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Buy-To-Let is back ! / Is it really?


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HOW BTL IS BACK

 

65% of BTL lending is from Bailed out banks - making BTL a quasi-nationalised industry.

 

UK Citizens, are your nationalised banks throwing away taxpayer money ??

 

ym-buy-to-let_996416c.jpg

=== === === ===

 

The buy-to-let property market is back, thanks to the taxpayer. But there is a backlash against it, as Channel 4 News Economics Editor Faisal Islam discovers.

 

At the depth of the banking crisis and the recession, it was thought that the buy-to-let market would suffer. But of the nearly 1.3 million buy-to-let properties, fewer than one per cent were repossessed during the slump - and with an 11 per cent share of the mortgage market, buy-to-let is more popular than ever.

 

The buoyancy of this market is now causing problems for first-time buyers, who are chasing the same properties as buy-to-let investors.

 

First-time buyers dispossessed by price bubble in housing ===========

Ed Howker, the author of "Jilted Generation", told Channel 4 News: "Unquestionably, the winners in the buy-to-let market are older people and those who have done buy-let. And the result is unfortunately we have a housing market that is not in any way providing for the needs of the next 20-30 years and of the next generation of people.

 

"There's a very basic question which government has to decide on, which is what exactly is the purpose of housing? Now, you or I, probably most other people, would think the purpose of housing is for people to live in.

 

"But actually government, in the last ten years and it seems to continue, seem to encourage people to use housing as a way of speculating, and this is a massive social policy failure."

 

The ability of banks to service this relatively new market was undoubtedly saved by the bailout of Britain's banks, writes Channel 4 News Economics Editor Faisal Islam.

 

Buy-to-let only formally started in 1996. Yet, remarkably, Channel 4 News has established that 56 per cent of buy-to-let mortgages ever lent in Britain now sit on the books of bailed-out banks.

 

Roughly half of the outstanding buy to let mortgage stock is currently being nursed by the State in some form. Bradford & Bingley and Northern Rock's joint £30bn BTL mortgage book is being slowly run off, in direct government hands from an office in London. And then astonishingly, in figures that the mortgage industry does not want you to see, that have been passed to me, about 65 per cent of buy-to-let lending in the year after the banking bust, was coming from bailed-out lenders.

 

Buy-to-let is a quasi-nationalised industry.

 

None of this would matter, if buy-to-let was unequivocally good for everybody. But it is not.

 

Read more on the bounce back of the buy-to-let market

===================

 

Rental yields differ around the country but provide considerably better returns at the moment than investors would see if they put their money in the bank because of low interest rates. The highest rental yields of 8.6 and 7.8 per cent are seen in Newcastle and Knutsford.

 

/more: http://www.channel4.com/news/how-buy-to-let-is-back

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First-time buyers dispossessed by price bubble in housing ===========

Ed Howker, the author of "Jilted Generation", told Channel 4 News: "Unquestionably, the winners in the buy-to-let market are older people and those who have done buy-let. And the result is unfortunately we have a housing market that is not in any way providing for the needs of the next 20-30 years and of the next generation of people.

 

"There's a very basic question which government has to decide on, which is what exactly is the purpose of housing? Now, you or I, probably most other people, would think the purpose of housing is for people to live in.

 

"But actually government, in the last ten years and it seems to continue, seem to encourage people to use housing as a way of speculating, and this is a massive social policy failure."

It is about time that this phenomenom was being discussed in the mainstream.

 

I wrote about it back in 2007, just before the peak:

 

+ The reigning Labour government did little to discourage the influx of the wealthy, because they saw few immediate negative consequences of this trend. And also, because barriers to this wealth might have brought down property prices in London, causing negative ripples throughout the economy. The other parties, and the Conservatives in particular, remained silent about rising wealth inequality, because of their ideological support for free markets and wealth creation. The middle classes also remained silent, because "trickle-down" in the property market meant that their properties were also rising in value, and on paper, the property-owning middle classes were also getting more wealthy as property prices rose. For those willing to borrow against that wealth, Mortgage Equity Withdrawals meant more spending cash, and more money to invest in other properties.

 

+ Those without property, the First Time Buyers looking to enter the market, complained, but for a long time have found it difficult to find a voice. There was no political discussion and hardly any media outlets for venting their frustration of being left behind. They watched helplessly, as the wealth-generating property engine took off and lifted out of sight. Others, who were more willing to shoulder the risk took on heroic amounts of debt to participate in the rising property bubble. The natural home for those who felt dispossessed by the wealth gap was the Labour party, but that party has been co-opted by praise and political patronage from those who had benefited from Britain's miracle economy. Of course, in hindsight, it was not a miracle at all, but a debt fueled bubble.

