Has the credit crunch been good or bad for buy to let landlords?

Has the credit crunch been good or bad for buy to let landlords?

20:19 PM, 15th July 2011, About 13 years ago 12

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Mark Alexander - founder of Property118.com

One of my favourite sayings is that optimists see the glass as half full and look for the opportunity in every difficulty, pessimists see the glass as half empty and look for the difficulty in every opportunity and entrepreneurs are opportunists who take positive action regardless of market conditions, taste the contents of the glass and quench their thirst by drinking the contents if it tastes OK.  The fourth group are of course the economists.  They analyse the problem for a couple of years before reaching their conclusion that the glass was too big.

The landlords I speak to fall into three distinct camps;

  1. those who are sitting on large chunks of cash and carefully snapping up bargains,
  2. those who are stuck in a rut because they can’t afford to sell, they can’t refinance and they are worried sick about interest rate rises and
  3. those who are oblivious to what might happen as we pull out of recession or are simply burying their head in the sand.

I’d very much like to get your views on what’s been good about the credit crunch and what’s not been so good for buy to let landlords.

I’ve started a list below of some of the good and the not so good effects of the credit crunch.  I could go on and on, but I’d really like you to share your thoughts in the “Leave a reply” box below.

What’s been good?

  • 90% reduction in bank base rate from 5% to 0.5% is great for cashflow to improve properties and build cash reserves
  • First time buyers are struggling to get mortgages, so rental demand is up
  • Property prices have fallen so we can now buy similar properties for less money
  • Yields on new purchases have improved due to rental demand and falling prices
  • There are less inspired amateurs competing to buy as they find it more difficult to get mortgages
  • Common sense, sustainable lending has returned

What’s been bad?

  • Interest rate margins are higher on new borrowing (could be good though if it stops lenders going out of business?)
  • Deposits required are higher (or is this just common sense lending?)
  • Lenders fees are much higher (I can’t reconcile that one other than the law of supply vs demand)
  • Lending criteria is tougher (again this might be read by some as good news)
  • Less lenders are competing for new business (this has to be bad, monopolies and lack of competition always are)
  • There are still far too many self styled guru’s and con artists around (do we need more regulation or to enforce those already in place?)

OK, so this might not be a completely balanced perspective but what would you expect from an entreprenuer who looks for the opportunity in every difficulty and takes action based on prevailing market conditions?

Do you agree with the points I’ve made or do you disagree? And why?

What would you like to add?

What’s your conclusion? Has the credit crunch been a buy to let landlords nightmare or a blessing?

Landlord Burying Head in Sand
Do you know this landlord?


What do you think the future holds for landlords?

10 years from now, what percentage of landlords do you think will believe they made the right choice to invest into property?

I look forward to reading your comments.


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Anthony John

8:30 AM, 18th July 2011, About 13 years ago

It seems to me that there is a clear distinction between commercial property and residential. The latter still seems to attract investors who see rental returns as better than leaving the money on deposit with a Bank or Building Society - however, a decent loan to equity ratio is required. Commercial property is being approached with much more caution. Any sign that the lessees are approaching renewal or any sign of rental arrears and the potential investor is hanging back. I have one development which a client has been trying to sell since the beginning of the year which is a mix of 4 flats with 3 shops under (solicitor, estate agent and a bakery/cake shop) but the sale keeps stalling because of the fact that the solicitor is approaching renewal and one of the flats has £800 arrears of ground rent/service charges. In better times this would not have deterred a buyer but it is enough now to cause the buyer to hang back.

Les Charneca

6:48 AM, 21st July 2011, About 13 years ago

I am with Tony. There really is a split. Being the opportunist, every time a residential unit vacates I am re-accessing. For example my massive Victorian 1/2 beds are being converted to 2/3 beds, before I would not have bothered. I am also applying to convert town center offices to residential in order to have a future plan as and if they vacate. Any second level commercial is the kiss of death and I won't touch. However, tenants are still there.

16:18 PM, 21st July 2011, About 13 years ago

equity has fallen and growth is almost nil since the crunch
on the other hand my mortgages are pre-runch and very favourably tied to BBR so cash yield is high
all in all im treading water - equity loss is being propped up by cash yields but the opportunities dont seem to favour growing the business which is what i had planned

Shakeel Ahmad

17:42 PM, 22nd July 2011, About 13 years ago

Very few buy to lets are linked to base rate. I am payinmg 5.49%. It is a spin that the Government has been using for political reasons that the interest rates are historic low. They are not taking actions aginst the Banks while the Banks are repairing their Balance sheets.

