Rising rents mean happy days for buy to let investors

Don't buy, rent instead

We are about to see a big drop in house prices

FTBs and owner occupiers will get burned

A 10% drop in the value of a typical £200K house means you lose £20K...this will dwarf what you pay to rent the same place

Rent, rent, rent everyone...and leave the ownership issues and risks to the landlords...

Landlord X as a FTB I would rather lose £20k in value and still have ownership over a property, than give a Landlord rent. Over the last 4yrs I've paid over £30k in rent, money that has paid off my landlord’s mortgage, not mine. As you well know, when you buy you own an asset which you invest in, with rent you get nothing back financially.

Anonymous1. So you have paid £625 in rent for the last 4 years. If you had a £150,000 mortgage at 5% interest you would have paid out the same in interest but still have the £150,000 outstanding. You would also have had other costs to bear that your landlord had to cover with your rent (insurance, repairs etc).

You property may have gone up in value and it may have gone down.

I dont really see that you got a bad deal.

Rent rent rent is increasing increasing increasing, same that happened with property prices so landlords will get greedy and then rental boom will bust because buying will be more attractive. Greediness needs to end either way. People need homes to live in and they need to be able to have a life outside that too.

I agree with Nick up North

Renting is obviously the solution when house prices are in decline or static. The converse is true if house prices are on the ascent.

My wife and I rent the house we live in, currently. We also own a portfolio of properties that are rented out. We rent our home because it is cheaper than if we were to buy it. This is only true because the capital value of it is not going to appreciate in real terms (faster than inflation) currently. All the time we believe this to be the case, we will contine to rent our home we live in.

Our portfolio is doing fine because we do not ever intend to sell it, so any dip in prices is irrelevant to us. More interestingly, the rents received on our portfolio as showing an increase of 20% over the last year so all's good.

BTW, your home is NOT an asset. It is a liability. That is because you get no income from it and you have to pump money into it each month/year. However, the same house owned by you but rented out to another party IS an asset. That is assuming it delivers a net income to you - which it should do if you have bought at the right price.

see the book 'rich dad, poor dad' for greater explanation of this key point.

If you had a £80000 repayment mortgage at 5% (perhaps let one of the rooms out tax free), you would be much better off in the long run. Perhaps have old fashioned views of living in it for more than 2 years.

£150k property you rent for only £625 month on an interest only mortgage? I don't think that is likely to be the case for Anon 1's landlord. Unless they're the type who likes to get together with their friends on a Sunday afternoon for a nice quiet game of Russian roulette.

Plus, landlords don't do repairs or maintenance so they save a packet there. That's business nous, that is, and landlords deserve the admiration and respect they demand.

Anonymous2. What are you talking about? Of course landlords do repairs and maintenance. If they dont their houses will fall down and that doesnt make much sense does it?

Where I live a property worth £140-£170k would attract a rent of £625/month. Likely to be a decent 2 bed flat or 2 bed terrace in a good location - not top notch and not bargain basement just decent.

If I bought one to let I would have to find a 25% deposit + various fees. I would have to fund this plus mortgage interest of say £500/month (£120k @ 5%) plus repairs, maintenance, insurance, vacant months, advertising or agents costs. I would have nothing left out of my £625 but would still have to put in my time, my risk and my worry about whether the property's value will go up or down.

I dont see landlords making a killing there. Do you?

How can rents go up? This cock-eyed country is a shambles. People are struggling to eat. The economy is going down the drain.

A Labour left-over, widening the difference between the haves and have-nots.

Rents increasing? More La La Land crap.

How can rents go up, NickNuts? Well there are more people wanting to rent than there are houses to rent. Result rents go up. In the 5 years or so leading up to the crash rents were going down because more people were buying not renting and that pushed rents down.

Your commments suggest that you see it as some kind of centrally controlled conspiracy against the people.

Its just market forces thats all. They go up, they go down.

NickNuts, I hear your pain. However, it is a cold fact that rents, like most aspects of a capitalist society, are subject to the basic rules of supply and demand.

More people are renting the same housing stock. They are renting because they can't or won't buy. This squeezes the rental rate upwards. Conversely, prices are, relatively speaking, going down, in part because of the lack of those same potential buyers who are renting.

As one of the commentators rightly pointed out; there will come a time when rental rises will push the balance the other way and more people will stop renting and start buying. I don't see that happening for 8-10 years for two simple reasons

1) house prices are still 30%-40% over long term value trends and

2) banks will take at least that long to clean their balance sheets of all the bad debt that will keep on coming over the next few years.

Morpheus

I guess NickNuts was commenting on the fact that many people are losing their jobs and cannot pay their rents?

if so, he is ignoring the basic fact that rents get paid regardless of the financial plight of the individual. ultimately the state picks up the bill for those unable to pay their way. everyone else has to rely on their incomes or savings. and these people will also pay their rents.

the things that don't get paid are credit card and HP loans et al. most people stop paying these before they stop paying the rent.