 

SO THIS is where things stand now, as the former Chancellor Gordon Brown, who was one of the principal architects of the so-called miracle, has taken over as the new prime minister. He is proud of the decade of strong growth, but few beneficiaries of that growth have been willing to look behind the curtain, and see how it has been engineered.

 

THE RICH FEAST IN LONDON HAS LEFT A PROPERTY BUBBLE IN ITS WAKE

Is this going to be followed by a Huge Hangover and an attack on the Super-Rich?

/more: http://www.financialsensearchive.com/fsu/e.../2007/0705.html

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From memory, the "Three way squeeze" that I was expecting was:

 

1/ Tighter credit, as banks restrict lending back towards the 70-75% maximums they used to lend before they created the housing bubble. (Perhaps banks should restrict lending to 65% or so for BTL, and maybe 75% from owner occupiers - that would help to cut excessive lending - & prices ! - and give First Time Buyers more of a chance.)

 

2/ Higher rates, as we gradually past the artificially low rates of the QE / ZIRP policy era

 

3/ Falling rents, as austerity policies hit the UK economy

 

== == ==

 

I previously looked at a "3-way squeeze on BTL" on a thread I wrote for HPC. But I cannot find it now - for obvious reasons (the HPC mods in their infinite wisdom, have deleted all my threads there.)

 

Thought some HPC-ers might be interested in this discussion, but instead they simply want to abuse anyone who invested in property:

QUALITY?

 

I have to say that posting on HPC can be frustrating.

 

I was trying to get a discussion going about the current state of BTL, and the ideas we discussed on the

FBB podcast (the one with Fred Harrison)...

 

Buy-To-Let : It's Going To Get Ugly ; 3-Way Squeeze

http://www.housepricecrash.co.uk/forum/ind...howtopic=126916

 

Look at the high number of "garbage" and throw-away postings it attracted !

I ask myself sometimes. why bother with that mob?

They dont back up their points, and most didnt even bother to listen to the podcast.

 

They are too busy commenting on the latest sh/tehole that was sold for 3% more or 3% less than last month.

 

I spent quite a number of minutes digging up the real evidence to refute the throwaway lines.

They dont even think they have a responsibility to back up their points

 

The posting from Noel with the link to FindAProperty page about Rentals

...was a nice exception. It made me wonder, where are the authoritative figures on Rental rates?

And that's a useful question.

 

Are rents really rising, or is it a dud source?

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I watched this last night too.

 

Jon Snow the C4 presented grilled Grant Shapps, the Govt housing minister, after the report.

 

The latter recognised the crowding out by BTLers, for sure. Jon Snow asked him what the Govt was going to do about it....

 

The response was pathetic. All Shapps really said, as Gordon Brown did in 1997, that we can not let house prices get out of control and return to the boom bust scenario etc. This will be music to the ears of Fred Harrison followers - oh how the cycle repeats!

 

So it sounds as though no measures will be put in place to curb BTLing.

 

There are some very siginificant policies coming through in the next few months that will affect housing in general. Firstly, on 20th October, and then with the Localism Bill in November (although won't get Royal Assent until next summer).

 

These will underpin the investment in new build and regeneration and social housing, and indicate how much power will be given to locals in planning.

 

 

 

 

 

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Jon Snow the C4 presented grilled Grant Shapps, the Govt housing minister, after the report.

 

The latter recognised the crowding out by BTLers, for sure. Jon Snow asked him what the Govt was going to do about it....

 

The response was pathetic. All Shapps really said, as Gordon Brown did in 1997, that we can not let house prices get out of control and return to the boom bust scenario etc. This will be music to the ears of Fred Harrison followers - oh how the cycle repeats!

 

So it sounds as though no measures will be put in place to curb BTLing.

It is oh-so-easy : Just restrict BTL lending to a maximum LTV of 65-70%.

(And that's not hard to do, when the government owns the banks !)

 

Over time, the new buyers from the LTV would find it more difficult to compete with owner-occupiers. if OO's are allowed 70-75%, anf maybe FTB-ers more than that, if not an unreasonable multiple of their incomes.

 

Frankly, this is WISE from another standpoint too !

If rents are going to be falling (as I expect over the next few years), then Owner occupiers, who have invested money and emotion in their homes, are going to be a far better risk.

 

This is very obvious to my way of looking, and cannot understand why others cannot see the BTL risk to falling rents too.

 

It reminds me of the blindness of mainstream analysts to the big risks we saw back in 2005-7, before the financial crisis hit, that so many preferred not to see. (I used to ask: Are they stupid or lying? Maybe this is another risk like that?)

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Are you sure about rents falling? Why will they?

 

Housing benefit changes should make them drop but given the caps that will be more in the South.

