Archive for the ‘Buy to Let Not Dead’ Category

2011 and the Outlook for the Housing Market, for Landlords and for the Buy to Let Sector

Monday, December 27th, 2010

In the last year the private rented sector continued to be in the news.

At LettingFocus.com we are not surprised and landords and suppliers to the private rented sector should not be surprised either.

A key reason is of course Housing Benefit, (or Local Housing Allowance (LHA) as it is known when private landlords are involved), and it is the large and growing cost of this benefit that’s the cause of all the trouble and it’s this that the coalition government has vowed to tame.

A range of treatments are being applied to douse the fire of the Housing Benefit dragon – from applying absolute maximum caps to housing benefits, to cutting the local payment rate to the 30th percentile of local rents to cutting it by 10% for those who have been on Job Seekers Allowance longer than 12 months.

All these measures come on stream at different times in the next 2 years though the first measure (cutting to the 30th percentile) will bite for new LHA claims from April.

Policy Fiddles and Sticking Plasters

Later on, from 2013, the government wants to break the link between the rate of LHA paid and local rents and instead make increases in LHA linked to the rate of inflation. At LettingFocus we think this particular idea will be hard to “make stick” but this is still a long way off and far away enough in time to be quietly dumped as policy.

Just in the last few weeks, the government has come up with a new idea – to allow local authorities the discretion to go back to paying LHA direct to landlords in return for a lower level of rent “if the direct payment to the landlords secures the tenancy for the claimant.” Now that’s an interesting idea and represents the latest in a long line of small concessions from the government on the Housing Benefit issue.

It makes some sense for the taxpayer, though landlords won’t like the idea of getting a lower level of rent.

As an independent observer of all this I also note with some amusement how  the government has, at great cost, also widened and fiddled with the  definition of homelessness in order to deal with the consequences of cutting Housing Benefit rates.

For example, lots of money will still be available to councils at the old median rates of Housing Benefit to set up long lease schemes with landlords (and so far the Daily Mail and the like who whinged so much about the cost of Housing Benefit haven’t noticed!)

Big Impact

The changes to Housing Benefit will have big implications for the whole private rented sector, including for private landlords whose tenant clients are not on any type of benefit.

Landlords in the more expensive London boroughs who are currently letting to tenants on LHA at rates above the new maximum caps will see the biggest negative impact as it will be them who will be most affected by the new maximum caps and this will have a knock on impact on local rents at the lower end of the market in the more expensive London boroughs. However, tenants and landlords in all parts of the UK will be affected by all the other measures to a greater or lesser degree.

One interesting consequence of the changes – and which we were the first to predict  – is that cheaper areas in London could actually see more demand from tenants migrating from more expensive areas hit hardest by the new caps. It’s hard to be sure how great this impact will be but any increase in demand in the currently cheaper London boroughs will increase rents in these areas.

Also, the government’s move to set new social rents closer to market levels will tend to make more former social tenants think harder about the private rented sector as a viable housing option. This will help stoke the overall level of demand for private rented accommodation going forward.

The implications of all these changes to Housing Benefit are great and we are working hard in a consultancy capacity to help local authorities and housing associations plan for these changes.

Rents are Booming

Meanwhile, over the last year, private sector rents are booming in most parts of the UK.

To some extent rising rents represent something of a long overdue “catch-up” because rents have grown much more slowly than house prices since house prices started their long (and occasionally stuttering) march upwards back in 1996.

Most commentators think a big factor in recent strong tenant demand must be the difficulties experienced by would-be home buyers in getting a mortgage – leading them to rent instead.

We don’t find this argument terribly convincing because mortgages at 90% loan to value are readily available for first time buyers who have good credit records. We think the more likely explanation is that would-be buyers are just choosing to rent because renting gives them more flexibility and is much less risky than being saddled with a mortgage in a time of uncertain job prospects.

Mortgage Finance is Easing

And what of finance for private landlords?

Since Lloyds Banking Group got cold feet, the arrival of some new entrants into the buy to let mortgage market has meant access to credit has got a little easier. But the effect is very slight and compared to the “Golden Years of Easy Credit” from 2003-2008, today’s buy to let mortgages still come at high margins over base rate and high fees. Mortgage rates for loans over 70% LTV come with especially high margins and fees.

Mortgage applications are no longer waved through either – landlords seeking buy to let mortgages can expect lenders to pore over new mortgage applications and ask about everything, stopping just short of enquiring about a borrower’s inside leg measurement.

But at least the base rate itself is low though. And the low base rate is the reason why long term private landlord players are in a very good place because the majority of landlords who took out mortgages before the summer of 2008 still enjoy buy to let mortgages at between just 0.5% and 1.75% over base rate. Much lower than any new mortgage deal on offer today!

