Tag Archives: buy to let

The Reluctant 60 plus Landlords

OldLandlord

There is endless wailing about how greedy buy-to-let landlords are snapping up properties from under the very noses of young first-time buyers.

Hardly a day goes by without some hand-wringing politician (usually Labour) telling us that if only it weren’t for those awful buy-to-let landlords more young people could afford their own place to buy.

Who are the culprits?

Many of these avaricious landlords are actually over 60 and most of them probably don’t want to be landlords at all!

ForSaleSigns

But now that they see their savings being trashed by Mark Carney’s quantitative easing (a wonderful euphemism) and historically low interest rates, so they need to find other ways to make their money work for them.

The other options

They can of course put their cash into poorly performing funds with heavy management charges. Buying shares and bonds is an option but it does require a certain amount of specialised knowledge and you have to actively manage the portfolio. Added to this, there is quite a downside risk as they say.

The landlord option

Buying rental property is an obvious solution. You can easily get at least a 5% yield on your money and you’ll probably get some nice capital appreciation into the bargain. And it’s a physical asset – it can’t just disappear, as many people’s savings did in 2008.

But there’s a downside – there’s always a downside isn’t there?

Being a landlord, unless you are lucky, is NOT an easy option. Take one look at the TV series ‘Nightmare Tenants and Slum Landlords’ and you can see what I mean. For landlords whose tenants cannot or will not pay their rent, it is an absolute nightmare indeed, involving months of legal nonsense and Possession Orders and bailiffs etc etc.

Some of the consequences of bad tenants can be mitigated by taking out landlord rent guarantee insurance but even that can’t completely take away the stress.

What’s more, the government has in recent years made being a landlord much more difficult. There are endless legal hoops that a landlord has to jump through to ensure he or she does not fall foul of the law. Fail to properly protect the deposit or even fail to notify the tenants can mean you will not be able to secure a Possession Order if necessary.

On top of all this are the constant management problems involved with being a landlord – repairs, disputes with the managing agents etc etc.

Enter the Reluctant Landlord

So, there are many 60 plus landlords who would far rather just tuck their savings into the local friendly building society or bank like their parents did. But they cannot – unless they want to see their savings dwindle away to nothing.

Interest Rates

Late last summer (August 2016) the Bank of England lowered the bank rate to a ludicrous 0.25% from the almost ludicrous 0.5%.

Quite rightly they want to stimulate the economy – although there may be some political posturing by Mark Carney over the result of the EU Referendum (little bit of politics as Ben Elton used to say). On top of this they are going to increase quantitative easing AGAIN. It’s a bit like a heroin addict who keeps needing ever greater doses to keep going.

The Law of Unintended Consequences

This is one of my favourite laws. By stimulating investment by lowering interest rates, the government and Bank of England (and everyone) are virtually compelling many pensioners and pre-pensioners to buy rental property. This demand pushes prices property prices up further and means that young first-time buyers don’t stand a chance of ‘getting on the property ladder’ as they say.

I do think that the Bank of England need to consider whether they are just going a bit too far in this rush to stimulate the economy with cheap money. Apart from anything else it does sound a note of desperation – and that’s never good for business confidence.

Malcolm James Stretten

 

Landlords and Letting – Affordable Landlord Insurances and Advice

 

 

Yet another property buying panic, partly thanks to Mark Carney?

Mark Carney Estate Agent Sold Boards UK Map

Late last year Mark Carney, the Governor of The Bank of England helped set the stage for yet another property buying panic when his forward guidance suggested that interest rates in the UK were likely to fall.

That’s a ‘fall’ from their historic low of 0.5%! Added to this is the forthcoming ‘Annuity Liberation’, whereby from this April 2015 people will be free NOT buy an annuity to provide themselves with a secure pension.

A hard choice?

