Friday, June 13, 2008
I’M STILL NOT INVESTING IN FLATS BY DAVID LAWRENSON OF LETTINGFOCUS.COM
At present all the talk is about the credit crunch and falling house prices and as usual with the press, the “headline grab” often obscures the finer details.
In reality, there are huge differences between the relative performances of different property types.
Even before the credit crunch took hold, government figures showed that between the year 2000 and 2007 the shortage of family houses led to detached homes doubling in value while the prices of new flats went up by just 18%.
The reason for this huge difference lies in the planning system which allowed or forced - choose your verb depending on whose side you are on - the UK’s developers to build too many flats and not enough family sized houses.
There has also recently been a smattering of TV programmes about how some novice buy to let investors lost money by investing in some of the many me-too-identikit-city-centre-new-build flats mainly in parts of northern England and the English midlands. Often these were flats they had never seen but they were somehow encouraged to by them at seminars hosted by property companies who persuaded them that they could not lose.
However, with too many of these flats being built and not enough tenants to go round, rents have been flat at best and prices, particularly for the identikit flats in large developments have been falling very heavily just at the same time that re-mortgages at decent rates have become very hard to find.
In some cases flats are now coming up at auctions at over a third less than what the investors paid and auctioneers report they are awash with repossessed flats many of which are not even making their auction reserve prices.
THE TYPICAL LANDLORD DOES NOT HAVE MANY FLATS
However, the novice investors who bought into such properties are actually a long way from what constitutes the typical landlord. For example, a survey last year by Mortgage Trust found that 77% of landlords have no new build in their portfolio at all. With landlords’ average loan to value around 60 percent and with landlord professionals (with more than five properties) owning 97% of the buy to let stock the typical landlord is not hemmed in by falling rents or lacking access to finance to build his portfolio further as the media would have us believe.
My own experience is that most professional landlords prefer bread and butter houses in established residential areas. And that’s not surprising, given that the lender, Paragon recently reported that rents on flats were up 6 per cent in the past 12 months but terraced house rents jumped by a whopping 20 per cent.
The same survey also showed that gross rental yields on terraces are 6.9% compared with 5.7% for flats. With an increasing number of families renting, the added space and flexibility that a house with a garden gives, is something that landords know will continue to be in high demand from tenants.
Figures from ARLA also show that about half of all buy to let investors expect to increase their portfolios over the coming 12 months and the vast majority of investment landlords said they would not sell if house prices should fall.
The facts are that smart landlords are investing. They know financially stretched sellers will listen to low ball offers and that rents will continue to rise fast as first time buyers are either unwilling to invest or unable to get mortgages. And, whilst the credit crunch means that these landlords now need to find at least 20% of a property’s value to get a decent mortgage deal, since many of them have lots of cash available from their existing portfolios that’s not a problem for many.
GIVEN THE BIG FALLS IN PRICES OF INNER CITY FLATS, COULD THEY BE WORTH ANOTHER LOOK AT TODAY?
But could the identikit flats being sold off cheap at auction today represent good value for buyers - whether landlords or for people buying for themselves?
For me, the answer to this just comes down to simple local future demand and supply. If there are many more flats about to come on stream in your area then avoid them like the plague.
At my consultancy, about 18 months ago I advised an investor client of mine with a large number of flats on a single huge development in Manchester to sell his portfolio because Manchester had given the green light to yet more flats in his local area - a fact that was easy to establish by just looking at the local authority’s website.
If there is not a problem with future supply, then maybe these flats could just be a good investment in the long term. However, all too often these identikit flats are full of short terms tenants and absentee landlords. And with no one around to push the managing agents to maintain the properties properly, they are often in a very poor state of repair and destined to become the poor ghettoes of the future.
ABOUT LETTINGFOCUS.COM and DAVID LAWRENSON
I’m David Lawrenson a landlord advisors lettingfocus.com.
I’m the author of “Successful Property Letting - How to Make Money in Buy to Let” which for the last 2 years has been the UK’s top selling property title: buy the UK's top selling property investment book
It is fully up to date with all the recent changes to tenancy deposit schemes, HMOs, licensing, capital gains taxes and it has new sections on buying property below market value.
I’m an expert freelance property journalist and property speaker a well known property blogger and I contribute to newspapers and a host of property websites, write a number of columns in the press and I can provide landlords advice
I also work as a consultant helping banks, building societies, housing associations and web portals with their buy to let and property products and services and am a regular speaker at property shows.
You can read more of my blog & find details of my networking, advice, property investors networking programme at my website.What’s unique about lettingfocus.com is that we offer property investment mentoring because unlike most people in the buy to let and property “advice” business we are not linked to a property company, a developer, an agent or bridging loan financier and do not receive commissions from any of these sources.If a property investment is lousy – We’ll tell you straight and we will tell you all about buy to let and property investment - the good and the bad and we won’t make silly promises that you’ll become a millionaire overnight.
