Has The Buy-To-Let Bubble Burst?

Wouldn't it have been useful for them to have provided the LTVs in the mortgage table? Most of the best deals are at 60% LTV now!

A balanced article nonetheless.

In Bath a couple of houses have had their advertising changed from 'good investment property' to 'ideal family home'

The Buy to lets that are on the market still seem to expect purchasors to buy on 4% gross yields, which is unmortgagable and a good way to finacial suicide.

The only way to BTL can work is off realistic yields and as rents are not going anywhere fast, that means that capital values have to fall a very long way.
Rent = £500 yield at 4% = £150K capital value
rent = £500 yield at 6% = £94K capital value.

Do the maths

charles

Rents are not going up

I disagree with the doom and gloom and many other property investors are on the same outlook as me. I think that as the credit crunch takes an even bigger bite out of homeowners, there will be more demand for rental property as people give up their expensive homes. Many will be forced to sell below market value, giving investors an excellent chance to snap them up.
Like a lot of these things, it all depends upon knowing your market. Inside Track's business model was based on buying off plan and buying overseas and this has proved to be the dodgy area of property investment. I will be adding to my portfolio this year and the fewer people I have putting in counter offers for my target properties, the better.

Like always, when market conditions get tough those that are over stretched will fail, leaving nice cheap pickings for the cash rich, which will make them even richer in the fullness of time. Buying in a depressed market if you can afford it is always the best time to buy, you can take your time to pick up a bargain without to much worry of being Guzumped, then sit back for a while until market conditions improve and see you asset jump in value. For sure there will be casualties from this Credit crunch, but also opportunities for the financially savvy. I for one am so pleased to hear of Inside Tracks problems, parasites seducing the gullible with get rich quick ideas, helping distort the market place that should be left to professionals and people with real money to invest, good riddance.

The yield calculation can be highly misleading.

A better one is cash-on-cash return.

If you buy below-market-value you'll be putting less of your own money in and thereby increasing your effective yield.

In other words it all depends on how much of your own money you put into the property.

Personally I found this article much like the rest of the doom-mongering going on at the moment. True, the property market is changing, but what that means is you need to look at another strategy.

If you're looking for a quick buck, it's not going to happen, but then TMF never says you can make a quick buck in the stock market either.

At the end of the day, if you can weather the storm, property is still one of the best long term investments for a number of reasons - rental income, capital appreciation, tax sheltering and leverage.
You can be far more creative with property than you can with stocks, plus you have control.

Now's the time to start looking for bargains and getting ready for buying.

I do believe that for those of us that have been waiting for the bubble to burst the time is ripe for property picking. I have just picked up two houses for 48% less than they cost this time last year. As a result the mortgage company was more than happy as the rental is at 165%.

For people that invested with inside track, i think that the lesson is: it looked too good to be true and it was. Just to secure the two that i have just purchased I did three months research. Some may think that is an over kill, but better safe than sorry.

I find this topic very interesting, but still more so that no-one seems to have yet mentioned that last time there was a 'housing crash', local councils owned and therefore rented out many properties. Someone made a reference to BTL owners saving everyone else council tax and although I now can't find that reference, I'm guessing this is what they are referring to. However, It is my understanding that they are no longer in a position to do this. So are we faced with more people wanting to rent, but fewer properties available to rent? If this is the case, I don't understand how "chasbmw" can say that rents won't rise. Will the rental market not then be in the position that the sales market has been that led to the bubble. So if most rents have to go up to cover increases in BTL mortgages, and house prices are dropping, doesn't this mean that some established landlords will be increasing their portfolios, like Cherrymoon mentioned and therefore the BTL market is the most likely to be sustained in this climate?

Hsb79, Rents are limited to what people can pay, whether or not it is out of their earnings or through housing benefit. There is a limit and in a market with lots of individual landlords tenants can negotiate rents down wards. Due to divorce i have been renting for the last 4 years, over that time my rent has gone up from £625 to £650, way behind capital values and gives my landlord a Gross yield of around 4.5%.
Buying 'below value' is a bit of a fallacy as the price that you are willing to pay 'Is' market value. In a declining market valuers are going to be much more reluctant to 'overvalue' properties and the lenders are getting slightly more smart about stripping out developers inducements.
I quite agree that the BTL process can enable landlords to lever their capital to increase yields, however in a declining market, this leverage works in the other direction and rapidly increases risk as equity gets drained away by decreases in capital values. Lenders are asking for much higher loan to rent ratios and valuations will be decreasing and the result will be that highly leveraged BTLs will have to sell parts of their portfolios.

Question:
1. Is the 125% rental cover on interest only or a repayment mortgage?
2. Are lenders happy to convert "normal" mortgages to BTL if you move house and want to keep it?

Let me share with you, my feelings on this.....I am a Lettings Manager in the Cambridgeshire area. I also have three BTL properties myself and I can confirm rents are definitely going up. There is a huge lack of supply of two & three bedroom properties in certain areas & a huge demand from prospective tenants. I feel now is an excellent time for investors (particulary the cash rich and for those who can get the BTL mortgages) to get a deal when buying and get the rents and the good yeilds. There is a very definite lack of investment Landlords around but those who are savvy enough should actually do very well in this market.

A margin call is when you have BTL investments totalling let us say £1m valued last august and remortgaged on the basis that you had 20% equity in the property and had rental cover of 120%.
As an agressive BTL investor you have the bare minimum equity in the property because over the past the 5 years all the equity you have built up has gone into buying more properties.


You need to remortgage, Paragon have gone out of business and the new mortgage offer requires that you have 130% rental cover and 30% equity and the valuer [looking over his shoulder at his professional indemnity insurance premiums ]values your portfolio at £900K.

So you used to have £1m with £200K equity, you now have £900K with £100K equity. But you need £270K equity to get finance. This is the 'Margin call', unless you can find the extra £170K from somewhere else you will have to sell one of your properties.[for the sake of simplicity I have ignored the extra rental cover needed]
Some lenders are refusing to lend on new build properties and or 2 bed flats. Some are looking for 40% equity. It is all about risk and with a real danger of a collapse in capital values then the lenders are trying to minimise risk.

On rents with the new housing benefit regime you can see what the housing benefit will be for various types of properties, check the council web site.
4% rental increase on £500 a month rent won't go very far in paying increased interest and other costs. Finance costs on a 150K flat with 25% equity must be around £6700 a year. What is the use of renting a property to somebody who can'yt afford to buy it.