Cautious on Buy to Let Properties!!

[twofnine]

I have the chance of sharing on a purchase of a Buy to Let property. But with a Housing Crash being banded around at the moment, im beginning to feel it may not be the right time to consider it.

Do you think there will be a Housing Correction in the Property Market looming, or is it scaremongering? And bearing in mind youngsters are having difficulty purchasing their first home, and people are already falling behind with their mortgages after the 0.25% Interest Rate increases!!

[Matt Churchill]

I have the chance of sharing on a purchase of a Buy to Let property. But with a Housing Crash being banded around at the moment, im beginning to feel it may not be the right time to consider it.

Do you think there will be a Housing Correction in the Property Market looming, or is it scaremongering? And bearing in mind youngsters are having difficulty purchasing their first home, and people are already falling behind with their mortgages after the 0.25% Interest Rate increases!!This is the $64m question!
My personal opinion is that there will not be a drastic change in prices (but I'm no doubt wrong;) ). There has been talk of a slowdown in the economy and house prices for months and months now, and as yet nothing. Speaking to local agents, there seem to be very localised changes in selling rates, but, one thing that is constant I'm told, is the continued demand for rental properties.
Despite the best musings of the press, in reality a 0.25% rate increase makes little difference to peoples repayments. For example if a £50 increase is enough to make a difference to someones ability to meet repayments then they were always at risk.
With property you still need to take a long term view, which if you do should see you protecting your investment.
Finally, as I alluded to earlier, as long as you can afford your repayments then you should be in the box seats if people cannot afford to buy property and need to rent instead.

All just my opinion, but hope it helps.

[MrShed]

I am firmly of the opinion that the much publicised future house price crash simply won't happen. At worst, in the short term, house prices may stagnate or decline slightly. However, long term I still believe housing is an excellent investment.

[twofnine]

I am firmly of the opinion that the much publicised future house price crash simply won't happen. At worst, in the short term, house prices may stagnate or decline slightly. However, long term I still believe housing is an excellent investment.

So MrShed you would gamble £38k to £1k, and what I mean by that is the value of the property loss if it crashes, and the extra amount earnt in rent per annum compared to a high interest account without any concerns?

[islandgirl]

I too do not forsee an 80s style crash. Prices will stop going up so rapidly and may even fall a little in my opinion but will recover. Most people do not view property investment as a short term gain but long term (in lieu of a pension for example). The key is to buy right. Buy a good property in a good area and it will hold its value. Pay a silly price for a wreck in a bad area and, well, you get the picture!

[Mevs]

economics says that the market can't crash like it did previously - demand massively outstrips supply for quality housing stock and with continued EU expansion that can only continue - further growth in single person households add to the strain on housing stock - and a big factor in the previous market crash was unaffordabilty due to interest rates of 15% or more, which in MY VIEW we are unlikely to see given the Bank of England's role in monitoring the economy and controlling inflation. And even if prices fall, you only lose if you've paid ful price the day before and need to sell. It's a long term game so you need to be prepared to hold your properties long term, and insulate yourself from what you perceive to be the risks to the properties you hold. Personally I target FTB type properties as demand is massive in this market, from FTBs, downsizers & investors.

Good luck
Mevs

[MrShed]

So MrShed you would gamble £38k to £1k, and what I mean by that is the value of the property loss if it crashes, and the extra amount earnt in rent per annum compared to a high interest account without any concerns?

I would happily put £38k into property at this moment in time, yes. Over and above any other form of investment. To me, the rental income is unimportant, it is the capital gain which is the big bonus.

[ivrytwr3]

To me, the rental income is unimportant, it is the capital gain which is the big bonus.

That's an interesting point. I purchased a property for £92k, now worth £120k. However the rent does not cover the mortgage (i have to add a further £50 from my own pocket to cover the mortgage).

I too was looking at the capital gain, did i do right? As there are days i feel i didn't!!

[lee2309]

That's an interesting point. I purchased a property for £92k, now worth £120k. However the rent does not cover the mortgage (i have to add a further £50 from my own pocket to cover the mortgage).

I too was looking at the capital gain, did i do right? As there are days i feel i didn't!!


I suppose it depends on when you purchased the property. Would you have earned a gain as sufficient as that on any other investment?

I have 3 rental properties and one of them has a shortfall of £2000 per annum. long term I can see the financial gain. In just a year it has grown by £25k. My first property has funded all three with a significant gain in 5 years and i still have a surplus every month.