So, the decision for new pensioners and others is… should I buy an annuity, put the money into a savings account and get 1.5% (if I’m lucky), or buy a property to let and get around 5% net yield with a probable long term capital growth?  Hhhmmm – as the actress said to the bishop, that’s not a hard one!  Of course people will say that savings aren’t investments, but what other options exist? Corporate Bonds are indeed a realistic possibility but they do require a certain amount of research and understanding and are not for the unsophisticated investor. Other kinds of investment vehicles such as funds are also a possibility but ultimately you are also paying for the services of very expensive fund managers.

Hooked on low interest rates

In reality, the ludicrously low interest rate is making ‘investors’ of us all. For several years now, so-called financial commentators have been ‘warning’ of an interest rate rise. I am aware of the old adage that ‘what goes up must come down’ and vice versa, but I personally don’t think that interest rates will rise again for many years.

The reasons for me saying this are as follows:

  • The Governor of The Bank of England has already predicted a FALL in interest rates due to falling levels of inflation.
  • The Euro is a basket case currency and most of Europe has very high levels of unemployment, partly due to the ridiculous Euro and partly due to the incompetent idiots running the EU. So now the European Central Bank is about to start ‘printing money’ in order to stave off deflation.
  • We’ve had extremely low interest rates for over 6 years and…here’s the important one…property owners and the UK economy are addicted to low interest rates. Any noticeable rise interest rates would cause panic selling by massively leveraged buyers, particularly in the buy-to-let sector. This would cause recession in the supply chain, such as companies like B&Q, Homebase, Wickes, architects, tradespeople,  solicitors, builders’ merchants, construction companies, banks, building societies and other course, our much loved estate agents and conveyancing solicitors. Well, as they say, every cloud has to have a silver lining! And of course the knock-on effect would be felt right through the UK economy.

Panic Property Buying – the signs are all there

We’ve recently reluctantly felt impelled to join in the panic property buying phenomenon. Now, I know that Warren Buffet wisely says, ‘When everyone’s being greedy, be afraid and when everyone’s being afraid be greedy’. But because Britain is a very overcrowded country with unsustainable levels of immigration and we are all hooked on low interest rates, I cannot foresee a time when property buyers will again be ‘scared’. I appreciate of course that these observations will be mainly applicable to London, The South East, Manchester, parts of The Midlands and The West Country.

We have seen flats and houses advertised for say £190,000, only to find that the agents are using these as ‘guide prices’, meaning that after you get involved in negotiations you find that they are going to best and final offers which could be more than 10% above that supposed ‘asking price’. In effect they are running blind auctions on property, and even if it’s crap, it usually has offers on it within a few days of going on the market. Also, time and again we are finding that agents are advertising places for sale when in fact they have sold them several weeks ago. They then claim that the vendors asked them to keep the property on the market even though someone is going through the process of buying the property. Sometimes the agent blames Rightmove or Primelocation. ‘We told them to take it down but they’re very slow you know’. Basically a case of ‘it’s not me guv’.

Of course the real reason for all this is that there is a massive imbalance between supply and demand – huge demand and not enough properties to go round all the agents.

In conclusion

We are obviously living in a society where real money is becoming gradually worthless. There are endless car ads telling you that all you need to buy a top of the range Audi for example, is £299.00 a month – no mention of the actual purchase price. If you ask a shop if they offer a discount for cash they usually laugh in your face and suggest you take out a credit agreement with them! Almost every major consumer good is advertised at so much a month, particularly things like mobile phones. Banks and building societies basically are treating savers with contempt  and offering them 0.2% on their ‘ONLINE SUPER PLUS SILVER SAVER ACCOUNT’ or some sort of nonsense.

It is of course good news for companies linked to the property market like Landlords and Letting! This is because it means many more landlords needing to take out rent guarantee insurance in case of defaulting tenants. But for the wider economy I think things are badly out of balance.

So in conclusion, I guess it’s a case of Carry on Buying – rather like an old much loved British movie really!

UPDATE MARCH 2015

Mark Carney and the Monetary Policy Committee are now saying that the next move in interest rates is likely to be UP!  I suspect that this is because they realise that their earlier speculation that interest rates would fall has started a buying panic – which it has, and they are now seeking to calm things down.

 

Landlords and Letting – Protecting buy to let investments