Small investors exit buy-to-let

Reports by mortgage lenders and surveyors suggest that rising interest rates, property market uncertainty and a squeeze on credit lending are deterring small investors from the buy-to-let market. Investors are reportedly now favouring cash over bricks and mortar.

Elaine Moore, FT.com - 18 November 2007

The buy-to-let market has been under increasing strain in the past year. Interest rates have risen, while rents have until recently been stagnant. Yields have fallen to an average of about 5 per cent and in some cases have fallen below mortgage interest rates - full article

Buy-to-let crisis hits UK housing plans

A growing crisis in the buy-to-let sector is leading builders to “mothball” city centre developments until investor demand picks up.

Dan Thomas and Tom Griggs, FT.com 18 November 2007

In what will be a blow to government plans to accelerate house-building, a slump in residential investment demand in areas such as the North and the Midlands is leading to the delay of hundreds of new homes.

Dandara, a city centre building specialist which has about 3,000 homes either under construction or going through the planning process, is to delay the development of the next phase of its land bank in Manchester until existing schemes are sold.

“We will release the next phase of our land bank sometime in the new year,” said Hugh McGuinness, sales director at Dandara. “It might be a little later now than it would have been.” - full article

Buy-to-let specialist Paragon crashes

Shares in buy-to-let specialist Paragon crashed this morning after warning that it may have to shut down to new business as early as April in response to the drying up of the credit markets.

Philip Aldrick, Banking Correspondent, Daily Telegraph - 20 November 2007

Nick Keen, finance director and Nigel Terrington chief executive, Paragon Group
Paragon hit by ‘deep turmoil’

The bank, which raises all its funds in the wholesale money markets and has no customer deposits at all, watched its shares tumble 80 to 124½p after threatening to close to new business because funding has become too expensive.

Separately, it said it had put in place underwriting for a £280m rights issue that would be used for working capital.

The bank is resorting to a rights issue despite the tumbling share price because the rate of interest being demanded by its banks for the revolving facility, which comes up for renewal on February 27, is punitively high – at 0.9 percentage points above Libor - full article

LandlordZONE Newsletter - November 2007

November 2007 Issue 24

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Welcome from the Editor:

Welcome to the November 2007 issue of the LandlordZONE Newsletter
It’s not all doom and gloom, though you might think so reading some parts of this Newsletter and the press this last week.

But to the contrarian investor it’s times like this that present real opportunities—as John D Rockefeller said—buy straw hats in winter. Markets always overreact and there will undoubtedly be some real bargains to be had when property is no longer a topic of popular conversation.

Established landlords know how to weather a storm like this because they know their markets, they know how to manage tenancies, they keep costs under tight control and they have kept their borrowing within sensible limits.Some will even be fortunate enough to strategically pick up bargains and grow their portfolios over the coming months and years.

If you are unfortunate enough to find yourself in difficulties there just two options: (1) pull all the stops out to meet those mortgage payments and see it though by marking personal sacrifices, or (2) cut your losses before you lose it all.

Just to cheer us all up the Landlord Show will be held 6th December at the NEC Birmingham with a record number of exhibitors and registered visitors.

I shall be giving a seminar on “Selecting Tenants & Managing Tenancies” [in good times and bad] so don’t miss it.

Tom Entwistle, Editor, LandlordZONE.co.uk

Continue reading LandlordZONE Newsletter - November 2007…

Locals being priced out of housing market

MORE than two-thirds of people in Silloth and Wigton could not afford to buy a home at today’s prices.

Julie Armstrong, The Cumberland News - 16th November 2007

Seventy-three per cent of households in Silloth, 68 per cent in Wigton and 49 per cent in Aspatria are being priced out of the housing market in their home towns.

Figures come from Allerdale Council’s housing market action plan for 2007-2012, which places the average price of a terraced house at £158,000 in Silloth, £113,637 in Wigton and £103,472 in Aspatria.

With an average salary of between £20,234 in Aspatria and £22,661 in Wigton, and mortgage lenders allowing single buyers to borrow only three or 3.5 times their earnings, people are facing a real battle to reach the lowest rung on the housing ladder.

