The future for the small BTL investor
Discussion
walm said:
Leaving money in the bank has never been a great way to get rich.
Very true. Although it is supposed to be better than sitting in front of the fire and chucking in £20 notes!By the way, re-do your graph with RPI instead of the heavily massaged "politician's friend" CPI and see how the figures look.
Ozzie Osmond said:
walm said:
Leaving money in the bank has never been a great way to get rich.
Very true. Although it is supposed to be better than sitting in front of the fire and chucking in £20 notes!By the way, re-do your graph with RPI instead of the heavily massaged "politician's friend" CPI and see how the figures look.
DonkeyApple said:
Either figures are arguably a bag of toad testicles in reality. When you consider that the average wage earner spends more than half their income on maintaining a roof over their head that cost and the massive rise in it is much more relevant than the cost of TVs or whatever tat they lump into the cpi or RPi baskets these days.
Except that for plenty (as gibbon points out) that cost is down DRAMATICALLY as interest rates have dropped.It's almost as if consumer spending has been supported (for many) by dropping interest rates.
AND then you find landlords less fussed about raising rent when they get astronomical asset price inflation through house prices - which also helps spur spending for renters.
Rates rise?
Wheels.
Falling.
Off.
walm said:
DonkeyApple said:
Either figures are arguably a bag of toad testicles in reality. When you consider that the average wage earner spends more than half their income on maintaining a roof over their head that cost and the massive rise in it is much more relevant than the cost of TVs or whatever tat they lump into the cpi or RPi baskets these days.
Except that for plenty (as gibbon points out) that cost is down DRAMATICALLY as interest rates have dropped.It's almost as if consumer spending has been supported (for many) by dropping interest rates.
AND then you find landlords less fussed about raising rent when they get astronomical asset price inflation through house prices - which also helps spur spending for renters.
Rates rise?
Wheels.
Falling.
Off.
As such, what are rate rises going to actually do in the UK? Every time interest rates rise it's going to be the equivalent of a pay rise for the highest spending demographic. It will actually fuel inflation in some quarters. Pensioners are the largest consumers of technology.
I suspect that all rate rises will do is to transfer even more wealth from workers to pensioners, especially through the housing market where workers are priced out due to debt costs while pensioners keep buying in as they have so much excess capital as a group they aren't suddenly going to become price sensitive.
I think rate rises are going to throw up some very weird anomalies if they happen before the Boomers all get stuffed into the dilapidated old peoples homes that they quickly built to get rid of their parents and fleeced dry.
walm said:
AND then you find landlords less fussed about raising rent when they get astronomical asset price inflation through house prices - which also helps spur spending for renters.
It's not the LL that determines a low rent on a high value asset, its the market. LLs will achieve whatever rent the market will bear.So can we agree on the following.......
1) Very low interest rates pushing cash rich oldies( and others )to put money into BTLs.
2) Safe haven and decent yields plus rising capital asset for foreign investors.
3)Sell off of council property to tenants attracted by huge discount on market value.
Now all of the above has fuelled the property bubble causing price and rent inflation.
So why has successive governments ,up to now,not seen fit to address this bubble either by .....
a)building more affordable homes.
b)stopping the sale of council property at discounted prices.
c)allowing interest rates to slowly rise.
I know that the market is best left to function without government interference....but....the government and B o E are fiddlling with the market anyway.
1) Very low interest rates pushing cash rich oldies( and others )to put money into BTLs.
2) Safe haven and decent yields plus rising capital asset for foreign investors.
3)Sell off of council property to tenants attracted by huge discount on market value.
Now all of the above has fuelled the property bubble causing price and rent inflation.
So why has successive governments ,up to now,not seen fit to address this bubble either by .....
a)building more affordable homes.
b)stopping the sale of council property at discounted prices.
c)allowing interest rates to slowly rise.
I know that the market is best left to function without government interference....but....the government and B o E are fiddlling with the market anyway.
Behemoth said:
walm said:
AND then you find landlords less fussed about raising rent when they get astronomical asset price inflation through house prices - which also helps spur spending for renters.
