Meaningful BTL Research – University of York

by Mark Alexander

8:15 AM, 17th June 2014
About 4 years ago

Meaningful BTL Research – University of York

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Meaningful BTL Research – University of York

In November 2013 we were approached by Allison Wallace from the University of York to participate in some research commissioned by Lloyds Banking Group and Shelter. We were pleased to help and we are grateful to Property118 members for getting involved. The discussion thread can be found HERE. Several Property118 members contacted Allison and her team directly.Meaningful BTL Research - University of York

The 107 page report has now been released and in my opinion, this is some of the most balanced research I have seen into our sector. Hopefully the politicians will read and understand this report which provides insight into buy-to-let mortgage arrears and the factors that influence mortgage debt.

To give you an insight into the findings, the following are just a few paragraphs from the “Forward” of the report, which is written by the lead sponsors Lloyds bank ……

“There are clear lessons within this research for landlords, legislators and lenders that can be used to improve the private rental sector for all.

Potential landlords need to understand their market and treat the letting proposition as a business. For the best chance of being successful, they should have a clear business plan and ensure they have enough resources to cover events that cause financial stress – such as repairs and voids. Legislators must review the obstacles preventing Landlords from getting their property back where rent isn’t being paid. Small scale landlords often do not have large reserves to draw upon in order to pay for mortgage payments and maintenance when a tenant stops paying the rent.

A balance clearly needs to be struck to ensure rogue landlords don’t abuse the system, but faster court processes to enable landlords to evict non-paying tenants are needed before landlords will risk entering into longer-term tenancies that some tenants want.”



Comments

Adam Hosker

9:57 AM, 17th June 2014
About 4 years ago

Graphs Everywhere! I do love a good graph - this will make some good reading with over 100 pages; Thanks Mark.

John Daley

17:27 PM, 17th June 2014
About 4 years ago

Hi Mark,

This is really interesting.

Having skimmed it today I am drawn to the conclusion that the Landlords who make good decisions on properties and tenants, manage their properties well and keep their lettings run as a business will be successful. Not really a surprise then !

The further you depart from this simple lexicon the more likely you are to take a bath and throw away your money. However the numbers who are in arrears or not making money are not huge so it must be fairly straightforward to aquire the relevant skills, as we might predict.

It can't be a surprise that it is the amateurs are often out of their depth, surely it only reflects the contents of this forum week in, week out.

If we look at the analysis on p71 Landlord 24 has four properties carrying £400k of debt and after outgoings makes a whole £175 a month. Which is a false figure because there is no maintenance included.

So as I am sure very little maintenance gets done the capital value of the properties is actually declining and so is their value in letting terms as they become less and less attractive to tenants.

What is the point of doing all this for less than 0.4% yield ? The £38k of equity they have thrown away would have made more in a Building Society, it probably would have made more if they had bought Premium Bonds.

In addition there is the time taken by the landlord managing the properties. They would have been substantially better off doing all those hours working part time at Tesco and would not have a lake of negative equity to drain.

Being a PRS landlord needs skills, determination, hard work and common sense, not everyone is cut out to make a success of it. Perhaps BTL borrowing candidates should have to take an exam before the lending is approved.

A bank wouldn't lend a substantial bag of cash to someone who just fancied becoming a shopkeeper or a car mechanic without some assurance they could actually make a dollar doing it. However that seems to be the way the PRS operates.

Its all very well in a rising market which covers everyone's mistakes. When the market falters the mistakes are rather more difficult to conceal. I wonder haw many BTL landlords will be put out of the game when interest rates start to rise.

I rather suspect the departing BTL landlords will be more than replaced by those seeking to invest pension pots now that you don't have to buy annuities.

Interesting times !

11:28 AM, 19th June 2014
About 4 years ago

A recent article claimed that landlords should allow around 26% of the rent to go on running and managing costs!

http://www.allsop.co.uk/i/141/107/2153/property-is-the-pension-for-generation-landlord-

Mark Alexander

17:29 PM, 19th June 2014
About 4 years ago

Reply to the comment left by "Vanessa Warwick" at "19/06/2014 - 11:28":

I'd say that about right, I tend to work off a budget of 25% for freeholds and up to 35% for leaseholds after factoring in ground rents and service charges.

Take an average 2 bed house in a relatively low value area such as Norfolk, rent say £600 pcm.

26% of this over three years produces a budget of £5,616 over three years.

Insurance will gobble up around £450 of that.

For redecorating and ongoing maintenance I'd suggest £2,160 (£60 pcm) unless of course you're handy in that department but don't forget to factor in the value of your own time if you DIY and compare that against what you could earn elsewhere.

Gas checks say £65 a year = £195

Lettings and management at say 10% of rent = £2,160

Add in accountants fees and there's not much left, if anything!

Oops! - what about void periods?

That's why it's so important to manage costs - tips here >>> http://www.property118.com/landlords-money-saving-tips/64261/
.

martin wilkinson

11:17 AM, 21st June 2014
About 4 years ago

From an initial skim read - if 338,908 represents 25% of the total number of UK B2L mortgages as stated on page 12 then by definition the total number is 4x = 1,355,632. It is generally agreed that the PRS comprises circa 5m dwellings so how can the report conclude that over 50% of the PRS is mortgaged - looks more like the generally accepted 30% to me!
On page 14 para 3 the report clearly confuses millions with billions on the matter of new mortgage advances - not good for an allegedly robust statistical report!
I will now read on with an open mind!

Arthur Online

15:41 PM, 23rd June 2014
About 4 years ago

Very interesting read, thanks for sharing!


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