 

In Scotland they are talking about Pension funds investing in "social" housing:

 

The Scottish Government is in talks with UK pension funds in an attempt to line up a £1 billion-a-year investment in social housing, to fill the gap left by the banking and public sector cash squeeze.

 

Housing Minister Alex Neil, in a keynote address to the National Association of Pension Funds’ (NAPF) annual conference in Liverpool today, will appeal to the UK’s most influential money managers to invest in infrastructure, beginning with a social housing sector underpinned by £900 million a year of rental income.

 

....

 

The minister will stress that social housing is “similar to utilities”, backed by effective regulation, and underpinned by predictable rents which have risen ahead of inflation and are supported by housing benefit. They are “ideal as a basis for a fixed-income investment”, he will say, with sound financial ratings from the ratings agencies.

 

....

 

The minister said the funds were said to be looking for a return of RPI plus 1%. “That is certainly within the ballpark of what we can guarantee in terms of return, and there is no shortage of demand if you look at the waiting list … we need probably 100,000 new houses.”

 

Another nail in the coffin of FTBs? Don't build affordable homes to sell just houses to rent from the financial sector.

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Are you sure about rents falling? Why will they?

Housing benefit changes should make them drop but given the caps that will be more in the South.

In hard times, people find that they must share housing.

So the long term fall in the average number of people per household may reverse for several years,

creating an "unexpected" glut of housing supply.

 

UK : persons per household - Historical, to 2002

zzzzk.gif

 

UK : persons per household - Projected (miles off what I expect)

001kz.jpg

 

That source says:

"as people live longer and more often in single person households, the average household size continues to diminish..." But this is not the whole story. We have to look at what happens when the economy moves into austerity, and what if divorce is made a less economically advantageous option for "unhappy" females.

 

UK Fertility per woman rose in good times

zzzzo.gif

 

In the US, the downwards trend in household sizes has already reversed itself

 

US : persons per household .. larger image

PersonsPerHousehold.jpg

 

Comment on the US situation:

Now look at the period since 1988, the persons per household has remained flat. The increase in 2002 was due to revisions, and isn't an actual shift in demographics. If the population had remained steady since 1988, the U.S. wouldn't have needed any additional housing units!

 

Here is a simple formula for housing starts (assuming no excess inventory):

 

Housing Starts = f(population growth) + f(change in household size) + demolitions.

 

f(change in household size) was an important component of housing demand in the '70s and early '80s. In recent years, f(change in household size) = zero.

 

Now for a little good news for (US) housing:

HD1.jpg

 

This chart show the annual U.S. population growth according to the Census Bureau. The surge in the early '90s was probably a combination of the Baby Boom echo and perhaps immigration. But the key is that population growth is currently running about 2.85 million people per year.

 

/more: http://www.calculatedriskblog.com/2007/09/...mographics.html

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From memory, the "Three way squeeze" that I was expecting was:

 

1/ Tighter credit, as banks restrict lending back towards the 70-75% maximums they used to lend before they created the housing bubble. (Perhaps banks should restrict lending to 65% or so for BTL, and maybe 75% from owner occupiers - that would help to cut excessive lending - & prices ! - and give First Time Buyers more of a chance.)

 

2/ Higher rates, as we gradually past the artificially low rates of the QE / ZIRP policy era

 

3/ Falling rents, as austerity policies hit the UK economy

 

Unfortunately what i'm seeing at the moment is:

 

1/ Tighter credit, yes there are fewer borrowing options but that doesn't impact those already BTL before the crisis window. I think setting up a portfolio now without the too good to be true offers from GMAC and co that were available before would make it harder but for those who were already BTL'rs the IO mortgage conditions remain positive and they are more likely to be able to capital rape other assets for the deposits needed on new purchases than an FTB.

 

2/ Continued lower rates, the squeeze seems still a way off, ongoing theft between income vs. inflation is contuing to force investors seeking maintaining wealth or profit into bonds/equities/commodities over cash holdings. I really don't know how much longer this can continue but imho this is the key trigger event to force BTL's IO mortgages into negative returns.

 

3/ Locally in london i have seen a surge in rents. I personally believe the reason is twofold. Firstly because there are so few people buying there is more competition in the rental markets close to central london. Secondly becasue those who purchased at peak prices are now putting their properties on the rental market with their higher repayments demanding higher rental incomes.

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Unfortunately what i'm seeing at the moment is:

 

1/ Tighter credit, yes there are fewer borrowing options but that doesn't impact those already BTL before the crisis window.

 

2/ Continued lower rates, the squeeze seems still a way off, ongoing theft ...

 

3/ Locally in london i have seen a surge in rents.

Thanks for that, Pye.

 

I think these changes may not have arrived yet, but you will see them clearly by late 2011.

 

How can London avoid RENT FALLS when the public sector begins shedding jobs, and rental subsidies are cut?

