yields

Immigrant Tenants

on 01/02/2007
in

This story, published by the FT shows the benefits of letting to tenants who have arrived from the recent accession countries to the EU.

Published: January 6 2007 02:00 | Last updated: January 6 2007 02:00

Davina Tanner (above) has built up a portfolio of around 75 properties in East Anglia that she lets to immigrants. She now operates these professionally and has also set up a lettings agency to run properties on behalf of other landlords.

How much longer can the bull market in UK housing continue?

on 20/01/2007
in

This article shows how badly the UK housing market is broken, and how grave deficiencies in the planning system have made it extremely difficult for those on average or below-average incomes have any hope of buying a property for themselves. It points out how the grossly inflated cost of property (which is of course not reflected in the RPI figures, because a house is not a "retail" purchase) makes us all poorer. Except the Treasury, which is getting over seven thousand pounds in Stamp Duty on the average FTB purchase in London, of course.

It points out that London is a law unto itself, and is distorting the figures for the whole of the UK, and making us outside the capital wonder how it can be that the performance of our BTL investment can be so much worse than that of the country as a whole.

It argues that the only solution is a good dose of rampant inflation, which will bring up salaries sufficient to cover the financing costs of property, and will erode the real value of loans. This assumes that the Bank of England will be unable to stem the rise in inflation. It may be that it cannot, but it will surely raise interest rates a lot in the attempt, which will cause a lot of pain in the short term.

And while I'm on this subject, I would like to draw your attention to this article in the FT. It points out that the price of flats is responding in a textbook way to the flood of supply that is coming onstream, driven by Government targets for high-density developments - 50 dwellings per hectare - which can be met only by building lots and lots of tiny flats. The combination of nil capital gain, and often extortionate service charges on new flats mean that BTL investors should avoid them at all costs.

Buy to Let Financing

in
I invest in residential property. Initially my investment was entirely ungeared, the funds provided by selling some equity holdings we had back in the late 90's. Eventually, inevitably to late, I geared up modestly with mortgages from the Skipton Building Society. Because the Skipton were lending to a limited company this was described as Commercial Lending, as though lending to individuals was a sideline that the lender engaged in to salve its social conscience.

I thought I got quite a good deal with my commercial lending: generally 1% over LIBOR, sometimes going up to 1.25% over when interest rates got very low. There are indeed good rates, but I could only get them by providing generous interest cover: 1.5 times generally. This in practice limited my gearing to around 50%.  I was happy enough about this as I have always had a cautious approach to this investment, which ties up a lot of my net worth. Now I have been doing this full time for a good number of years I can be much more confident about the income prospects of properties that I may look at. Rents have been much more stable than capital values over the last five years. In fact rents have barely changed, which suggests to me that it liquidity that has driven the boom in residential property values.

Normally when I borrow, Loan to Value ratios are not something I ever have to worry about as the constraint on my borrowing is the required 1.5 times interest cover that I have to provide. With Northern Rock this is important, and I was surprised that they will lend up to 87% of the value of a property. With this financing I can put down only £17K, borrow £112, on an interest-only basis, and feel comfortable with a positive cash flow of 13% of the gross rental income (before costs, which undoubtedly will soak up all of that). The great thing about this is that the rate is fixed until 1/10/2012. I am not sure that sort-term rates really will go up, but there is a risk that they will, and so with most of my borrowing being LIBOR linked, having a fixed rate will be an advantage. I think that it is entirely possible that short term rates will actually go down, and bring rents down with them, but in this case I will be doing well on my floating-rate financing.

With financing packages like this available from a high-street estate agent I feel much more confident about the whole BTL market, and therefore more bullish about property prices.

Syndicate content