Copyright: David Lawrenson 2008. This blog is updated once a week. Permission must be sought before using the material in the blog.
In reality, there are huge differences between the relative performances of different property types.
Even before the credit crunch took hold, government figures showed that between the year 2000 and 2007 the shortage of family houses led to detached homes doubling in value while the prices of new flats went up by just 18%.
The reason for this huge difference lies in the planning system which allowed or forced - choose your verb depending on whose side you are on - the UK’s developers to build too many flats and not enough family sized houses.
There has also recently been a smattering of TV programmes about how some novice buy to let investors lost money by investing in some of the many me-too-identikit-city-centre-new-build flats mainly in parts of northern England and the English midlands. Often these were flats they had never seen but they were somehow encouraged to by them at seminars hosted by property companies who persuaded them that they could not lose.
However, with too many of these flats being built and not enough tenants to go round, rents have been flat at best and prices, particularly for the identikit flats in large developments have been falling very heavily just at the same time that re-mortgages at decent rates have become very hard to find.
In some cases flats are now coming up at auctions at over a third less than what the investors paid and auctioneers report they are awash with repossessed flats many of which are not even making their auction reserve prices.
THE TYPICAL LANDLORD DOES NOT HAVE MANY FLATS
However, the novice investors who bought into such properties are actually a long way from what constitutes the typical landlord. For example, a survey last year by Mortgage Trust found that 77% of landlords have no new build in their portfolio at all. With landlords’ average loan to value around 60 percent and with landlord professionals (with more than five properties) owning 97% of the buy to let stock the typical landlord is not hemmed in by falling rents or lacking access to finance to build his portfolio further as the media would have us believe.
My own experience is that most professional landlords prefer bread and butter houses in established residential areas. And that’s not surprising, given that the lender, Paragon recently reported that rents on flats were up 6 per cent in the past 12 months but terraced house rents jumped by a whopping 20 per cent.
The same survey also showed that gross rental yields on terraces are 6.9% compared with 5.7% for flats. With an increasing number of families renting, the added space and flexibility that a house with a garden gives, is something that landords know will continue to be in high demand from tenants.
Figures from ARLA also show that about half of all buy to let investors expect to increase their portfolios over the coming 12 months and the vast majority of investment landlords said they would not sell if house prices should fall.
The facts are that smart landlords are investing. They know financially stretched sellers will listen to low ball offers and that rents will continue to rise fast as first time buyers are either unwilling to invest or unable to get mortgages. And, whilst the credit crunch means that these landlords now need to find at least 20% of a property’s value to get a decent mortgage deal, since many of them have lots of cash available from their existing portfolios that’s not a problem for many.
GIVEN THE BIG FALLS IN PRICES OF INNER CITY FLATS, COULD THEY BE WORTH ANOTHER LOOK AT TODAY?
But could the identikit flats being sold off cheap at auction today represent good value for buyers - whether landlords or for people buying for themselves?
For me, the answer to this just comes down to simple local future demand and supply. If there are many more flats about to come on stream in your area then avoid them like the plague.
At my consultancy, about 18 months ago I advised an investor client of mine with a large number of flats on a single huge development in Manchester to sell his portfolio because Manchester had given the green light to yet more flats in his local area - a fact that was easy to establish by just looking at the local authority’s website.
If there is not a problem with future supply, then maybe these flats could just be a good investment in the long term. However, all too often these identikit flats are full of short terms tenants and absentee landlords. And with no one around to push the managing agents to maintain the properties properly, they are often in a very poor state of repair and destined to become the poor ghettoes of the future.
ABOUT LETTINGFOCUS.COM and DAVID LAWRENSON
I’m David Lawrenson a landlord advisors lettingfocus.com.
I’m the author of “Successful Property Letting - How to Make Money in Buy to Let” which for the last 2 years has been the UK’s top selling property title: buy the UK's top selling property investment book
It is fully up to date with all the recent changes to tenancy deposit schemes, HMOs, licensing, capital gains taxes and it has new sections on buying property below market value.
I’m an expert freelance property journalist and property speaker a well known property blogger and I contribute to newspapers and a host of property websites, write a number of columns in the press and I can provide landlords advice
I also work as a consultant helping banks, building societies, housing associations and web portals with their buy to let and property products and services and am a regular speaker at property shows.
You can read more of my blog & find details of my networking, advice, property investors networking programme at my website.What’s unique about lettingfocus.com is that we offer property investment mentoring because unlike most people in the buy to let and property “advice” business we are not linked to a property company, a developer, an agent or bridging loan financier and do not receive commissions from any of these sources.If a property investment is lousy – We’ll tell you straight and we will tell you all about buy to let and property investment - the good and the bad and we won’t make silly promises that you’ll become a millionaire overnight.
Copyright: David Lawrenson 2008. This blog is updated once a week. Permission must be sought before using the material in the blog.
Labels: flats v houses, house price data, house prices, houses v flats
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