I would volunteer that there is not really anyone who honestly cannot feed themselves, assuming they have not completely dropped out of the main society. .....................but that's another debate.

maslow's hieracy of needs will stand firm: Food, shelter and warmth first, all else is lesser priority.

You beat me to it, Nick up north

if you had a £150,000 mortgage at 5% interest you would have paid out the same (£30,000) in interest (over the last four years) but still have the £150,000 (debt) outstanding. You would also have had other costs to bear that your landlord had to cover with your rent (insurance, repairs etc).

You property may have gone up in value and it may have gone down.

---------

Over the last four years it would have gone down in value (average 16% or £24,000 according to Halifax/Nationwide), and probably more than the house price surveys show. They do not take into account all the houses that are not selling because sellers simply refuse to accept the offers they are getting.

A further point. when you "buy" a house with a mortgage, anon 1, it is NOT your house, it belongs to the bank. You should read the small print.

Banks have been given incredible leeway by govt, the BoE and regulators not to force repossessions properties when mortgage holders are not paying. Were they to repossess and force sales, prices would plummet. and bank's balance sheets would get trashed as they would have to mark down the value of their assests (ie the houses that you seem to think belong to mortgage payers).

It's a bubble. Only the largess of frightened government and regulators has stopped the market from crashing much further.

It's a mug's game.

Nick up north

It does not always follow that if there are more people requiring a house, that rents go up. Generally it would be true, but....

But demand (as economists rather than know-nothing journalists use the term) only rises if more money is available.

There may be a huge amount of people requiring accommodation in Bangladesh, but it does not necessarily follow that rents shoot up. It depends on availability of money.

There is reportedly rising levels of people looking to rent. If that is true, it also follows that a falling amount of people are looking to buy. Unless there is a huge growth in amount of people, one is the inverse of the other.

So, that would mean that prices of houses would tend to fall. If house prices fall, and rents rise, then yes the yield will become more favourable. But ONLY if those two things happen.

I agree with anonymous 1 - I would much rather own my own home than rent. You are actually paying into something by buying a house, whereas renting is just dead money!

I have had some very bad landlords and lost a lot of money from my deposit before whilst renting and that was enough to put me off renting for life.

I am now on the property ladder at 25 years old and I don't regret it all - I am on a two year tracker repayment mortgage and the low interest rate has meant that I have saved over £100 a month on a fixed rate (for my LTV of 85%)

In fact, when it comes to buying a new house, I am hoping to keep my house now and rent it out so it will become a bigger asset

Roberto Birquet, fair point on the Bank owning the Property, but once you've paid off the Mortgage you then own the Property. When you rent you pile money into someone else's coffers rather than your own, which was my original point.

Anonymous1

I agree with that. In fact it is self evident that once you have paid off the mortgage you own outright. And I would recommend a person buys a house (or more accurately for 99% of the population) gets a mortgage on a house that they are going to live in.

however, not at any price.

The ONLY major reason for the house price explosion seen from around 1998-2007) was initially, because prices were under-valued (1997-1999), then valued fairly but there was confidence in the economy (2000-2001), and then from about 2002-7, because of financing from banks.

I am sure you are aware of the great banking crash of 2008. Why did that happen?

1. Banks were lending money they did not have.

2. They sold on the debt to the international financial markets to save themselves from the risks, who bought it because the credit rating agencies said the debt was good value as it was mixed with safe bonds

3. The credit rating agencies realised in 2007 they had made a huge mistake and that the above investments were extremely risky and often worthless.

4. Those financial markets closed down refusing to buy more banking assets, as the system was infected with dodgy mortgage loans and also private equity loans.

5. That caused the credit crunch; many banks that had become reliant on those markets, by not leaving large reserves in their vaults, and giving out too many large mortgages started falling like nine-pins (Northern Rock, most of Iceland’s, Bradford & Bingley, RBS, Bear Sterns, and most famously, Lehmans)

The current "mess" which people are being fooled into believing is somehow because govt spent too much money, is actually because businesses and individuals were spending too much money, borrowing too much money, and banks were lending too much. The govt mess is partly because they bailed them all out infecting themselves just as recession was about to hit.

The money for those huge home loans in 2002-7 did not really exist.

The price of a house is easy to calculate. It is what a buyer can pay. That is equal to the loan they can get from a bank (typically 4x earnings minus any debt they hold) plus the deposit they can get together.

When banks gave out enormous loans with money - as explained - they did not have, prices of houses rose. But it was a chimera.

The real value of houses is: the loan a buyer can get from a bank (typically 4x earnings minus any debt they hold) plus the deposit they can get together. And that is much lower than current asking prices. And as people are refusing the offers (pure ignorance and denial of reality), houses are not selling.

