Buy-To-Let Still Doing Well For Large Portfolios
Many people have piled a lot of money into buy-to-let investments in recent years. Others have dipped a toe in the water, as disillusionment with stocks, shares and pension funds became a force for action. Recently buy-to-let has come in for some bad press, with all that is going on in the housing market.
Rising property prices, expensive mortgage rates and the squeeze on credit has made the lot of a buy-to-let investor tough in the last 12 months or so. Most buy-to-let investors like to make sure that the numbers are going to work for them, which means that the rental income from the property must cover the cost of the mortgage, which is typically 85% of the property's purchase value. Of late, the rise in rents has not matched the rise in mortgages if remortgaging has been necessary.
However, the latest news is that house prices are dropping back, and for buy-to-let investors that is good news as they are looking to buy. Good opportunities now become available. In this sort of flat market, buy-to-let investors are actually contacted by estate agents enabling them to make offers below the asking price and possibly end up with a real bargain.
Some buy-to-let investors juts keep adding to their portfolio, and have hundreds of properties to their name. While they receive income from their properties, as long as it covers outgoings, they are not that bothered about falling values as they are not interested in selling. However, they do like to see a rise in equity that enables them to remortgage and release more funds, either for better cash flow management, or to spend on new properties.
Lee Grandin of Landlord Mortgages, a large buy-to-let mortgage brokerage, says that whereas for the past two years clients have simply been remortgaging to manage their costs, they are now looking to release equity to fund new purchases. "More money is coming out to buy new properties," he says, reporting that one client this month bought a repossessed property for £150,000 that last year had been sold for £220,000. "Experienced landlords who have been inactive for some time and who are sitting on large amounts of equity are waking up to this sort of opportunity."
It is the toe-dippers who might be suffering in the current climate, especially if they have bought an apartment in a new development in a city centre. Here, prices are falling faster than the average, and selling at all is difficult. The properties were probably overvalued in the first place, rents are low, and there is an oversupply. Two-bedroom flats in city centres is not where families want to live, it seems. Even developers themselves have been forced to admit they have to cut prices, which makes it even worse for owners. People who bought their first buy-to-let investment in such developments are suffering now. Even more gloomily, some banks and building societies are not lending on this type of property any more. Auction houses have reported an increase in this type of property coming onto their books.
It is a clear case of inexperienced buyers coming to the market in the wrong place at the wrong time. However, for experiences landlords, with ten or more properties, the signs are still good. Yields are up and there are bargains to be had.
Published on December 7, 2007
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