Category Archives: Credit Crunch

The Long and the Short of the Good and the Bad!

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As I said in my last blog, I am a bit of an optimist myself so I am going to start this series off by looking at some of the good news that abounds about the property sector and where it is heading.

There have been a lot of positive murmurs coming from the buy to let sector over the last month or so and we should be encouraged by this. One thing that I’ve learned from economics 101, is that positivity breeds positivity.

According to property portal findaproperty.com, things improved dramatically for long term landlords in September and October when ‘accidental landlords’ finally decided it was time to sell up and the stock of available rental property dropped by ten percent. This clearing of the glut of properties up for rent allowed a lot of landlords to return to the fair asking price they had been forced to drop because of the oversupply of housing.  There is no denying this is excellent news for landlords, not to mention the relief for the ‘accidental landlords’ who had no desire to be involved in the rental market in the first place.

Average rent also rose in the month of October, not by a lot but any rise is a step in the right direction. Further good news is that it rose for the sixth consecutive month, giving out strong signals that things may be beginning to stabilise in the market.

Finally, for this section, the average time that a property sits vacant has fallen. Properties are now rented in an average of 58 days. We all know that less vacant properties is excellent news for landlords.

There is further good news in the area of rental returns but I will cover that in the next blog.

Landlords Being Ridiculously Optimistic?

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With the huge amount of media coverage that the buy-to-let sector generates, it stands to reason that people will have different opinions but sometimes the opinions differ so wildly it can be hard for the average person to get any sort of handle on what is going on.

Just this week, financial analyst, Christina Jordan, warned that “Landlords are being wildly optimistic about the potential of the buy-to-let market. Stop kidding yourselves – you’re still in for a rough time.” A very tough sounding warning and perhaps one we were unprepared for as we have been listening to other experts giving us mainly good news in the last few weeks.

So, a lot of property landlords such as myself are wondering what is really going on and who can we trust to be telling us the truth. To be honest, it is largely a matter of personal opinion and, perhaps, temperament. Those more prone to optimism have plenty to be glad about and the more cautious among us can still see signs of trouble ahead; the best we can do is arm ourselves with all the facts and be prepared for anything that may pop up.

To that end I am going to do a series for the rest of the week summarizing the good and the bad news stories out there so we can all get a clearer idea of where we stand. Being a bit of an optimist myself, I will start with the good news in my next blog.

Causing A Stir: Controversial ‘Empty Property Tax’!

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British Union boss, Brendon Barber, has come up with a highly innovative and controversial proposal designed to ward off the housing crisis that many believe Britain is heading for.

Under the terms of the radical proposal that Barber is believed to have put forward for the consideration of Alistair Darling, properties that are allowed to stand vacant will attract an ‘empty property tax’. The clear purpose of this proposed new tax is to encourage landlords to sell or rent their property as quickly as possible, thus reducing the housing shortage.

The proposal would affect nearly a million properties in the UK and if present figures were to remain the same then the tax would be set to raise 5 billion in additional revenue. One can only hope that that revenue would then be put back into the property industry in an endeavour to head off the predicted shortage. It is hard not to have doubts on this point, however.

If the goal of the proposal was achieved then it is to be assumed that the tax revenue raised would be much lower than anticipated but that a lot of living space would be bought back into the market earlier than the owner had planned. This does presume, however, that people are choosing not to rent or sell their properties rather than being forced into that stance. It is a troubling thought that landlords who cannot find anyone to rent a vacant property could also be forced into paying out more money in tax. It will be interesting to see how this proposal is greeted by Mr Darling.

Buy To Let Market: A Time Bomb!

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Reports out this week indicate something most of us have known for a long time: the buy to let industry is in a crisis that is set to only get worse if banks continue to take the line they have recently adopted.
The crux of the matter is that enquiries regarding BTL properties have increased by fifty percent over the past year, while the number of deals available from banks has dropped by seventy percent. This is clearly causing major problems with supply and demand. Hannah-Mercedes Skenfield, Moneysupermarket mortgage channel manager has this to say on the situation

“Our figures show nearly ten per cent of those looking for a mortgage are looking for a buy-to-let mortgage, but the number of products has fallen by over two-thirds compared to this time last year,” she says.

“With significantly less products left on the market and high interest rates attached to those available, we could potentially have a ticking buy-to-let time bomb on our hands. The need for rental housing is increasing, but there may not be enough landlords available to cater for this demand.”

This really does seem to be a recipe for housing disaster and we can only hope that something gives soon in the banks attitude to help us avoid this crisis.

A Third of Landlords Worried About Future

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It seems that despite the fact the economy is now in recovery, according to most experts, landlords are still very worried about where they will be in a couple of years time. This is probably not surprising considering the attitude of the banks which has been well documented on this blog over the last month or so.

I suppose that if you are in a position where you need to negotiate some or all of your mortgages in the near future, you have a real reason to be concerned. Considering the fact that so many landlords have struggled through the previous eighteen months, it is understandable that the way banks are acting is making them extremely edgy.
 
They are also concerned about the plight of tenants, many of whom are still finding it hard to make ends meet. Clearly this is an issue for landlords as it will inevitably be linked to some rent arrears, which in turn will make it difficult for landlords to meet their commitments.

While I think caution is called for at this stage of the recovery process, landlords should be careful not to worry themselves into a difficult position. For example, as I have said before, keeping up with insurance payments is vital.

