Buy-To-Let Gets Busted!

Boom may be over, but there are reports some fixed rates for buy to let mortgages will be back in a short while
http://www.mortgagesforbusiness.co.uk/blogs/detail/Moneyfacts_reports_that_84_of_Buy_To_Let_products_have_been_withdrawn_We_think_differently_30092008/3638/184.aspx

Fixed rates will always be around for any mortgages. Its all a question of price. Any BTL owner with 40% equity has little to worry about. The bandwagon BTLers who have not prepared to fund their investment with cash might themselves in schtumm over the next few years.....Unless Gordon comea up with a grand plan to buy back all the buy-to-lets for council (sorry, social) housing! That would be a terrible idea but I wouldn't dismiss the possibility.

Long term professional landlords will indeed be less affected. Hopefully what this will mean though is the endless stream of people going into BTL with little experience thinking that it's "safer than the stock market" based on 10 years of strong property prices.

I WONDER IF THE SAME DERISION WILL BE APPLIED TO PENSIONERS WHEN THEY BECOME DEPENDENT AS A RESULT OF MAKING NO PROVISION?

As a Landlord, I am very keen for buying to be easier for first time buyers as this does act as a trigger for every other level on the property ladder. I also however have little sympathy for the arguement that what firsttime buyers need is a 100% mortgage. Whilst I have funded Buy to let purchases from my pocket when the particular property was bought for capital growth versus income, I have watched young people shell out for fancy cars, clothe, holidays, furniture etc and save nothing for a house deposit.

I don't intend to moralise but there is surely no arguement for perpetuating this lack of responsibility for one's own future. The correction we are seeing now had to happen to an extent where house prices in areas were so high in house price to earnings ratio. Everyone who has high LTV borrowing including first time buyers and pensioners will suffer -ve equity where prices correct downwards.

As a first time buyer, our interest rate was 15% but the cost of the house was only 2x our joint income, now the same property is 3.5 x our joint income equivalent.

Landlords now require to provide a better standard of housing than councils have ever been. Councillors never had to prove they were fit and proper persons to collect rent from tenants. No repairing standard advis was legsally required to be issued at the start of a tenancy. No citizen's advice personnel were primed to facilitate a non-paying tenant to prolong the duration of their theft of accommodation whilst refusing to pay rent.
Councils never had to provide an Energy Performance certificate, gas and electrical safety certificate etc etc etc. There are still poor examples but generally BTL landlords intend to provide and maintain good quality accommodation for people who choose to rent for a given period or as a lifestyle choice. Home ownership/responsibility actually doesn't suit everyone. In some areas, only investors are buying currently, if they stop, what will that do to house values?

where are the cash rich people?

Yes but...wasn't it the last property crash that created the buy-to-let phenomenon? When people started letting out their first-time buy flat rather than swallow the negative equity? Whan values dropped so low that rental yields made proporty investment a no-brainer? Prices may be dropping but where's the mortgage finding--if prices bottom before the credit crunch eases, it won't be first time buyers that benefit but investors.

I am a property investor and landlord. I have provided my tenants with good homes, provided new and good quality equipment and furnishings for each property with a "do unto others" ethos, not the that will do for a tenant approach. At the moment I am at the brink of losing everything I own - including my personal home due to the high lending levied on me with my typical 85% lending.Some of my properties are empty, and the latest increase for only three of them this month is £1,040 extra per month ! I am also a parent, mother of two daughters, and I feel sickened when I read your article of "no I don't feel sorry for the buy to let landlords who wanted a way of getting rich quick" - the truth is us buy to let landlords who wanted to buy a pension, or secure an income for ourselves, have never been the people who ask the government for hand outs, live off the state in permanent benefit land. We are the ones who have had to pay the deposits, the fees, the broker fees, furnish the properties, insure them and pay for all of the maintenance. Not such an easy street when you look at the reality of it. Wishing unwell on people in such a cold, glib way, is not inteligent - think of people as real people - we are not numbers. Would you have a smug smile on your face if you had to tell your children they may lose their home and everything you had worked for.

There is nothing wrong with "buy-to-let" per se, people have been making money at it for hundreds of years. What went wrong is that it became a craze and the business model adopted so many idiotic banks & BTL landlords was unsound. Too many people thought prices could never fall. Too many jumped onto the bandwagon too late. Too many over leveraged.

It was never sound to continually re-mortgage every time your properties had equity and then use that as a deposit for yet more property & more debt. Moreover, It was particularly stupid to do this with Interest only mortgages. Even worse many have/had rents that could not cover the mortgage and so had too pay in from their own income. They created an inverted pyramid of debt. Any change in interest rate and or the market: the whole edifice collapses

What is needed now is probity -- and given that neither individuals nor institutions are able to take responsibility, then it will have to legislated.

