RATES are rising, rents are falling, which is all bad news for the 400,000
buy-to-let investors in Britain. Or is it? As the growth in house prices
slows down – or stalls in many parts of the country – investors can no
longer count on paper profits to console them as they meet the cost of
maintaining a portfolio. Many may rue the aggressive remortgaging that
released profits to buy yet more homes, rather than retaining a buffer zone
of equity to protect them in hard times.
But, even as interest rates seem certain to rise further – the National
Association of Estate Agents reports that rents are up just 1.8 per cent –
buy-to-let property owners are keeping their nerve. Almost all of those
interviewed by Bricks and Mortar are philosophical about having to subsidise
property investments, as rents fail to reflect higher house prices; they say
that their homes are a long-term investment.
Take Shiona Goodman, below, who with her husband Geoff invested £100,000 of
savings in a small home to help their children. Counting their blessings
that their own West Sussex home had almost tripled in value in a decade, the
couple decided that a property investment would help to make sure that their
children, aged 10 and 6, would also one day be able to get on the ladder.
They were willing to sacrifice plans for a holiday home to achieve that.
Fiona Leteney needed a home for her divorce settlement, but was priced out of
Stoke-on-Trent. Determined to find a means to bolster her pension savings,
she found an apartment in Florida within her price range. Even as the shine
comes off the US market, Leteney sees the long-term value of hanging in.
Even many of the most aggressive investors remain confident. Laurent Ezekiel
has built up a portfolio of ten flats – not including his home – in just
four years. But, as he explains on page 18, he has left enough equity in
each apartment to ensure he can remain calm amid the current talk of
slowdown. Like many who have made lavish paper profits, Ezekiel is aware
that, should he sell, the capital gains liabilities will be more
overwhelming that any shortfall in rent. Ezekiel is one of the investors who
think prices may continue to rise – it’s difficult to see a slowdown when
sealed bids are still common in the East London areas he invests in, he
says. That may discourage the readers engaged in furious debate on Times
Online this week, many of whom argue that fewer investors will mean more
hope for priced-out owner-occupiers.
They will be further cast down to know there are even now rays of light for
investment buyers: the latest quarterly survey of Association of Residential
Lettings Agents members, out next week, shows that tenant demand is rising
in 70 per cent of Central London agencies, the highest level recorded. This,
with confidence in the South East, will help to push rents up, easing the
plight of buy-to-let investors.
THE CONCERNED PARENT
SHIONA GOODMAN, below, and her husband Geoff have been so alarmed at the
upwards trajectory of the property market that they recently bought a
£250,000 house for their children, aged 10 and 6. The couple don’t expect
that Isobel and Alexander will ever live in the two-bed new-build in
Haywards Heath, Mid Sussex, but hope that it will one day fund the
children’s first steps on the property ladder. Until then, they will let it.
The Goodmans, who live in Cuckfield, West Sussex, had been considering buying
a holiday property in Portugal but decided that the family home would be a
better investment because it could be rented year-round. They put £100,000
of savings down and believe that rent will cover the £150,000 mortgage.
Shiona believes that they have “been very lucky with property”. They sold a
three-bedroom townhouse in Fulham and bought their 1920s family home for
£325,000 a decade ago. It is now worth £900,000. But they have no plans to
build up a buy-to-let portfolio. Shiona says: “We are not big risk takers. I
would not like to buy another property unless we had some money to put down
and we would have to save that first.”
THE DJ’S OTHER JOB
THE radio DJ Dr Luuurve is otherwise known as Ambrose Harcourt, right, and,
when not playing songs and dispensing advice on radio stations such as
Sovereign and Arrow FM, he has been building a buy-to-let portfolio worth
£1.5 million.