Buy To Let Loans Harder And Harder To Get

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The news that landlords are finding it extremely hard to finance their ventures these days seems to still be the biggest news in the property sector at the moment. If you are a landlord with a sizable portfolio, the news is even worse as banks continue to show reluctance to lend to you.

Whatever the reason that you may be in talks with the bank, most of you are commenting that it is harder than it has ever been to get hold of the money you require. A full ninety percent of landlords have indicated to survey-takers that you found negotiations significantly more difficult this time than at any other.

When you take into account that products available to buy to let landlords fell by a truly mind boggling 95% over the last two years, this fact is hardly surprising but it is distinctly worrying. In an economy that is starting to show signs of recovery, it appears that buy to let landlords are getting a even more raw deal than anyone else, with residential loans being on completely the opposite track.

As people involved in the property rental sector, we can only hope that the banks wake up to themselves soon and give us a fair deal. Either that or that the Government intervenes to guide the banks in the right direction.

Banks Preventing Landlords Snapping Up Bargains

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The Times Online had a really interesting article on how banks are reducing even further the amount they are willing to lend to landlords. If you are in the market you should probably head over to their website and read the whole thing, but for those of you who are pushed for time or have only an academic interest I will give you a quick rundown.

The depressing news that Lloyds bank has halved the amount it is willing to lend from £6m on up to 18 properties, to £3m on a maximum of nine properties, is probably not a huge shock to anyone but it is certainly a worrying sign of the times, especially when you take into account that two years ago the same bank would have been willing to lend in the vicinity of £14m.

This has come at a very bad time for those property managers with an eye for a bargain. As David Hollingworth, at L&C, puts it: “This is the last thing the market needs. Lloyds’ decision leaves slimmer pickings for landlords hoping to make the most of low [interest] rates and property values.”

Landlords are chafing at the bit to get stuck into these opportunities and yet the banks are holding them back. I cannot help but think that this is counterproductive in an economy that is struggling to recover from a horrible financial downturn, especially when we hear so much about economic stimulation from our politicians.

Buy to Let Landlords Still Worried

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Despite the fact that we seem to be hearing a lot of good news about the state of the economy, and in fact the state of the property sector specifically, some landlords are still very concerned.

A recent poll conducted by an organization called Direct Line for Business found that nearly a third of landlords are still losing sleep over the current economic situation and many are very worried about their future in the property sector.

Personally, I don’t find this news at all surprising. For a lot of landlords the recent huge upheaval was the first time they experienced how quickly things can crash in the property game. The shock of going from boom to near bust will have had an effect on the confidence of a lot of landlords and rightly so. Hopefully it is this kind of experience that prevents us from repeating the same errors perpetually.

There is a worrying aspect to all this, though, and it is the news that some landlords are cutting corners by cancelling insurance policies. That is a very dangerous practice and, in my mind, is akin to gambling; the odds may be slightly more in your favour than in a casino or bookies but the stakes are very, very high.

One of my rules in this game is to make sure I am fully covered. It is imperative that you keep your insurance up to date. If the worst happens and you are uninsured you stand to lose everything. As harsh as it sounds, my advice is to leave your insurance policies alone and find somewhere else to cut corners.

False Dawn a Frightening Thought for UK Housing Market

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The BBC website has recently published an article on their website that is sure to cause some concern among those of us involved in the UK property sector.
 
After weeks, if not months,  of generally good news about the state of the housing market in the UK, economic forecasting group, The Ernst & Young Item Club, have decided to ruin the party with their prediction that the property market is at least five years from regaining its 2007 peak.

At first glance this does seem like fairly bad news but on further reflection UK landlords, or at least those that have weathered the storm in reasonable shape,  may not be terribly dismayed at this news. Those landlords who are still holding a decent portfolio tend to be of the variety that see property as part of a long term plan, the benefits of which are likely to be reaped sometime in the future, as such a slow return to peak prices is unlikely to affect them too much.

In fact,  the opportunity for picking up additions to their portfolios at a reduced price, for some time to come, may be welcome news for a lot of landlords who are still in a position to invest.

Despite the general feeling of optimism abounding concerning the economy at the moment, my thought is that most of us are just pleased the whole thing did not prove to be as dire as some predicted. I am not sure we are that shocked that we are in for a bit of a wait before we return to peak housing prices.

Tenant Checks Must Be Rigorous!

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It is really not surprising with the state the economy is in and the number of people being made redundant, but it has been reported this week that two thirds of landlords claim that there has been a sharp rise in people defaulting on their rent over the last six months.
 
Unemployment is now at its highest level in this country since 1995 and is predicted to rise even further, all of this is going to contribute to tenants having difficulties meeting their responsibilities, including paying the rent.

It is easy to be sympathetic towards people that suddenly find themselves in serious financial difficulties, but the truth is that landlords need to avoid joining them in the mire by stepping up their tenant vetting procedures. It should be a matter of course that you run a comprehensive credit check on prospective tenants but in this era it is probably best if you extend that to checking past landlord and employer references as well.

It is a good thing to remember that if you are using an agency, they should be offering you all of these services as well as a rent guarantee and, if they already do, now is the time to check what the guarantee actually covers you for.

Ideally you should be looking at loss of rent plus legal costs being covered whatever the reason for default.
 
These are certainly hard times for a lot of people but you should try to protect yourself against rent difficulties at all costs; it is a sad fact that no matter how hard times get, it is not up to private landlords to provide free or subsidised places to live for the needy. We pay our taxes so that others can take care of that.