Add rising rents to this low cost money and it adds up to plenty of cash flow which means “old hand” landlords can rely mostly on cash for their next property foray. This gives them the edge over other buyers who are more dependent on mortgages to fund house purchases.

These equity rich buyers, with low historic mortgage rates may have “never had it so good” as the now sacked Tory politician correctly said.

And the Outlook….

What’s the outlook? Well, of course, it depends where in the country you are.

Overall, the UK economy remains very depressed and public and private sector job cuts are biting. Plus the Euro is in a terrible mess (though German exporters continue to benefit hugely from the resulting low Euro, thus making the death of the Euro a very unlikely outcome.)

Unsurprisingly, given the economic backdrop, UK house prices have slipped down over the last 12 months though many areas continue to defy the gloom. In particular, London house prices continue to hold up in the more “prime areas”, though even here the picture is very mixed.

The key for private landlords is as simple as it has always been. First, you must “stress test” your borrowings – which means if you are thinking of taking out a mortgage loan, ask how easily you could meet mortgage payments if interest rates rise. Could you increase rents to compensate? How would you cope with a void period when the property is empty?

If you have done this and still feel confident, then take the leap but make sure to buy in the right area where the economy is turning up and where housing demand, and especially tenant demand, will grow in the future. And above all, carefully pick your tenants only after thorough reference checks have been carried out.

Suppliers to the Private Rented Sector are Getting Smarter

Private landlords can also enjoy the fact that more suppliers -from mortgage lenders to insurers to local government – are getting smarter at selling products and services to the sector.

At LettingFocus we advise many organisations, both public and private – to help them improve their strategy, marketing, training and operations in our sector. There is still a long way for many suppliers to travel but as they get better at what they do, private landlords will continue to benefit, providing they are prepared to shop around a bit.

There will be no blog next week. We’ll be back and blogging around 10th January.

MORE ABOUT LETTINGFOCUS AND WHAT WE DO

LettingFocus.com is the home of Private Rented Sector expertise and  Information for Landlords.

I’m David Lawrenson, a landlord and property investor myself for over 25 years and author of “Successful Property Letting” – the UK’s top selling commercially published property book for the last 3 years. 25,000 copies sold.

Services to Businesses and the Public Sector

Primarily I am a consultant to a range of organisations including banks, building societies, local authorities, social housing providers, institutional investors in the PRSI and insurers – helping them improve their landlord facing or buy to let product strategies, marketing and services.

For example, I help banks improve their buy to let mortgage lending practices and I help housing associations / local authorities find private landlords (private rented access schemes, local letting agency models etc.)

I also write for property websites and am regularly quoted by the media.

Services for Private Landlords

We also find a limited amount of time to help landlords and property investors by coaching them on how to make money in the private rented sector using ways that work, which are ethical, fair to tenants and which involve minimal risk to the investor. We pride ourselves on giving independent unbiased Buy to Let Advice

AT OUR WEBSITE LETTINGFOCUS.COM:

TO GO TO THE HOME PAGE OF THIS BLOG click here: Blog

You can use the tags and categories at the bottom of each post or click on the categories and use the pull down menu over to the top right to find all the posts on a specific topic.

If you want to comment, click on “No Comments” at the bottom of this specific post. (Spammers please note: We delete all spam.)

THE HOME PAGE OF OUR MAIN SITE click here: http://www.LettingFocus.com

For general info on our CONSULTING SERVICES and also to find a small sample of links to articles where our comments have been featured in the National Press please click here: Consultancy and Seminars

For ONE TO ONE PRIVATE CONSULTANCY FOR PRIVATE LANDLORDS click here: Property Advice

TO READ CLIENT TESTIMONIALS – click here: Testimonials

BUY “SUCCESSFUL PROPERTY LETTING” click here to Buy the Book at Amazon plus anything else at that Amazon sell. (If you are from an organisation and would like to bulk buy at least 50 books please ask us for special rates.)

To get in touch or to JOIN our Free NEWSLETTER containing regular news for landlords and those selling to the private rented sector and for details of our Events simply send an email to david@LettingFocus.com – Please note we WILL NOT send spam or sell our mailing list to advertisers but please put us on your “white list” to ensure you receive all our emails.

IF YOU HAVE A SITE WHY NOT LINK TO THIS BLOG OR TO OUR WEBSITE?

This blog is updated once a week, usually on a Monday or Tuesday (or more frequently when “hot” news items come up.

TWITTER PAGE: Twitter

Copyright of Blog: David Lawrenson 2010.