It's not the LL that determines a low rent on a high value asset, its the market. LLs will achieve whatever rent the market will bear.avinalarf said:
I know that the market is best left to function without government interference....but....the government and B o E are fiddlling with the market anyway.
govt is and always will be a fundamental player in virtually any substantial market. To believe otherwise is to miss the proverbial elephant.avinalarf said:
So can we agree on the following.......
1) Very low interest rates pushing cash rich oldies( and others )to put money into BTLs.
2) Safe haven and decent yields plus rising capital asset for foreign investors.
3)Sell off of council property to tenants attracted by huge discount on market value.
Now all of the above has fuelled the property bubble causing price and rent inflation.
So why has successive governments ,up to now,not seen fit to address this bubble either by .....
a)building more affordable homes.
b)stopping the sale of council property at discounted prices.
c)allowing interest rates to slowly rise.
I know that the market is best left to function without government interference....but....the government and B o E are fiddlling with the market anyway.
The very simple answer is that it was the Govt who deliberately created the housing bubble buy removing key debt regulation that previously existed solely to halt reckless behaviour by both lenders and borrowers. And the reason they did so is that there are two massive benefits to stimulating house price inflation. Firstly the people feel wealthier and so spend more so tax receipts go up and secondly as it increases GDP a government can then borrow more. 1) Very low interest rates pushing cash rich oldies( and others )to put money into BTLs.
2) Safe haven and decent yields plus rising capital asset for foreign investors.
3)Sell off of council property to tenants attracted by huge discount on market value.
Now all of the above has fuelled the property bubble causing price and rent inflation.
So why has successive governments ,up to now,not seen fit to address this bubble either by .....
a)building more affordable homes.
b)stopping the sale of council property at discounted prices.
c)allowing interest rates to slowly rise.
I know that the market is best left to function without government interference....but....the government and B o E are fiddlling with the market anyway.
So, if you are embarking on a massive spending spree then it's all rather useful.
It's a process that started in the 80s but massively accelerated in the late 90s by the removal of some very important regulation on debt.
The other issue of lax credit is that it simulates an artificial shortage of property. It gives people excess firepower so they overbid, pushing prices up, it makes people inefficient in their property usage and it creates a commoditisation of a market as the excess capital along with speculators drive up prices.
There isn't actually a shortage of property in the UK. What is actually meant is that there is a shortage of affordability. The logical thing is to burst the bubble but that would now have catastrophic results as the bubble has been inflated and boosted for so many years it is too big to fail. Building new homes isn't a solution because it's only ever going to be a modest increase in supply and surprisingly, house builders tend to only build what they can sell so supply correlates pretty well to population increases. So that leaves us with rate rises to try and curb prices as higher debt costs erode buyer firepower but most of the BTL buyers are cash rich pensioners for whom a rate rise is going to be a pay rise!
Lord knows what the answer is but I personally feel that any answer needs to start with de leveraging and de commoditising the market.
avinalarf said:
So why has successive governments ,up to now,not seen fit to address this bubble either by .....
a)building more affordable homes.
b)stopping the sale of council property at discounted prices.
c)allowing interest rates to slowly rise.
Good summary.a)building more affordable homes.
b)stopping the sale of council property at discounted prices.
c)allowing interest rates to slowly rise.
I have a friend from Uni who was a relatively senior economist at the BofE.
I asked him the same question and demanded he sort out the bubble.
His response was "what would you suggest we do?"
The main issue with every potential action is that it has the very real probability of stalling the rather tepid recovery.
Raise rates = GBP strengthens and exporters get killed. (To keep it PH: JLR shift production from Solihull to Spain...)
Raising rates also kills the consumer recovery since people can no longer afford their mortgages. Although DA has a point about better off pensioners so I am not 100% sure about the net impact.
The issue is usually that a rate rise is instantly priced into variable mortgages (of which there are lots) whereas many pensioners (for security) hold fixed rate annuities so the rate rise doesn't necessarily help them.
On (a) the power of the NIMBY as well as the desire for private house builders to maximise their land values stops this one. Not to mention the archaic and overly repressive planning regs - which, in fairness, they are trying to loosen.
On (b) I don't know what you mean here. Surely an increase in supply of cheap housing will reduce house prices?