And it would appear first-time buyers in Silloth and Wigton have it harder than most, with an average house costing close to £24,000 more than the average in Cumbria, according to upmystreet.com - full article

We’ll use rate cuts to fight off threat of a recession, says Bank of England

The Bank of England yesterday signalled it is preparing to cut interest rates in an attempt to ward off a recession.

Daily Mail - 14th November 2007

Issuing its most gloomy outlook for five years, the Bank said the economy could go into a sharp downturn that would hit over-inflated property prices.

And in a dramatic warning that alarmed the City, Bank governor Mervyn King said that the stock market may be teetering on the edge of a precipice.

The bleak predictions in the Bank’s quarterly inflation report suggest the impact of the world credit crunch sparked by a U.S. sub-prime mortgage meltdown is only just starting to hit the UK.

While the prospect of the first rate cuts for more than two years will be greeted with sighs of relief, the Bank’s outlook suggests homeowners will still have to cope with a painful period of sluggish growth and high inflation.

Economists said a first downward move in the Bank’s base rate could come as soon as next month.

Michael Saunders, of Citigroup, said the Bank’s forecasts looked to be the weakest since the September 11 attacks, describing them as “stunningly” pessimistic.

“Find a word that describes a pretty grim economic outlook and that is the Bank’s base case,” he said.

“All this is a very clear signal that the Bank’s monetary policy committee expects to cut interest rates if events unfold as expected. They could not be clearer.”

Downturn: A downwards ecomony would hit over-inflated property prices
Mr King confirmed his outlook is for a “sharp” slowdown in growth next year to around 2 per cent from over 3 per cent in 2007.

That assumes two interest rate cuts in the next year. The governor’s comments sent the pound skidding on foreign exchange markets where it dropped two cents against the dollar to $2.06.

But he did not rule out the possibility that Britain faces its first recession since the early 1990s - a prospect to alarm Gordon Brown.

“In the short run there is undoubtedly a risk, largely from the world economy, of a bigger downturn than in the central projection,” Mr King said.

“In comparison with August, the near-term outlook is less benign for both inflation and growth.” full article

See aslo: Bank of Engalnd Inflation Report: November 2007

Northern Ireland property investors are ready to do deals when market fundamentals improve.

Henry Elvin of Ulster Bank tells Belfast Telegraph business editor Nigel Tilson (15 November 2007) that the commercial property market in Northern Ireland has had a quiet year, but busier days lie ahead

Northern Ireland property investors are ready to do deals whThat’s the view of Henry Elvin, head of corporate and property banking with Ulster Bank, who said a combination of higher interest rates and tightening yields over the past two to three years has dampened the commercial property market this year.

In some cases interest rates are higher than yields, even for blue chip properties, which has made funding mechanisms “difficult”.

But Mr Elvin said if yields improve slightly and there is a softening in long-term interest rates then conditions will be right for “normal service to resume” - full article

Cost of renting close to cost of buying

Buying a home is more cost effective than renting, but only by a narrow margin, according to Abbey.

John Bakie, IFAon-line.co.uk - 14 November 2007

Abbey’s annual UK Rent Versus Buy Index calculates the cost of buying a home compared with 25 years of renting, has noted that the two are costing an increasingly similar amount.

The research surveyed the average cost of buying a home with a mortgage over 25 years and compared it with the average cost of rent over the same period.

In total, the average home would cost £437,925 to buy, while the cost of renting an average home is £443,736; a difference of just £5,811, or £232.44 per year - full article

Auctions offering more buy-to-let opportunities

London auctioneer Allsop’s prediction that 40% of properties under the hammer next year will be repossessions means there will be some attractive opportunities for brave long-term buy-to-let investors.

Lorna Bourke, CityWire Money Columnist - Thursday 15 November 2007

It is also worth noting that figures from Essential Information Group, which monitors all UK auctions, shows that the number of lots left unsold has risen from 24% this time last year to 40%, indicating that in an uncertain market, buyers are reluctant to take a chance - full article

Global property markets in for ‘tough ride’

One of the most aggressive Australian investors, Macquarie, says global real estate markets are in for a ‘tougher ride’ with marked regional variances sparked by the US economic slowdown and financial volatility.

By Deirdre Hipwell, Property Week - 14th November 2007

Advertisement
In its Real Estate Market Outlook 2007/2008, published this week for the first time outside Australia, it predicted below-trend economic growth in the US until the end of the decade - full article