Falling prices and BTL opportunities

IveSeenTheLight

dolce_vita wrote: »

In over 20 years as a landlord I have never, not once, had a situation where the rent wasn't at least 120% of the mortgages.

Is this a reflection on your investment choices though.
It may be that you invested, mortgaged up to the hilt to take advantage of HPI or for tax purposes.
Were your mortgages interest only? surely over 20 years if you had a C&I BTL mortgage you should be seeing a large percentage above the mortgage

I have two properties I rent out.
One takes in 144.7% of the mortgage, the other 110.3% of the mortgage.
Will property valuation dip or stagnate? Maybe, but will the rental income drop below the mortgage rate, I doubt it.

I view the properties as a long term investment and factor in some safety into the finances

Generali

IveSeenTheLight wrote: »

Is this a reflection on your investment choices though.
It may be that you invested, mortgaged up to the hilt to take advantage of HPI or for tax purposes.
Were your mortgages interest only? surely over 20 years if you had a C&I BTL mortgage you should be seeing a large percentage above the mortgage

I have two properties I rent out.
One takes in 144.7% of the mortgage, the other 110.3% of the mortgage.
Will property valuation dip or stagnate? Maybe, but will the rental income drop below the mortgage rate, I doubt it.

I view the properties as a long term investment and factor in some safety into the finances

If the 2nd flat is empty for 5 weeks and a day you won't be covering the mortgage from rent. Is that unthinkable? In my part of prosperous commuter Kent, rental places are regularly empty for longer than that.

IveSeenTheLight

Generali wrote: »

If the 2nd flat is empty for 5 weeks and a day you won't be covering the mortgage from rent. Is that unthinkable? In my part of prosperous commuter Kent, rental places are regularly empty for longer than that.

Both my properties are rented out at very competative prices.
Can the properties lead to periods without tenants, of course yes, however my rental price policy so far has worked so I am happy to continue this way.

Specifically relating to the 2nd property you questioned, the tenants and I are currently in discussions for leasing to them on a longer basis.

They have been good tenants and I believe I have been a good landlord. these are positives to coming to an agreement.

Generali

There was an interesting piece in the Torygraph yesterday (link)

Julie Degge, co-founder of van, truck and trailer service firm Deggz Commercial Services in Dudley, said that her
18-month-old business had grown rapidly, with sales exceeding £300,000 in the first year. But the growth had caused cash flow problems and, combined with a tightening in supplier credit terms, this meant that she needed to organise an overdraft with her bank.
"With growth you have to wait 60 to 90 days for money to come in. But the people that supply us have reduced their notice to 25 to 30 days. And because we have grown we have had to take on more staff and that means a larger wage bill. That's where the credit crunch hurts," she said.
Despite having no borrowings, in October the firm's bank refused a request for an overdraft.

This is a prime example of the impact that the credit crunch is likely to have. In this case (apparently) banks have been unwilling or unable to lend on what appears on the face of it to be a perfectly good risk. At the same time, as her suppliers have been squeezed, Julie has found that her cash flow is getting squeezed.

This is exactly what happened in the early 90s and exactly what I see happening now. And this is why BTL won't come to the rescue of the housing market - if the banks want less risk they'll want better cover on their loans. Unless the putative BTLer has cash then they won't be able to offer better cover.

WTF?_2

Generali wrote: »

There was an interesting piece in the Torygraph yesterday (link)



This is a prime example of the impact that the credit crunch is likely to have. In this case (apparently) banks have been unwilling or unable to lend on what appears on the face of it to be a perfectly good risk. At the same time, as her suppliers have been squeezed, Julie has found that her cash flow is getting squeezed.

This is exactly what happened in the early 90s and exactly what I see happening now. And this is why BTL won't come to the rescue of the housing market - if the banks want less risk they'll want better cover on their loans. Unless the putative BTLer has cash then they won't be able to offer better cover.

Indeed - and a smart would-be BTLer wouldn't buy property with prices on the way down, anyway. They'd wait until closer to the bottom of the market before jumping in.


People seem to have the idea that as prices drop, becoming marginally more affordable, people formerly priced out will just jump in and stop the prices falling any further.

Things don't work that way in the real world. Once the bubble stops growing, speculator demand disappears. That takes away a very large chunk of demand right away. There will also be people trying to take their profits from investment properties, increasing supply. Plus only the brave or foolish try to 'catch a falling knife' as who wants to take on a lot of debt in order to buy a depreciating asset?

That's all aside from the contracting supply of formerly cheap+easy credit, which is really what has allowed the housing price boom to reach insanely stupid proportions.

Once the market has bottomed, it's going to be a great time to be a cash buyer. But that probably won't be for years and few people will have the luxury of cash savings after a period of economic recession.

WTF?_2

macaque wrote: »

At some point Sim city needs more than BTL, MEW and house flipping to sustain itself. It would appear that the tipping point has now been reached. Unemployment is rising, disposable incomes are falling and the MEW tap is being turned off. As work drys up the immigrants will depart for the same reasons that they came here in the first place. It seems highly probable that within 2 or 3 years the population growth will go into rapid reverse. If that happens, there will be two types of BTL landlord; those lucky enough to have a tenant (at any price) and those who don't.

The more capable, educated, motivated immigrants will go to where prospects are better: the very people we really need to keep.

However, I'm sure there will be enough of the less employable ones to stay and swell the benefit figures substantially. After all, the UK has a remarkably generous welfare state.

For that reason, I can't really see population dropping too much. Also, once you're on benefits having kids becomes a considerably easier prospect than when you're working 24x7 to pay the bills and your taxes. Whilst a working couple might not be able to afford the loss of income due to pregnancy and then child care costs, it's simplicity itself when you're unemployed anyway and the state will provide all you need.

Given the perilous state of public finances, we're in for one hell of a shock in the coming year.