LTV should be restricted 80% (Both BTLs & Home buyers)
BTLs should be required proper business plans to their lender - which need to be checked & understood by the banks.
Both BTLs (unless a company) & private lenders should fully disclose their earnings/income. The lender should have copies of bank statements for at least a year & financial references from employers should be standard.

hi ladylandlord1, I hope I represent most of us on the board when I say that anyone suffering is not a good situation. I am trying to understand how all this has happened, and there are many things I do not understand which maybe you can assist with. Others say that there is still more demand for houses than supply can keep up with but potential buyers cannot get a mortgage, but by my logic the people that would buy but can't need somewhere to live so hence property values should be protected via rental potential. But then you are saying that your properties are empty which contradicts my logic of demand for housing being bouyant. Unless people are staying at their parents houses longer which is hard to believe then I don't understand why BTL properties should be empty.

I doubt whether BTL-ing per se has made that much difference to property prices. BTL takes property out of the pool available for owner-occupation and adds it to the pool available for renting. There is very little evidence that people who want to owner-occupy will settle for renting other than as a very short-term measure, so most of the BTL property offered on the rental market is meeting genuine demand for rental property. Or to put it another way, if there were "too much" BTLing going on, you would see substantial amounts of un-let BTL property.

Add to that the fact that the vast majority of BTL lending (rightly) has harsher affordability requirements (rental cover) than comparable owner-occupier lending and it's hard to see how a BTL buyer could outbid even a modestly well-heeled would-be owner-occupier.

The main problem is inflation, not speculation. Inflation happens whenever there is too much money (money-market-financed mortgage lending) chasing too few goods (in this case houses). Over the last 10 years particularly that is exactly what we have had. You want affordable houses, you have to build more houses and keep doing it for as long as it takes (goodbye "green and pleasant land") or you have to cut the supply of finance - to BTLers and owner-occupiers alike.

I vote for the latter. Seems the market agrees, for the time being at least.

I have always thought it strange that people assume that they know other people's financial situation and attitude without detailed knowledge. On paper we own three houses in a very well-to-do area. In actual fact I'm struggling every month with mortgage payments. We became btlers by default, with 2 not so wise buys not selling. We entered into this market in an attempt to provide for two unexpected children arriving rather late in life. (Beautiful twins, but a worry, when you're nearly 50). These properties are killing us and we may lose our own home shortly. We are not fat cats, our vehicle is just short of being scrapped, we have had 1 holiday in 28 years, have never claimed social security or any other of the handouts, even when out of work, and I'm literally scraping together change to buy dinners at the moment. I would like to sell, but I can't. My credit rating is excellent, but would find it very difficult to prove earnings. I would like to have permanent tenants, but life isn't like that. Even with tenants, the properties are draining the life blood from us, the rent does not cover the mortgage and the addition of maintenance, buildings insurance all bumps it up. I realise this is our own fault, (lack of experience, taking wrong advice etc) but greed is not what brought us to this. We are lucky, we live in an age, whereby if we do go to the wall, the state will pick up the slack, which makes me glad that we've not abused that privilege, but it really makes me wince when I hear such stereotypical comments. Many people bought properties that were run down at market value - they did not push prices up. First time buyers of today didn't want to know. The youth expect far too much. House prices have risen too much and this is just a natural correction that has been a long time coming. We're just one set of fools who opted in at the wrong time!! Anyway, believe me being a landlord is no fun at all!

Swarbs,

"Everybody should be able to afford their own home"

Why?

Okay, now you tell me exactly why you think everyone should not be able to afford their own home, and you can miss out the point about demand for rental dropping, which will not suit you or your ilk.

Donna Werbner should be ashamed of herself for taking pleasure in the misfortunes of over-extended BTL investors. She should recognise that she has no god-given right to own a home, or indeed rent one: she should be grateful that someone has provided the capital underpinning her rental property and is doing all the hard work maintaining the property, while all she has to do is pay her rent.

If BTL investors have made business mistakes, that's a real shame, just as I would be sorry for any person who faces the loss of their business - and for the businesses that depend on them for a good proportion of their income.

I wish first-time buyers would just grow up and stop blaming BTL landlords for their inability to buy a house. "Morepocketmoney" just has no idea what he or she's talking about - if average salaries are about £23,000, it is completely impossible to provide houses or flats for 3 x that, i.e. £69,000. A new small two-bedroom flat will cost more than that just to build, never mind buy the land, pay designers, planning fees, local taxes and so on.