Re b, it would only reduce prices if there wasn't enough free capital or debt to soak up the supply. Seeing as the boom has been created almost purely because of massive excess capital and leverage then I can't see any supply increase at a rate that builders can deliver having any impact. All it does mean is that when a correction does happen it will be even deeper.
Obviously the real impact of announcing lots of new homes may trigger a change in sentiment that leads to less capital being allocated to the market but I believe the only true way to control house price inflation is to decrease money supply to it. This would need to be done by increasing the cost of entry to speculators through investment taxation and by curbing their leverage.
For example setting LTV at 50% minimum for any resi property not a primary domicile would have a hugely positive impact in remove speculative money from the market and leaving true buyers to compete just against each other as opposed to also having to outbid speculators and investors who typically not only have more firepower but are less price sensitive.
Obviously the real impact of announcing lots of new homes may trigger a change in sentiment that leads to less capital being allocated to the market but I believe the only true way to control house price inflation is to decrease money supply to it. This would need to be done by increasing the cost of entry to speculators through investment taxation and by curbing their leverage.
For example setting LTV at 50% minimum for any resi property not a primary domicile would have a hugely positive impact in remove speculative money from the market and leaving true buyers to compete just against each other as opposed to also having to outbid speculators and investors who typically not only have more firepower but are less price sensitive.
DonkeyApple said:
For example setting LTV at 50% minimum for any resi property not a primary domicile would have a hugely positive impact in remove speculative money from the market and leaving true buyers to compete just against each other as opposed to also having to outbid speculators and investors who typically not only have more firepower but are less price sensitive.
Thank you Walm and Donkey for your comments.
I have a lot of respect for both of you with regard to your common sense and informed comments on financial matters.
Let me try to address those comments....
Firstly Walm...
Re.point a) I agree with your analysis but surely the councils have land and properties that they could release for building flats and houses so not relying on the private house builders land banks.
I understand it is in the private house builders interests to optimise the prices they get for their houses but if the government imposed a levy on those land banks that were not being built on in a timely fashion this would force the phb's hand.
Re. b ) When purchasing a 2 bed ex. council flat recently that went for £290K I got talking to the lady that rented the flat next door from the council.
She had recentlly asked the council how much it would cost her to buy the flat and the council had valued her flat ,which was in excellent condition, at circa £180K,with her discount she was offered the flat at £80K.
I was astonished at both the council valuation and the discount,now good for her,but her buying the flat deprives other prospective council tenants of an affordable rented property.
We are now in a position, in London and the suburbs, where we have have many people with no chance of affording their own property or of affording the rent.
Now Mr Donkey ....
Your idea of a LTV at 50% is a reasonable idea for the reasons you have given.
I still think a bout of modest interest rises over the past 2/3 years to bring it up to say 3% now would have been more effective with regard to addressing the rise of the amateur BTLs whilst giving respite to cautious older folk looking for a safe haven for their savings.
Obviously,as Walm points out,interest rate rises will have adverse effects on other sections as he stated but I think it is the most effective way of taking the steam out of the speculation bubble,that and possibly Donkey's idea of raising the LTV rate.
A levy on foreign investment in resi property would also help.
It seems to me that the artificially low interest rates have suited both the government and the banks....
The government because it reduces the interest they pay on their huge debt.
The banks because they can borrow money for zilch from the market and lend it at at margins that allow speculators to pile in.
So they both benefit at the cost to the ordinary Joe,as usual.
I have a lot of respect for both of you with regard to your common sense and informed comments on financial matters.
Let me try to address those comments....
Firstly Walm...
Re.point a) I agree with your analysis but surely the councils have land and properties that they could release for building flats and houses so not relying on the private house builders land banks.
I understand it is in the private house builders interests to optimise the prices they get for their houses but if the government imposed a levy on those land banks that were not being built on in a timely fashion this would force the phb's hand.
Re. b ) When purchasing a 2 bed ex. council flat recently that went for £290K I got talking to the lady that rented the flat next door from the council.
She had recentlly asked the council how much it would cost her to buy the flat and the council had valued her flat ,which was in excellent condition, at circa £180K,with her discount she was offered the flat at £80K.