I too feel that the rental income is insignificant. My opinion is property is still an excellent investment if you do your research and keep on top of everything.

[lee2309]

I have the chance of sharing on a purchase of a Buy to Let property. But with a Housing Crash being banded around at the moment, im beginning to feel it may not be the right time to consider it.

Do you think there will be a Housing Correction in the Property Market looming, or is it scaremongering? And bearing in mind youngsters are having difficulty purchasing their first home, and people are already falling behind with their mortgages after the 0.25% Interest Rate increases!!

BTL's are calculated such that you have to obtain between 120% to 130% in rental income. which should give you a surplus for any surprises during the rental period. This is done as a precaution and you also have your minimum of 15% equity that you invest in the property right from the beginning. Even if there is a crash (which i doubt very much) worse case scenario you will still be receiving your rental income which should more than cover your monthly mortgage payments. All you need to do is sit it out till it starts to rise again.

Most people get scared off with rumours of house prices falling and decide to sell quickly before a fall. Then you have a surplus of property on the market & less buyers sp property stays on the market for much longer and people get desperate and start to drop prices. This is what causes the slow down in my opinion.

Area is important. Size as well. 1 bedrooms and 2 bedrooms are the most popular and very easily rented out. Ask any letting agent and they will tell you they have lists of people always looking for these types of properties.When you have a smaller property there is less to do in terms of maintenance as well. rental yields are far better on a smaller property in my opinion.

You need to find a good mortgage deal as well. Look at the APR as opposed to just the rate. Ask your mortgage broker about a total cost analysis and ask for the research so you can see the top deals. You can also get brokers that want to top up on their work and offer to do the work with no fee and give you up to 50% cashback on the fee they earn.

Hope this gives you something to think about.

[jeffrey]

I am firmly of the opinion that the much publicised future house price crash simply won't happen. At worst, in the short term, house prices may stagnate or decline slightly. However, long term I still believe housing is an excellent investment.

Words that we wish we hadn't used (part 1)...

[sgclacy]

Words that we wish we hadn't used (part 1)...

Jeffrey I must confess at first I was lost as to the point you were making, it was only when I looked at the date of the earlier posts in the top right hand corner did it all click into place!

My barometer as to the slow down in the property market is guaged by the number of leasehold enquiries I get as a manging agent...not many, but plenty of requests for lease extentsions. Many lessees are concerned that if they wish to sell that anything short of 80 years will cause concern to buyers

I would make the point that gearing flaters an investor in a rising market but will rip out his sole in a falling market

A property bought with a 75% loan and 25% equity. So a 200k property is fuinded by £50k equity and £150k loan, If the property falls by 10% from £200k to £180k your equity is down to £30k. A 40% fall in your wealth due to a 10% adverse movement in price.

With a geared investment it is very important to adjust your risk premium when evaluating your purchase

[King_Maker]

(snip)
I would make the point that gearing flaters an investor in a rising market but will rip out his sole in a falling market

A property bought with a 75% loan and 25% equity. So a 200k property is fuinded by £50k equity and £150k loan, If the property falls by 10% from £200k to £180k your equity is down to £30k. A 40% fall in your wealth due to a 10% adverse movement in price.

With a geared investment it is very important to adjust your risk premium when evaluating your purchase

Very true. And some of the more recent "investors" bought with LTVs of 90%, which is almost instant Negative Equity.

Plus the mortgage famine means that the re-mortgage option to lower rate(s) has vanished.

[lorenzo]

economics says that the market can't crash like it did previously - demand massively outstrips supply for quality housing stock and with continued EU expansion that can only continue - further growth in single person households add to the strain on housing stock - and a big factor in the previous market crash was unaffordabilty due to interest rates of 15% or more, which in MY VIEW we are unlikely to see given the Bank of England's role in monitoring the economy and controlling inflation. And even if prices fall, you only lose if you've paid ful price the day before and need to sell. It's a long term game so you need to be prepared to hold your properties long term, and insulate yourself from what you perceive to be the risks to the properties you hold. Personally I target FTB type properties as demand is massive in this market, from FTBs, downsizers & investors.

Good luck
Mevs
Economics say no such thing.

True economics recognizes various scenarios, only one of which has been presented. An unbiased economist (if there such a beast) will recognize the possibility of a correction.

Indeed, many noted economists are floating figures of -30%.

Nobody knows the future, but a wise investor will consider the risk of ruin under various scenarios.