 

But Rents need watching, what sources do you use?

 

 

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(Below was Oct. 2008 - Look how wrong it has proven):

 

Buy-to-let landlords thirsty for mortgages as market dries up

Thousands of buy-to-let investors could be forced to sell their properties or face repossession after the nationalisation of Bradford & Bingley.

 

The bank was Britain's largest buy-to-let mortgage provider, and its closure has pushed up the price of mortgage deals for investors.

Those coming off their current fixed or tracker mortgages may need to find an extra £500 every month just to cover their mortgage payments – and may be unable to find new deals. "Those who have bought a new-build flat in the past couple of years will be in for a shock," claimed Jonathan Cornell, managing director of Hamptons Mortgages.

 

Landlords face new tax and could be forced to register property details

"Many of those affected will be smaller, novice landlords, who went into the buy-to-let business as a way of augmenting their pensions. This kind of market is not for the faint-hearted and the landlords who may be struggling may well be the more recent entrants with more highly geared portfolios," Simon Gordon, from the National Landlords Association, said.

 

Buy-to-let boomed under Tony Blair, with the number of buy-to-let mortgages growing from 28,700 to 1.1m since 1998. Many of the new entrants to the market were relatively new investors, who had not banked on the property market falling.

Currently, 10 per cent of all mortgages are buy-to-let mortgages, and Britain's buy-to-let landlords owe a collective £132bn. A wave of forced selling from smaller investors could depress the property market even further.

 

/more: http://www.telegraph.co.uk/finance/persona...t-dries-up.html

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LONDON RENTS

 

Commercial Rents have bounced back in the City of London - this is Feb. 2010

London_-office-rents-feb162010.jpg

/source: http://www.finfacts.ie/irishfinancenews/ar...e_1019050.shtml

 

Residential Rents - from an Estate Agent (treat with caution)

 

zzzit.png

London Flat Rental Prices Surge

 

For several weeks now various agencies have been reporting a flood of tenants, but dearth of flats available to rent out. For several weeks we have included a Rental Index Graph in the blog menu (look left!) for the use of our readers, and now Mortgage Introducer has published some figures produced by the owners of several agencies LSL Property Services plc.

 

The average rent in the UK rose by 1% in June, with rents in London rising by 1.9%. Rents have risen for five successive months, and are 3.2% higher than a year ago – the highest level since November 2008.

 

Read more: http://pimlico-flats.co.uk/blog/renting-st.../#ixzz128czSrSU

Under Creative Commons License: Attribution Share Alike

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Right... here's today's speech from Grant Shapps, on this issue of affordabililty.

From a housebuilder's perspective, there is nothing new in what he says and frankly making Building Regs more fluent, will have hardly any impact on the main issue which is the pathetic planning system.

 

 

HousingMinister12thOctober10

 

Grant Shapps urges house price stability to help wannabe homeowners

Published 12 October 2010

Housing Minister Grant Shapps has today made the case for a period of house price stability to prevent generations of potential homebuyers being priced out of the market.

 

In a speech to the Housing Market Intelligence conference in London, Mr Shapps argued that buying a property should not be seen only as an investment, but as a home to live in.

 

He said:

 

"With a house now liable to cost perhaps seven times someone's earnings, it is no surprise that the average unsupported first time buyer is 37 years old. This country is in danger of letting down the aspirations of a generation of homes do not become more affordable in the long term.

 

"So what is required now is a period of house price stability. A home should first and foremost be thought of as a place to live and bring up a family."

 

The Minister also pledged Coalition Government support for housebuilders, by cutting through the 'alphabet soup' of standards and red tape that blight efforts to get developments started. He called on industry leaders to work with Government in a new drive to simplify the system.

 

This work will complement the ongoing review of building regulations launched by Communities Minister Andrew Stunell earlier this year, and is in addition to the groundbreaking new 'One In, One Out' system where ministers seeking to introduce new regulations that will impose costs on business have to first identify current regulations of equivalent value that can be removed.

 

Grant Shapps said:

 

"Last year, housebuilding hit its lowest level for any peacetime years since 1924 as developers have been hampered by regional targets that put them in direct conflict with local communities and an alphabet soup of regulations and red tape they have to navigate.

 

"Today I have a clear message to housebuilders large and small - we are on your side. I am determined to make it easier to build the homes this country needs. Appropriate building standards, applied sensibly, help developers and communities alike, but they can only be effective if they are easier to understand. That's why I want to simplify the process for housebuilders to meet the standards communities demand.

 

"But I also want to make it easier for these companies to complete new developments where they are wanted. That's why we will introduce powerful new incentives so those communities that give the green light to developments see the benefits of the new homes in their area."

 

and this is his speech on cutting red tape for housebuilders

 

LessRedTape??!!

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