I was astonished at both the council valuation and the discount,now good for her,but her buying the flat deprives other prospective council tenants of an affordable rented property.
We are now in a position, in London and the suburbs, where we have have many people with no chance of affording their own property or of affording the rent.
Now Mr Donkey ....
Your idea of a LTV at 50% is a reasonable idea for the reasons you have given.
I still think a bout of modest interest rises over the past 2/3 years to bring it up to say 3% now would have been more effective with regard to addressing the rise of the amateur BTLs whilst giving respite to cautious older folk looking for a safe haven for their savings.
Obviously,as Walm points out,interest rate rises will have adverse effects on other sections as he stated but I think it is the most effective way of taking the steam out of the speculation bubble,that and possibly Donkey's idea of raising the LTV rate.
A levy on foreign investment in resi property would also help.
It seems to me that the artificially low interest rates have suited both the government and the banks....
The government because it reduces the interest they pay on their huge debt.
The banks because they can borrow money for zilch from the market and lend it at at margins that allow speculators to pile in.
So they both benefit at the cost to the ordinary Joe,as usual.
Edited by avinalarf on Thursday 3rd December 11:17
DonkeyApple said:
I think what Walm means is that amateur landlords won't be mechanical in their rent reviews like a professional would. They are more likely to hold rents if they want to keep the tenant, are happy with the capital uplift, can't be arsed with redecorating or are too leveraged to risk an empty period. Conversely, an entity running a big book will have an employed team to ensure every last penny possible is extracted from the assets.
My experience has been the opposite - the amateurs have felt entitled to an automatic index-linked rise annually irrespective of the local market, whereas the professionals just set and maybe review again in 3 years time.avinalarf said:
I still think a bout of modest interest rises over the past 2/3 years to bring it up to say 3% now would have been more effective with regard to addressing the rise of the amateur BTLs whilst giving respite to cautious older folk looking for a safe haven for their savings.
UK economy is not and should not be a slave to BTL. Or cash savers. Or council house tenants.On the question of housing, 200,000 net immigrants each year find jobs. They also find accommodation without the need for a council house. It seems curious to me that Brits appear unable to achieve the same thing.
avinalarf said:
It seems to me that the artificially low interest rates have suited both the government and the banks....
The government because it reduces the interest they pay on their huge debt.
They'd rather have some inflation to deal with that - and they have. It grinds on relentlessly at about 2%, which erodes debt very nicely unless the debt has been index-linked. Now who would do a daft thing like that? And who would at the same time eliminate index-linked National Savings for the general population?The government because it reduces the interest they pay on their huge debt.
avinalarf said:
The banks because they can borrow money for zilch from the market and lend it at at margins that allow speculators to pile in.
Hmmm careful. In a moment the PH bankers will be along to say it doesn't work like that and the banks are poor, downtrodden servants of the people. Which of course they are.theboss said:
DonkeyApple said:
I think what Walm means is that amateur landlords won't be mechanical in their rent reviews like a professional would. They are more likely to hold rents if they want to keep the tenant, are happy with the capital uplift, can't be arsed with redecorating or are too leveraged to risk an empty period. Conversely, an entity running a big book will have an employed team to ensure every last penny possible is extracted from the assets.
My experience has been the opposite - the amateurs have felt entitled to an automatic index-linked rise annually irrespective of the local market, whereas the professionals just set and maybe review again in 3 years time.I tend to agree with Donkey.
The worst fear for the amateur is the dreaded void and losing a good tenant.
Whereas it is often the case that big landlords will take a void to maintain rental increase and preserve portfolio value.
avinalarf said:
I tend to agree with Donkey.
The worst fear for the amateur is the dreaded void and losing a good tenant.
Whereas it is often the case that big landlords will take a void to maintain rental increase and preserve portfolio value.
We are a medium size landlord and we raise rents regularly knowing that it will cause some wastage. Tenants are replaced quickly however and it does maintain portfolio value.The worst fear for the amateur is the dreaded void and losing a good tenant.
Whereas it is often the case that big landlords will take a void to maintain rental increase and preserve portfolio value.
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