Property prices in any half decent area of London have not fallen.

Lenders fees are very high, margin higher, interest rate higher and loan to value much higher.
Yeilds have increased but not particularly high because of being a new new build.
Lending has gone from careless to over prudent. The lenders do not see the borrowers experience of managing property or finance or their equity in the existing portfolio. A new application is treated as a brand new borrower even with the existent lender.

On the other side. The lenders had taken hit on large corporate & soverign lendings and not on small buy to let borrowers. However they the lenders are taking it out on the small borrower. I am certain that the bad debts or the non performing debts of the small borrowers are prety much the same i.e. have not spiked due to current situation..

Alex Russell

10:40 AM, 23rd July 2011, About 13 years ago

I agree with Shak, I have 8 buy to let mortgages and all the mortgages are nearer 5% than 0.5%. I would fix them at 5% but even this is very difficult with out having huge arrangement fee's of £2k-£3k. If the loan LTV is not there you can't re-mortgage anyway. I have one poor property which costs me the gains I have on the other 7, but I can't sell it!! I know you learn from your mistakes but just wondering how hard the fall will be.
Also have found because people have less money in their pocket because of inflation they are downsizing, thus they are trying to get cheaper rent. Property's are staying un-rented for longer or they are bartering down the price.

18:05 PM, 23rd July 2011, About 13 years ago

Cash flow is up as my BTL's are linked to BBR. However lower values creates concerns for many people as there is no growth in property prices as mortgage termination dates get closer. Although it is a long term plan, nobody really knows if values will recover to their previous levels. My personal view is that over the next 10 years property prices will recover because the UK population will rise and there is insufficient housing stock so this will naturally create demand.
I am optimistic and I intend holding on to my 8 properties for the next 10 years. I think property of the right type in the right area is still a better bet than pensions or ISA's

rav singh

20:28 PM, 23rd July 2011, About 13 years ago

It seems most here agree that we have been hit hard as investors, times are hard out there and far many its just seeing it out. For those lucky ones with cash its being like a kid in a sweet shop.

However i'm also in the thinking that property will not go up (not inc central london) throughtout the UK for at least 10 years. I think the next generation will have a big impact as i think there attitude will change and it will not be in their thoughts to even think of buying property

Les Charneca

7:20 AM, 24th July 2011, About 13 years ago

I totally agree with you. I have been to Japan and seen the future, the kids get the next gadget, bike, handbag and go out. They have no aspirations to own. For them rent is just a fixed overhead to cover for their entire lives. However, because property is such a predictable, slow long term investments, they are virtually like bonds and rental yields are low.

16:14 PM, 24th July 2011, About 13 years ago

I am sorry for those who have a fixed BLT mortgage. But don't worry, once your fixed period is over you will be paying less. The longer the credit crunch, the better it is for landlords. I am sure most landlords are enjoying this as the cash flow is good. If I have a choice, I would say keep the base rate as it is for the next 10years or more. I like it very much!

16:52 PM, 24th July 2011, About 13 years ago

In ten to fifteen years time I feel we will all be looking back and wishing we had realised the huge opportunity property is at the moment. I agree the equity value in my portfolio has dropped but the cash flow now available to me is phenominal. I have readjusted my view in relation to raising funds. Instead of re-mortgaging I just save the rental income and raise my 25% deposit. Over the last three years I have averaged one property purchase a year and intend to continue in this vain building up the portfolio. As soon as I exchange on the properties I place it with my agent. The market is so strong that as soon as I complete tenants are lined up to view and sign contracts. As a business I have little competition when buying and am guaranteed a tenant and income as soon as I purchase the property. I am not sure how things could be any better than they are now. The only fly in the ointment is the fact interest rates have to rise. If landlords factor this in and a positive cashflow is still possible at higher rates of say 8% then you should be buying. I understand not everyone has the credit rating or positive cash-flow which allows them to purchase in this way. In this instance a review of your property portfolio and finance is a must because if you are not receiving a positive income now there is room to improve in these areas. If you don't take positive action, when rates rise the consequences will be devastating.

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