Harcourt, in his fifties, bought a two-bed flat in Brighton eight years ago
when such properties cost £70,000. “I bought in Brighton because I knew it
well. I knew that it was about to become a city and that prices would go
up,” he says. It was a wise decision: Brighton is the city with the
fastest-rising property prices. , Since then, Harcourt has focused on buying
two-bedroom flats, which he thinks are most easily let, in areas such as
London, Brighton and Crawley, which offer good transport links and
relatively high rents, and more recently, former show homes on Barratt
developments.
To manage his portfolio, Harcourt relies on an accountant, bookkeeper and
lettings agents. He believes that property is a safe home for his money –
including proceeds from his PR business – but will wait until the
interest-rate outlook is clearer before buying more, though “if I found a
good deal I would go ahead”, he adds.
THE PENSION SAVERS
GARY and Jenny Boreham, right, bought their first buy-to-let property in late
2001. “A lack of confidence in company pensions made us look at
buy-to-lets,” he says.
They paid £106,000 for a one-bedroom maisonette in Leatherhead, Surrey, and
have enjoyed a steady rental income from it since. So much so that in 2005
they decided to buy another property in the same development. “This one cost
us £140,000 but it came with a bit of land,” says Gary, who thinks the two
properties are now worth £180,000 and £190,000 respectively.
The couple also bought in Spain, but with the Spanish market flat they
decided not to let it and instead use it as a holiday home.
The Borehams, both in their forties, look at the properties as a long-term
investment and say there are plenty of tenants to be found in the Surrey
area. They are happy to keep the houses for 20 years or so, providing the
rental market stays healthy. However, they won’t be adding to their
portfolio. “It’s far too expensive to buy any more and it isn’t worth our
while – we are just breaking even on what we have.”
THE US INVESTOR
FIONA LETENEY, left, a self-employed consultant from Salford, was prepared to
invest in an apartment in Florida without seeing it or having visited the
US. But at the last minute she lost her nerve. “I flew in on a Friday and
out on Monday and stayed in a similar apartment,” she says. “It confirmed
the good impression I had from the brochures.”
Leteney, 48, had been planning to invest in a terrace house in Stoke-on-Trent
and to let it to students at the nearby university. She had anticipated
spending £40,000, but when her divorce settlement came through, in 2004, the
price of the properties in her former home town had doubled in a year.
She discovered the $135,000 (£68,000) apartment in a refurbished Hilton hotel
near Kissimmee through Currencies Direct, a foreign exchange company that
she uses in her e-learning business. She was won over by the fact that the
flat required no work and was overseen by a management company, which has
secured “90 per cent occupancy from day one”. “I am on my own, and I have a
business to run and there’s only a certain number of hours in any one day.”
Leteney is considering investing in another property, but would now consider
buying in Salford Quays, where she lives, where prices are being boosted by
an influx of BBC workers. “I had looked at things like shares and ISAs.
Buying property was about not putting all my eggs in one basket,” she says.
Although property prices have been faltering in Florida and across the US,
Leteney believes that her apartment, bought in 2005, has held its value,
particularly because it is so close to Disney World. As a long-term investor
she is prepared to ride out any temporary storms and, at times, to subsidise
costs.
Buying and getting a mortgage, in her case for a 20-year term, in the US
proved surprisingly trouble-free: “In America they don’t look at the person,
they look at the property, so you can be 60, 70 or 80 years old and still
get a mortgage. I have a personal banker with SunTrust bank who replies to
e-mails within hours. I wish I had that kind of relationship with a bank in
the UK.”
THE PROPERTY MAN
WHEN Sanjay Arora, above, moved house in West London in 1999 he became an
“accidental landlord”. He decided to let his former home rather than sell,
and it went well. So he began to buy more properties in Berkshire and
Middlesex.
Arora worked as a manager in a City accountancy firm and spent his evenings
and weekends fulfilling his duties as a landlord. “I did the full management
and rent collection myself,” he says. “Then in 2005 I started buying
properties all around the country – Manchester, Leeds, Liverpool, Birmingham
– and the travelling became too much.” In August 2005 he gave up his job and
concentrated on buying properties for resale at a profit, or to rent – now
he has a portfolio of 32 properties.