£0.02

[Colincbayley]

As the FSA statement reads 'Prices may go down as well as up, but then again they may just stay the same'

[equitypm]

As previously mentioned by a number of people your decision should be based on the location of the property.

In the right area the rental market is massive, and is only going to rise with the shortfall in housing being built each year and the increase in the population. You need to make sure the property has good transport links and is in an area of high regeneration.

There are companies out there that can get you into discounted BTL investment opportunities with NO MORTGAGE DEPOSIT close to universities allowing for high multi let potential (Equity Portfolio Management being one of them)

Ultimately the decision is yours to make and only you will know if it is the right opportunity for you.

[jeffrey]

Hmmm, wasn't Inside Track one as well? Remind me- did that turn out OK?

[equitypm]

Inside Track charged people thousands of pounds for “investment teaching”. There are other companies around that simply offer discounted investment opportunities to investors, and they do this for FREE… well they do charge a finders fee.

In every business sector you will always have some companies that try and make a quick buck, they cut corners and generally offer a poor service. These companies always get found out, just as IT and TIC Ltd have, but that does not mean other companies out there are out to scam people.

The best way for a company to grow is repeat business and referrals, this can’t happen if the service provided is not good enough!!

[Brit1234]

I think its clear to see now that the days of buy to let are numbered for some years to come. It simply doesn't make financial sense at the moment, especially when there are so many investments at the moment that give you better returns.

Too many people have jumped on this bandwagon at the end of the cycle. Prices are clearly going down for years before they go up again.

[jeffrey]

Too many people have jumped on this bandwagon at the end of the cycle. Prices are clearly going down for years before they go up again.
"Hello, is that the Department of Mixed Metaphors?"

[attilathelandlord]

Well I'm just motoring ahead!

It really does depend on what area you're in. I'm still buying with an average of £15 to £30k knocked off of prices in London and rents are going up.

Gearing is at 80% to 85% but I plan to sell in 20 years time when the next cycle is just reaching a new upswing hopefully.

[Brit1234]

Well I'm just motoring ahead!

It really does depend on what area you're in. I'm still buying with an average of £15 to £30k knocked off of prices in London and rents are going up.


The area has nothing to do with it at the moment, all areas are facing large falls at the moment.

The housing market is clearly a giant bubble built on speculation and lose lending. People who say todays prices are just based on demand are speaking balderdash and have no true understanding of economics. The housing market was just to ramped up and unsustainable, the steep correction is now happening before your eyes.

As for rents, they are limited by salaries. With inflation going at the rate it is especially on food and energy people will simply not stand for rate rises beyond a certain point. Already more and more people are moving back home or sharing with friends especially in London. How are people going to save the deposits needed now when all their disposable income is taken up by rent increases. People will simply take the line of least resistance.

Also in the Midlands, North and Wales rents are actually falling due to oversupply of new flats. We are also starting to get a massive glut of flats in West London as well.

[attilathelandlord]

Not my experience at all Brit1234.

But then I target a very specific rental audience in SE and NE London. West London is way over priced and I would never buy there.

I concentrate on buying ex-local authority flats which were never going to be the most expensive properties so they don't have so far to fall (which isn't to say they won't go down in the short term - but this isn't a short-term game).

The American experience during the Great Depression shows that the people operating flop houses actually thrived because people could pay $10 (for example) a night for a room but they certainly weren't going to pay loads of money for fancy accommodation.

I'm at the student/migrant worker end of the market and let me tell you, they ain't going away.

Plus the fact as long as you know what you are doing fortunes (or at least a decent living) are to be made in a crash.

I might not understand economics, but I understand business.

Might not be true for everyone, but it's certainly true for me.

[Brit1234]

Here is a link today about falling rents across the country, it also shows London and the South East leading the falls.


http://www.citywire.co.uk/personal/-/news/money-property-and-tax/content.aspx?ID=303318&Page=1

[attilathelandlord]

Interesting article, but too generic.

Once again, I don't worry about what I read, I'm more interested in what's happening on the streets and my experience is quite different to that article.

Still, it might be different for other people.

[King_Maker]

(snip)

Once again, I don't worry about what I read, I'm more interested in what's happening on the streets and my experience is quite different to that article.

(snip)


Spot on, IMHO.

It is imperative to rely on your own research - not the media spin.

Most financial journalists have not got a clue - they merely "cut & paste" what's fed to them by PR machines and the Wire Agencies. That is why nearly every newspaper, TV, Radio etc has exactly the same stories. Psychic collective mind? I think not.