Welcome to the July 2008 edition of the LandlordZONE Newsletter.
Problem Tenants – August 2008 Issue 32
It’s hard to believe it’s 12 months since the long running boom in the housing market came to an abrupt halt.
The “credit crunch” suddenly froze the wholesale money markets around the world, practically paralysing the banking system.
It’s exposed those “too-clever-by-half”, and some would say “greedy”, banks and hedge fund managers, plus the “red-tape” bound regulators, for what they really are—the recriminations will go on for years.
With the effective collapse of several important banks and the resulting squeeze on their balance sheets there’s a palpable headlong rush back to reality.
As the tangled mess gradually unwinds inflated value is being sucked out of the system and a distinct possibility of recession.
Sorry to pile on the gloom, and I have been accused of being too gloomy of late, the whole situation is being exacerbated by rising commodity prices.
Rising inflation means that the Bank of England’s hands are tied – it cannot lower interest rates to provide a boost to the economy for fear of runaway inflation—the classic Stagflation trap.
Governments are not entirely blameless in all of this—presiding over a credit bonanza which kept the economic fires roaring away whenever a slow-down threatened.
Are we now reaping the “pent-up cost” of these FED policies; is this the price we would always have had to pay?
Likewise our own government, which was very happy to claim all the kudos in the boom times, and famously promised the end of “boom and bust”, has presided over a spending spree which leaves the coffers bear—just when tax cuts would otherwise have given a very welcome boost they’re cancelling defence contacts & introducing more stealth taxes.
My gut feel says it’s far from over yet, but there are always silver linings to every cloud:
Rental demand remains strong, despite an increase in supply as more rentals are introduced when houses don’t sell.
With a buy-to-let industry now worth over half a trillion pounds (£500bn) and more than 1m UK landlords, this is a major industry with a great future, around four times the size of the motor industry (1).
Despite the crunch, buy-to-let mortgages are still obtainable on pretty much the same terms as homeowner mortgages and defaults by landlords have been around 20% lower.
According to a recent study total debt in the buy-to-let sector is no more than around 30% – meaning that overall the sector is under-leveraged (1).
Despite recent set-backs the private rented sector is forcast to grow at a steady pace from its presnt level, with similar growth in the value of the rental housing stock.
The student rental market has been a particularly positive area with continuing growth in student numbers and sustained high rental yields.
Tom Entwistle, Editor.
This issue is wholly sponsored by Coverlet one of the leading providers of insurance for the rental property market.
This month’s Topic – Student Lettings
This issue of the LandlordZONE Newsletter will focus on the Student Letting Market.
Established landlords in this market have long enjoyed excellent income returns, usually far higher than standard buy-to-lets.
Parents currently sending off their children to university could now find this type of investment a particularly good strategy.
Prices are down, yields look attractive, so as well as providing a roof over their off-spring’s head, parents could be making a good long-term investment at current values.
With house prices predicted to continue falling, student houses should be more resilient than most, demand should be maintained as student numbers are still growing, and there could be some real bargains around as some landlords may be forced to sell.
But do your research: yields vary quite a lot in university towns, compare returns and student demand.
Check the property meets current regulations—student houses come under HMO rules, making preparation expensive.
Lending criteria is tougher than it was—you are likely to need a 25% deposit.
Simon Thompson of Student Letting web site accommodationforstudents.com has supplied much of the content for this issue.
Simon is researching and writing the definitive guide to student lettings with youth marketing specialist Luke Mitchell of Reach Students, the author of Targeting Students: A Marketing Guide.
Their book, which will be a very worthwhile read, will be out in January 2009.
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