Arora is aware that he picked a good time to invest and anyone starting today
as a buy-to-let landlord may not be so fortunate. “I was lucky to start
buying my properties a few years ago. A one-bed flat I bought for £90,000 in
2002 sold last year for £140,000, and the original £120,000 house I moved
from in 1999 was sold last year for £225,000.”
He admits that rising interest rates are a headache: “The fixed-rate
mortgages I took out five years ago are coming to an end, so I will have to
remortgage or stay on high rates, and there’s no loan out there that matches
my current deal.” But the threatened Revenue crackdown on landlords does not
worry him: “As an accountant, I’ve always done my own tax returns and know
the rules. However, I do know of landlords who don’t think they have to
declare their rental income because their yields don’t cover their mortgage
repayments. They’re banking on capital appreciation – but you have to hang
on to your property to ensure that.”
He is sanguine about the future: “Property has proved to be better investment
than the stock market, and I am positive it will continue to do so.”
THE NEW LANDLORD
ANDREA JAKES, right, is a novice landlord. The 28-year-old accountant from
Hertfordshire is about to take the step of buying a home with her boyfriend.
But instead of selling her own two-bedroom flat, she has decided to enter
the buy-to-let market. “I didn’t have much choice,” she confesses. “The
penalties to get out of my mortgage were so high (£3,000-£4,000), it seemed
the obvious thing to do.”
Andrea bought the flat three years ago for £120,000 and believes it is worth
about £135,000 on today’s market. She has had letting agents view the flat
and received a good response, saying that it should rent out quickly. She
also feels that holding on to the property means that she has something to
fall back on, a comfort blanket of sorts, and also helps with the pension.
If buy-to-let laws change radically and it all seems more hassle than it’s
worth she has decided to sell it. But for now, she is happy to keep her
options open and to hold on to her property.
Living in a house joined on to a buy to let all I can say is unless the situation is managed properly without impact on existing neighbours that it can be a disaster for all concerned. I sincerely hope the bottom falls out of the market for these greedy selfish people.
H. Bush, london, UK
I began investing in property some 4 years ago and am 33 years old and have 8 houses rented out. i remember at the time reading forums by bitter people hoping the buy to let investors lost everything, well since then ive made a lot of money. if they had stopped moaning and got off there backsides they could of done the same. It will take 20/30 years for supply of property to meet demand and the market is moving like italy or germany were 40% of people rent, over the next 10 years prices will go up 80-100% YIPEE.
g.carter, lincoln, england
I cannot afford to buy in Oxford which seems to be very over priced but I do not blame the buy to let landlords. The problem is clearly down to a mis-match between supply and demand. The government controls this because it has allowed mass imigration but has not loosened building regulations enough to cope with demand.
Once supply of houses starts to catch up with demand, prices will come down and buy to let landlords could be in big trouble.. A negative cycle would develop. As prices come down more people would buy and not rent. This would reduce demand for rental properties forcing landlords to sell up, further driving down prices and increasing the stampede from renting to ownership.. only problem is that this process might take years!
Mark, Oxford, UK
Why is new housing so expensive; I will tell you why.... It is down to the way affordable housing is financed. In my village in the cotswolds, if you build 2 houses or more, 40% of the land has to be given (yes given for nothing) over for affordable housing! This means:
1. When you buy a new house, you are in fact paying for almost 1.5 houses!
2. For every 2 houses built only 1 is available to for sale hence adding significantly to the housing shortage. This also adds to escalating prices & increases the waiting list for affordable housing.
Hence, this is therefore a self perpetuating circle!
Yes, in some areas, a builder will need to build say 16 houses at a time to trigger the need to supply affordable housing, but the percentage they have to give away free is still 40%.