Many such as the writer of the article above have called on banks to lend more to sort out the mess. That is repeat the mistakes of 2002-7. But the simple fact is they can't.

The credit markets have closed down and they cannot get the money. Once people accept (voluntarily or by force thru repossession) offer prices, then the market will start up again. I suggest you wait till that time … then buy. We remain in la-la land.

Wait until prices are at 2003 levels: after inflation, that will be about right. They are currently at 2005 prices: 20% fall still needed.

I see the landlords talking the market up. BS says I. It seems people have forgotten that a house/flat is not necessarily an investment. In the first instance it's a home. One where you can paint the walls the colours that you like, change the carpets to a shade more to your liking and format rooms in a style that suits you. Sure invest in property all you like, but with no home you have no soul. I've rented (enjoyed it) knew full well I was helping the rich get richer, had good landlords & crap ones too. Now I (or rather the Bank) owns my abode. Enjoy that too! No hassle every six months having to move or be blackmailed into paying more for a lack of service that hasn't changed. No more constant phone calls to get basic remedial work completed. No more deposits disappearing.

Sure rents are rising because people can't afford to buy. But it's not something to celebrate. If the tenancy laws were as equitable as say Germany (or Scandinavia), I'd be the first to say rent don't buy. But come off it Landlord X, Roberto Birquet & Anomynous 2 - landlords are exploiting (legitimately) a market arising out of their own actions (pricing FTBs out of the market with BTL tax advanytages), a Tory govt that made councils sell all their houses creating the market, a Labour govt that were even less socialist than the previous govt, a current coalition that won't grasp the nettle.

Turkeys may not vote for Christmas, but vested interests will always promote their agenda

Karl Smith

I agree with much what you write; can't say that I can work out what you have against my comments.

----

But the main reason prices rose so much was that banks lent too much money that was never real, not because of BTL landlords. If banks did not lend so much, those BTLers would not have bought so much, simple. Now, the entire system is broken.

The reason prices have not fallen by as much as they should have is:

a. buyers have an emotional attachment to the peak prices and do nmot want to sell for less. There should be no room for emotion in cold calculating investments, and in a real functioning market such emotional attachments would be punished as prices would just fall even further.

b. But banks are not forcing sales, and the BoE has droped interst rates to emergency levels, so people are not FORCED to accept market prices, and they do not want to accept market prices (20% below official prices, I'd guess).

Result zombie market; very few sales. Sales are currently about 60% down on the 2007 level; they are even about 25% down on the bottom of the last market wave in 1994.

The current market is simply not real.

It would be best if government forced the situation. Force sales, let banks get into problems, use debt-for-equity deals.

Who will suffer? Banks shareholders (that's capitalism, stop complaining), and property investors.

Who'd win?

The market would get moving again, and families could get a home. And peopkle would learn a valuable lesson about debt and investments. That is far more important.

@Roberto, I know this is Citywire (not a social blog) but the point I was trying to make is this pervading view that where you live is all part of a greater "investment" arena. I don't subscribe

BTL landords are running a business, the aim of which is to make a bit of money and move their product. For the seller to be "advising" customers (on principle) to buy his product is fine advertising, I just don't buy it and find it alittle perverse. It's horses for courses.

I indeed agree with much of your analysis above. However:

a) A home owners should have an emotional attachement to there property (on a more visceral level). For a BTL landlord/investor this would be wrong, but for someone looking for somewhere to live...

b) Very few sales is not merely a banking issue (although this is a big part of the problem). It's about perception of the future (fear). It's uncertainty about jobs. It's worries about debt. It's not saving enough.

I just do not view where I live as an investment. It's not an asset, just somewhere to keep my stuff & rest my head!

As for your final points.

The buying market is stagnant - I don't have any answers there! But I do think a lot of it has to do with confidence and the expectation that seems to pervade this country that where you live is an investment & as such should make you money. Why?

I also agree banks should pay for their poor lending decisions (preferably in jobs for the decision makers).

Where's the Dyslexic Landlord when we most need a laugh?

Drake: just what I was wondering! Hiwever, even without his input this has been quite an interesting and balanced exchange of views. Some contributors even seem to have studied 'O' Level Economics!

I don,t even have an o level, but I have still managed to make myself over million quid mainly by owning my own houses over the past 40 years, I do not think I would have done this renting.

