buy to let

With the exception of Ian Springett of PrimeLocation, who states:

"Prices have waned somewhat in the past year outside the capital, but the real story is the amount of stock that has come on to the market the 50 per cent higher than a year ago and still rising. It’s this sector that needs a reality check on prices, and it’s likely that there will be a noticeable correction in the coming months."

All the other commentators in this Times article on the housing market. consider that the market will remain flat or even go up.  Unfortunately, all of them, including Mr Springett, have an interest in the housing market continuing to go up.

Assetz news has an article explaining how circumvent the limit of borrowing on buy-to-let properties imposed by the original purchase price. The trick is to transfer the property to one's spouse 'starting a new property investment business'.  The unstated assumption of this article is that the investment is held directly in the name of the investor, not in a limited company. I believe that there is no restriction on the level of borrowing which is permitted for limited companies. The capital raised could indeed be transferred into a suitable pension scheme, for example a Small Self-Administered Scheme, with the whole of the contribution allowable for tax purposes and allowable against chargeable gains crystallized by the sale of (another) property. Of course there are restrictions on the level of pension contributions are imposed on such schemes: consult your accountant or actuary about this.http://news.assetz.co.uk/articles/2282.html

This blog entry by Jennifer Tweed shows how you can work out what sort of property you can finance. Independent advisers may well be able to get you a better rate and point out the advantages of some deals in terms of hidden charges down the line, reversions to the dreaded 'standard variable rate'. We can recommend several local advisers who are hugely experienced in financing property portfolios as well as individual buy to let purchases.

Lenders, like any other suppliers, want to make it easy for their customers to buy more of their product. There is nothing intrinsically dangerous about this kind of product as long as the customer has the income profile to support it. But nobody really knows, and I don't suppose anyone offers insurance against not getting a promotion at work. The large increase in the world's workforce generated by developments in China is likely to keep a lid on wage inflation for a long, long time.

This blog suggests that maybe because everyone says it is, that the RE boom in the US is not actually a bubble. I'm not sure either way.

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.

"House price inflation fell to its lowest level for more than nine years in September, according to the Financial Times house price index, the most reliable guide to the prices paid in the property market." - from the FT.com. So, prices are technically still not falling, but it certainly doesn't feel that way. Interestingly the FT index indicates a increase in transaction volumes. "But there will be continued concern that as house price inflation on all the main indicators heads towards zero, the current stability in the market will not last. Nervousness is likely to increase as property investors realise they can no longer rely on the prospect of capital gains to offset the reality of low rental yields.". If you are quick you can read the full article here. Demand from tenants is definitely down in my part of Herts.
The FT's economics editors talks a surprising amount of sense about house prices in his 'Q and A' session here.