammersfan, your post makes good sense.

From the outside in it can look worse than it is, but as you say, those with fixed rate mortgages who are set to make a profit for 5 years, and those with BoE tracker mortgages who will benefit from the rate cut in January will be spared cashflow problems that they didn't have before.

BTL LL who are highly geared will be at a disadvantage if they need to sell.

Historically, there were several options open to btl LLs once they had the property.

1) Rent it out
2) Sell it, at a profit
3) Leave it empty
4) Raise finance on it then do any of the above
5) Develop it and then do any of the above

Now the options are limited:

1) A good option, perhaps better if more people need to rent
2) Not as viable as was previously
3) Fine if you don't want to earn aything from your investment
4) Not a good idea in this market, unless you've got a good reason to do so, also the equity may not be there.
5) Still possible, provided you can raise the cash.

The BTL investors of the future are likely to be people who

1) May Have cash
2) Perhaps Can buy and develop property to the extent that the yield is reasonable given the interest rate or other alternatives to investing the money.
3) Are definitely not highly geared unless they are already in it.
4) Are already in buy to let
5) Have property that they cannot sell and/or don't need to sell
6) may be able to buy at a knockdown price
7) Maybe living abroad and decide to rent out their UK pad.

Although the value of the properties may suffer in the short term, BTL LLs are in the same boat as homeowners - Prices are only a problem if they need to sell, and even then the situation for all BTLs may not be that bad depending on demand for that type of property in that location.