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Posted in Buy to Let Mortgages, Buy to Let Not Dead, House Prices, Housing Benefit, Housing Benefit Row, Local Housing Allowance, Private Sector Leasing Schemes, Rising Rents | Comments Off

Same Day Mortgages, Property Lease Options and Protected Bonds That Aren’t Really Protected

Tuesday, August 24th, 2010

It was nice to see my story about next day re-mortgages (see last week’s blog) was picked up by the FT writer Claer Barrett and actually appeared on both the front page and Money section of the Weekend “Financial Times.”

Ms Barrett originally came to know me when she was doing an investigation for the FT’s sister mag, “The Investors Chronicle” into the sometimes murky world of property seminars and buy to let advice. She actually came undercover to one of my own seminars (which cost £30 not £2,000 like some of the others she had been to.)  Next LettingFocus Seminar and Networking Event

Once she realised I wore a white hat and was not in the business of selling property or finance or indeed, another course at £2,000 odd quid, she came clean, shook my hand and has been quoting us from time to time ever since.

Here is an edited summary of the FT’s article:

“The government is pursuing negligence claims against law firms that advised Bradford & Bingley on hundreds of buy-to-let loans that are facing losses. B&B, nationalised in 2008, is alleging that anti-fraud guidelines were ignored by firms that advised on “same-day remortgaging”, a practice that was promoted by (some) buy to let investment clubs at the height of the property boom.

Investors were encouraged to buy property from distressed sellers or developers that were being offered at below market value using a one-day bridging loan. Investors then remortgaged on the same day at the open market value of the property, allowing them to bank a quick profit.

B&B alleges that some solicitors failed to disclose crucial information about the deals to Mortgage Express, the arm of B&B that was the largest buy-to-let lender during the 2006 boom. The bank said an internal review highlighted a number of same-day remortgage applications that had been “unknowingly accepted” when they otherwise might have been rejected. Potential losses to B&B would include the costs of repossession if borrowers default and the shortfall on its mortgage advance, as in most cases the value of the loan far outweighs that of the property.

The UK bank said it was pursuing claims against solicitors where there had been a breach of the Council of Mortgage Lenders Handbook. It claims solicitors have a duty to supply specific information when lodging mortgage applications. A solicitor that failed to report that borrowers had acquired their properties less than six months before remortgaging, for example, would be in breach of the lending code.

“There will be many more claims of this type in the future as buy-to-let lenders struggle to find someone to blame for what looks like a lack of due diligence,” said David Lawrenson of LettingFocus.com, a private rented sector consultant.”

Thanks to the FT for allowing me to reproduce this here and look out for a  piece in the FT or Investors Chronicle this weekend or next on property lease options which will be quoting me too.

Buy to Let Battles for Life

As you may know, I’m not necessarily a cheer leader for there being more properties let out. (Oh, for the good old competition free days of the late 90s!)

But one of the things I do find amusing is the way many journalists keep finding reasons to say that private landlords are all about to sell up. (Perhaps they think those landlords who made a muck up of buying property using techniques like next day remortgages are the norm? Sorry, but they aren’t. Those that used such financial techniques are a minority and even then, many of them who did, managed to do quite well in the end  -which is more than can sometimes be said of the lenders.)

So it’s interesting that latest Council of Mortgage Lender’s figures show that buy to let mortgages are forming an ever higher proportion of mortgage loans and another survey shows that rents are going ever higher each month.

With news like that, it hardly sounds as if the private landlord is on his knees does it? Even with the ludicrously high and unjustified (by arrears rates) margins on buy to let mortgages, that sounds to me like the private landlord is in pretty rude health. But I doubt if these figures will stop the naysayers.

Protected Bond …. Or Is It

In last week’s blog I moaned about how banks and building societies were selling these “Protected” or “Guaranteed Bond” schemes under false pretences and how I had written to the PR people of one building society that I happened to visit two weeks ago.

Now I have the reply from their PR. See if you can follow the thought pattern here. (If you get bored just read the bits in bold.)  It said:

“The Society’s Protected Capital Account is a fixed term structured deposit account which is designed to offer the investor returns based upon the performance of the FTSER100 Index with the initial investment being repaid in full at the Plan Maturity Date, provided the investment is held for the full term. With the Protected Capital Account products sold by the Society the investor’s initial capital is therefore protected in the sense that, regardless of how the FTSER100 Index performs, the investor will receive their initial capital back in full provided they remain invested for the full investment term.

Feeling happier now? Thought so…. But read on as she says…..

“…… the Protected Capital Account is ultimately dependent upon the continued financial security of the Deposit Taker. For our current Protected Capital Account this is XXXX High Street Bank therefore should they fail to meet their obligations the investor could lose some or all of their investment as no additional protection or guarantee is provided by XXXX Building Society or XXX Investment Bank. Deposits into the Protected Capital Account are afforded protection under XXX High Street Banks’ participation in the Financial Services Compensation Scheme, subject to the limitations of the Scheme.”