MorePocketmoney: the reasons your Dad was able to buy a property in the 1960s are as follows:

- the cost of land was tiny and planning policies were much laxer. The 1950s in particular saw a massive housing construction boom to recover from the damage of the Second World War: there were far more houses on offer to the available buyers and renters. From the developer's perspective, the cost to bring a site to market was much less than nowadays, when it is so hard to find decent building sites and planning rules are so incredibly restrictive.
- the cost of construction was much less: most houses had no insulation, no central heating, no fitted kitchens, no carpets, no decoration, and usually just 1-2 plug sockets per room - you often just bought a plastered shell with a couple of internal taps and a loo and bath and you did the rest yourself in stages. My parents bought their first new house in 1965 that way; my father (an appleid physicist) was even allowed by the builders to do all the wiring himself, in order to save money. He would never be allowed to do that today, unless he had an IEEE qualification as an electrician and had spend thousands on his certification. Building regulations generally were far, far laxer - no insulation, no double-glazing, no pressure-testing, no deep foundations, no central heating rules, the list goes on. Whereas nowadays, building costs range between £900 and £1200 per square metre, so a decent-sized 75m2 2-bed flat will typically cost £75,000 just to build. A small 3-bed house of, say, £120m2 will cost £120,000 just to build. See the RICS website for their building cost calculator at current rates if you don't believe me.
- there were no local taxes like Section 106 agreements in the 1960s. These now cost over £10,000 for a 3-bed house in my area, and £20,000 for a 4-bed one. Facilities like roads, shops, lesire centres and parks were paid for from central government funds, rather than by developers, who now have to pass this cost on to house purchasers.
- there was no requirement on developers to build "affordable" homes in the 1960s. The government instead provided massive subsidies to build huge numbers of council houses, with the land virtually given away - all the builders had to do was build. Whereas nowadays, "affordable" a.k.a. subsidised housing for certain approved constituents in the client state are being paid for largely by developers: they have to give away 1/3 of their houses to a housing association, and just get the build cost back. This means all the land and development costs and taxes have to be borne by the remaining 2/3 of the houses offered for private sale, again pushing up the price.
- the private rental market in the 1960s was still being destroyed by rent control, so very few people were prepared to invest money in the rental market - it was all council housing and private homes, so your Dad didn't have much competition from landlords. The Government, for better or worse, has decided not to repeal the 1988 Housing Act, which set up the Assured shorthold tenancy and kicked off the BTL boom. It clearly feels that the private rental sector is an important way to increase investment in the property market, to provide homes for people to live in as an alternative to council housing or owning privately. Your argument should be with the Government, not BTL investors, who are only behaving rationally in responding to the available returns offered by the housing market.
- house prices in the 1950s and part of the 1960s were also suppressed because capital gains on principal private residences was subject to capital gains tax. If your house went up in price and you sold it to move somewhere else, you had to pay tax on the gain. This tax was repealed in 1964 (I think) by the Tories in a blatant attempt to save themselves from defeat by Harold Wilson's Labour Party. Labour promised to retain the tax-free status of private homes, and arguably it was this decision, more than anything else, that set off the "post-war" housing boom. If you look at housing prices after 1945, they were suppressed for 20 years by the country's post-war poverty, the huge supply of new houses, and the taxation regime. After 1965, they boomed (and busted, in 1974-5, 1981-2, 1991-2 and 2008-09), so your Dad was very fortunate to catch somewhere near the start of that wave.
- your Dad must have been unusual in having enough capital to buy a house in the 1960s: there was far, far less wealth in the economy, and far fewer people could afford to buy. Private house ownership rates were much lower than now, so more people must have rented. So the 1960s can't have been that great: why else were so many people renting? If it was so easy to buy on 3 x salary multiples, why didn't everyone buy in those supposedly idyllic 1960s? House prices are high now partly because of the over-extension of credit, as we all know, but also because there is far more wealth in the economy: people are much better off, and they choose to put their money into housing, which pushes up prices. Income multiples are not the only factor driving house prices: there is also available free capital, and there is much more of that around.

The latest ARLA survey (to Q3 2008) of BTL landlords shows that "most investor landlords, 77.7%, do not expect to sell properties in the coming twelve months; and over a third expect to acquire more. Falling house prices would not induce investors to sell. The average life expectancy of residential property investments remains long term at 16.6 years. Over a quarter of survey respondents expect to hold their investments for over 20 years. The average Loan to Value ratios of respondents’ portfolios is 57.3%, with a significantly small number, just 3.6%, extending themselves above 90%."

Now a view from a real money site.

http://www.moneyweek.com/news-and-charts/economics/the-stupidest-place-to-put-your-cash-right-now-13800.aspx

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