Rents are rising rapidly in my patch of the South East - up 10% this year and last

Not my fault if people prefer to pay high rents rather than move to a cheaper area - that is their choice not mine

Not my fault if my local authority cancels planning permission for 2000 new flats due to aesthetics and prioritises existing landowners over FTBs - feel free to rant at your local MP about the stranglehold of NIMBYs on the planning bureaucracy in the UK

Not my fault if local authority uses taxpayers' money to house people on benefits in one of the most expensive locations in Sussex when they could just move them to a cheaper area -so we end up with the perverse situation where a single mum on benefits can outbid high earners in the private sector for luxury flats - feel free to moan at your MP about this misuse of your money

Not my fault if the Govt has left the gates wide open and let in 400,000 immigrants in 2009 alone but hardly any new housing built in recent years; half my portfolio is let to foreign nationals who have chosen to settle in UK

Also not my fault if Govt mismanagement of finances means that millions prefer to rent rather than gambling their entire life's savings on the property market - but hey FTBs - feel free to take a punt - it's your money after all

Renting makes so much more sense - low risk, you can move when you want, low financial commitment, no bother with maintenance, no bother with getting finance etc etc you know it makes sense

It's a bit of a mixed bag, though rent might be rising there are other factors which might mean they are set to fall in the next year.

Stricter limits are being put on housing benefit. This measure is intended to reduce the amount of money the government spends on housing benefit, its result should be a reduction in the amount of money going into the rental market.

Universities are going to charge higher tuition fees (up to £9,000 pa) this is expected to lead to less people going to university and more people doing a degree in their local area so they can stay at home. http://blogs.telegraph.co.uk/finance/ianmcowie/100010227/house-prices-new-threat-for-buy-to-let-landlords/

Inflation and low pay rises mean that people will have less money to spend on rent, this will also put a downward pressure on rents.

Hi Drake and Co

Well im not going to sat ive told you so But this Artical is just saying what ive said since 2007 Its a super market

I may not beable to spell bu tthe Taxman loves me ive never made such a profit so happy days

Its a great market and I also glad to see New Home Buyer has taken the Plunge we need FTB its the blood of the market and you know what when FTB do come back to the market which they well Landlords will make even more money because capital values will rise once again

Landlords never lose in the long run

Landlord X.

My rent (E2, London) has been static the last two years.

Karl Smith

It is true that homeowners should have an attachment to their home, and to the area they live. Something that is being lost with all the property porn, and media hype that has followed on from the lax policy of banks - ie giving out any size of loans).

The market has become stagnant since the bailouts, not just because of fear, or any perception of the future. It is also about the money simply not existing to pay for the persitently high asking prices for houses.

A house can only cost what someone can pay for it. Currently volumes have plumetted, and the majority of sales are going to cash buyers. But how many of them are there? Can they sustain an entire market? of course not.

The asking prices remain high for one reason. Those prices used to be realised, and sellers pine for the same now. Had the banks never given out such stupid loans, people would not now being asking such high prices for houses. In 2003, house prices were almost double those of 1997. One would think that were house prices double what they were in 1997, sellers/investors would be happy. But, no. They have been even higher (2006-7), so sellers feel an entitlement to those even higher prices.

The fact that the banks remain in business because of tax-payer guarantees, and BoE largesse with money printing (to support banking) and emergency interest rates seems to pass people by.

By bailing out banks and mortgage holders, people are not facing up to reality. I see only two solutions to the stagnant market.

Either one: destroy the value of money through inflation. That way, people will get their asking prices, because people's wages will have to rise to compensate the inflation.

or, two: allow the orderly liquidation of banks balance sheets and their loans. Shareholders will have to pay the bill.

The correct one is the second.

Investors backed a poor horse in buying banks and should face the consequences. It's called the free market. If we don't believe in it, why do we pretend to persevere with it?

The one being pursued by the banks and the authorities (govt, BoE) seems to be the first.

Good Grief!

Jonathon

Another lead weight on rents will be falling living standards. Income tax (or the silly named NI), and VAT both up this year. If people have less money available for rent, rents will fall.

Simple, basic economics. Demand is constrained by the supply of money. Less money, lower demand.

In case someone comes out with "demand is rising", be aware, demand is not volumes. It is money.

Roberto

YOu do make sence but I think you forget the demand for property to rent is very high

I keep records and I dont advertise I get recomendation from my customers this time last year I was reciveing two calls a week from folks looking to rent

This year it is avarageing 15 calls a week

I only wish I had the empty property to rent

another thing when I do have an empty property I can achive 10% higher rents than last year

A renters market its not

A Landlords market it is

@ Roberto

Agree with Dislexic Landord...for once we are in a Landlord's market

Down South am inundated with requests for flats to rent...in one of the blocks where I invest there is a constant queue of prospective tenants wanting to move in.

All my rents are up 10% this year and last...if this continues then rents will double within 7 years...and more rapid increases than this in London/M25 area

So many small landlords sold up last year, driven out by years of low returns on rents and high compliance costs caused by the previous Govt...but now rental returns are improving sharply

So many FTBs do not want to buy for fear of seeing their life's savings go up in smoke if we have another downturn in the sales market, which is likely...and in any case they can't raise the £50K or so to buy a modest £200K property down South...so renting is the best option