We are developing land where if we build 4 or more units, we would have to provide 40% for affordable housing. So we are only building 3. This also adds to the shortage & price!
karran, Cotswolds,
Bitter anti-buy-to-let left wing commentators need to think hard about what they are saying. They perhaps should blame the government: (1) pensions destroyed - where else should one invest? (2) Low interest rates encouraging a consumer-led (i.e. debt-based boom) to maximize votes (no the Bank of England isn't that independent), (3) high cost of moving (e.g. stamp duty) thus people more reluctant to move and get the house chain moving, (4) anyway what's so wrong with renting, many other countries have much higher rental levels people enjoy greater mobility as a result. All this lefty bitterness, envy, jealousy has been a flaw in a small strata of British society for some generations.
James, Ewell, Surrey
For years the Uk has been blessed with one of the higehst rates of property ownerships due to relatively low house prices enjoyed during the 20th Century. If people think the current situation is bad, they should look at other countries, Japan and Switzerland as examples. They both had property booms in the 1980s which in many people opinions they have never recovered from, and consequently the majority of the population are private tenants. This is nothing new, this is Britains cultural obsession with home ownership, people need to relalise that renting is a viable option!! And for the people who have benefited from the But to let phenomenon, thank god we live in a capitalist society where financial success is celebrated not scowled at. This is not old style Russia, one house prescribed for by the state for one family. Deal with it.
Alex Anderson, Birmingham, West Midlands
Buy to let investors have destroyed our local housing market. Houses that were typically marketed towards first time buyers are now sold as investment opportunities, with a premium price tag to match. This, in my opinion, is the real cause of the housing shortage in Britain. No-one needs more than one house, particularly when first time buyers are struggling to afford even a garden shed. I have no sympathy whatsoever for such speculative vultures. Bring on the crash and let us struggling young buyers benefit from their greed.
Felicity Matthews, Sheffield, South Yorkshire
Priced out of Stoke-On-Trent, but able to afford Florida! I think that says all we need to know about how overvalued UK property is.
Albert Hall, Blackburn, Lancashire,
No she is not breaking the law,it is perfectly legitimate to do this with the permission of the morgage lenders, although in the long term they may require that you change to a buy to let morgage. So there you go smarty pants.
ST, Liverpool,
This shows the typical bias in the press. The Times started the article with Shiona Goodman doing what every good parent does, trying to help their children have a good start in life. I am not against Mrs Goodman or what she is doing but I feel a better way to help her children would be for Mrs Goodman to write to her MP demanding action against high house prices. Her Buy-To-Let investment is unlikely to help her children because Buy-To-Let causes the value of homes to rise, ever furthering the rungs of the ladder appart. By the time her children, 10 and 6, are looking for a place of their own, house prices will be so astronomically high a single flat is unlikely to help or prices will have crashed.
Either way, her children will be aided by good and effective parenting. Well done Mrs Goodman. For the MPs though, what about the 100s of people like me who do not have parents in a position to help? It looks like the cardboard box under the railway arch for me!
NickT (Property Underclass), Cardboard Box, Railway Arch,
Please correct me if I am wrong but isn't Andrea Jakes breaking the law by user her existing morgage on a property she is now renting, she is legally required to change her morgage to a commercial morgage as this is now not her home. I would have thought the times would be worried about this fact, maybe even let her know?
randomkevlar, London,
Each of the property investors mentioned tells a success story. They have confidence in the property market going forward. However, there is no mention of the gearing. I suspect that each of them is not highly geared.
The real profits are to be made by those who are highly geared. There is evidence coming through that inflation is significantly higher than the CPI would suggest. Inflation is controlled simply by the amount of money that is available. In other words, the higher the money supply, the more money that is available and the higher inflation becomes. It is supply and demand which is just the reason house prices rise and continue to rise in the UK.
The problem is that increasing interest rates does not curb the amount of money available. In fact the higher the interest rate, the more money that is created by the higher interest rate. Put it another way, interest grows money and the money supply.
With Stirling so heavily borrowed, it is difficult to see any solutions
Christopher G Miller, Bedford, England