Mmm, bet you are kind of getting worried here……There’s more. She goes on:

“ …… …..to ensure customers are made aware that a 100% capital return guarantee is not provided, the Society takes particular care on its marketing literature and through its subsequent product sales process to highlight to the potential investor the extent of the capital protection provided by the Account.”

FSA Should Not Allow This

Got that? Well if you did, you are brighter than me. Kind of contradictory isn’t it. And another good reason why I remain an investor who prefers to invest in property letting and directly in shares instead. I just think all these opaque stock market related products are like endowment policies. Avoid the lot of them!

But seriously, how on earth does the FSA allow these building societies to make big claims about their bond being protected, when it isn’t… or is it? Who knows? This building society obviously doesn’t.

Twitter

Having a Twitter page is a great way to sound off about things like “Protected Bonds That Aren’t” Here are two more from recent Tweets. See more at Our TWITTER PAGE: Twitter

1. A bugbear of mine is agents who market leasehold flats but don’t say or know how the long lease is. It’s kind of important to assess value, guys.

2) A level results – Mmmm, either the students are now geniuses or we have inflation of grades. How long before we see A** and A*** grades?

Sorry to the nation’s students. I’ll prefer to think you are all very bright geniuses and the cure for cancer, the end of carbon fuel and world peace is just round the corner. Alleluia.

MORE ABOUT LETTINGFOCUS AND WHAT WE DO

LettingFocus.com is the home of Private Rented Sector and Landlord Information.

I’m David Lawrenson, a landlord and property investor myself for over 25 years and author of “Successful Property Letting” – the UK’s top selling commercially published property book for the last 3 years. 25,000 copies sold.

Services to Businesses and the Public Sector

Primarily I am a consultant to a range of organisations including banks, building societies, local authorities, social housing providers, institutional investors and insurers – helping them with their landlord facing or buy to let product strategies and services.

For example, I help banks improve their buy to let mortgage lending practices and I help housing associations / local authorities find private landlords (private rented access schemes, local letting agency models etc.)

I also write for property websites and am regularly quoted by the media.

Services for Private Landlords

We also find a limited amount of time to help landlords and property investors by coaching them in how to make money in the private rented sector using ways that work, which are ethical, fair to tenants and which involve minimal risk to the investor. We pride ourselves on giving independent unbiased Buy to Let Advice on a one-to-one mentoring / coaching basis or through our (very occasional) group seminars.

AT OUR WEBSITE LETTINGFOCUS.COM:

TO GO TO THE HOME PAGE OF THIS BLOG click here: Blog

You can also use the tags and categories at the bottom of each post to read blog posts on related posts or click on the categories pull down menu over to the top right. (If you want to find relevant posts from before 30 April 2010 you can also click on LettingFocus’s Old Blog  - Categories, then search from the list for a topic that interests you.)

THE HOME PAGE OF OUR MAIN SITE click here: LettingFocus Home Page

For general info on our CONSULTING SERVICES and also to find a small sample of links to articles where our comments have been featured in the National Press please click here: Consultancy and Seminars

For ONE TO ONE PRIVATE CONSULTANCY FOR PRIVATE LANDLORDS click here: Property Mentoring

NEXT SEMINAR AND NETWORKING EVENT for Landlords and Property Investors (which now take place just once or twice a year): Next Property Investment Seminar and Networking Event

We have OFFERS on a few services and products here: Services and Products for Landlords

TO READ CLIENT TESTIMONIALS – from both organisations and private landlords click here: Testimonials

BUY “SUCCESSFUL PROPERTY LETTING” click here to Buy the Book at Amazon plus anything else at that Amazon sell. (If you are from an organisation and would like to bulk buy at least 50 books please ask us for special rates (which are lower than Amazon)).

To JOIN our Free QUARTERLY NEWSLETTER simply send an email to david@LettingFocus.com – Please note we WILL NOT send spam or sell our mailing list to advertisers but please put us on your “white list” to ensure you receive our emails!

IF YOU HAVE A SITE WHY NOT LINK TO THIS BLOG OR TO OUR WEBSITE?

IF YOU SELL SERVICES TO LANDLORDS, YOU COULD BE A PARTNER ON OUR AFFILIATE PROGRAMME. PLEASE GET IN TOUCH!

This blog is updated once a week, usually on a Monday or Tuesday.

For my random thoughts on property and various other things that typically make me grumpy, please see our TWITTER PAGE: Twitter

Copyright of Blog: David Lawrenson 2010.

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Posted in Below Market Value Property, Buy to Let Mortgages, Buy to Let Not Dead, Get Rich in Property, Index Tracker Bonds, Property Lease Options and Rent to Buy, Same And Next Day Remortgages | Comments Off