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  • Property-a-holics

    Opinion: Market becoming more unforgiving



    I would be interested in igniting a discussion on how much more unforgiving the market is now.

    This will impact newbies coming into the sector as well as some existing landlords with poorly performing properties.

    Previously we have enjoyed low interest rates, an abundance of good quality tenants, lighter regulation, significant capital appreciation, rising rents, easy access to finance and re-mortgages, and a favourable tax regime.

    If you made mistakes or poor choices 5 years ago, you have probably survived them and prospered.

    Not so now.

    The cost of ignorance and/or getting it wrong as a landlord is a lot higher.

    Some examples:

    There are now 56 different selective licensing schemes in the UK with a further 26 to be added in 2018. This means there will soon be more than 80, plus RentSmart Wales – and each one is different.  This causes confusion for landlords with properties in several different areas, and newbie landlords may not even know of their existence.

    Find out more via this helpful article on Landlord Today

    Regulation is increasing.  With a maximum fine of up to £30K per offence, landlords literally cannot afford to get it wrong. With local authorities now able to keep the fines, they are incentivised to take action against landlords and several times a week I hear of landlords getting penalties.

    With regards to buying a property, even those people who paid over the odds five or ten years ago may have enjoyed some capital growth and got out of negative equity.  Again, not so now.  With house prices stagnating, it is vital to buy a property with a deep discount to build in equity from day one.

    If a tenancy goes wrong, the time taken to evict a tenant is longer and therefore the costs incurred potentially greater.

    Landlords need much more cash for increased deposits due to the PRA, and also for contingency for a rainy day.

    On the tax front, Section 24 is making being a landlord unprofitable for some.

    See - The Tsunami approaches ?

    Universal Credit is creating arrears and misery for landlords and tenants alike.

    Landlords need to take an even longer-term view - 15 to 20 years now.

    Get it wrong in property now, and the cost will be much more significant and it will take longer to recover from poor decisions, no or bad advice, ignorance, and "black swan" type eventualities.

    This is why Property Tribes promotes professional advice from mortgage brokers and tax advisors, and also working with a reputable lettings agents.  We have a trusted team of sponsors and partners who provide these services and are accountable to the community here as well as being supportive by offering input and advice.

    Remember that "Cheap is often expensive in property" - Paul Shamplina.  Cheap will be even more expensive in the long run now imho.

    It would be prudent for all landlords to join a landlord association.  Property Tribes is partnered with the Residential Landlords Association who offer a whole raft of support and advice.

    Landlord education and due diligence has also never been more vital and Property Tribes continues to focus on "prevention", rather than cure.  Prevention is less expensive and less emotional heartache than "cure" and reduces risk, helping towards a happier and more profitable landlord life.

    When things do go wrong, and they inevitably will at some point as in any business, you should seek expert advice to stop the rot. Leaving problems to fester in property often amplifies them and the expense to the landlord rises exponentially.

    In the light of the above, Property Tribes will be running "FAQs Month" throughout April where we have recorded videos with solicitor David Smith of Anthony Gold Solicitors on the top 20 most frequently asked tenancy and legal questions on Property Tribes.

    To be clear, I am not doom-mongering here or being pessimistic.  Being realistic is more vital now than ever before and will prevent heartache and financial loss in the future. 

    Rose-tinted glasses and only considering the up-sides rather than the downsides are dangerous to your landlord health as is being passive rather than pro-active!

    What other aspects of the market are less forgiving, for both newbies and existing landlords?

    SEE ALSO  -         60% of recent BTL loans to become loss-making

    UP NEXT -             Landlord planning - list of eventualities

    DON'T MISS -        "A bad property deal is like a bad haircut ... it will grow out" ... or will it?

    NOW WATCH:

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    Well written blog

    You cover such a lot of ground and I can fully understand your views and I agree 100%

    If there was ever a time for a Landlord is Now LEARN CHANGE ADAPT

    we need to be more professional than ever

    we need more hard cash than ever

    If you don't have the above you will have issues going forward

    The days of quick buck are over its going to be hard slog from here on in

    If you are prepared for the hard slog you will see light at the end of this tunnel

    A great number of us out side of the SE have not seen capital growth

    The SE Bubble is very different from other areas of the country so in a way its going to be business as usual for the Majority and Catch up

    time for the Landlords in the SE  in regard to Capital Growth

    What done is done We all know what's going to happen Just now we have to Plan for the storm that will come

    I am pessimistic for the sector and optimistic for my own business

    We are all going to pay more in Tax Just make sure you have the funds to pay the Bill Starting in Eleven months time.

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    Learn Change and Adapt ?????

    All comments are for casual information purposes only. If you wish to rely on any advice I have given please ensure you obtain independent specialist advice from a third party. No liability is accepted for comments made.


    Cap Growth comprises majority of overall profit in SE - so if that goes via stagnant prices then many LLs will exit sector


    Likewise highly leveraged LLs in Midlands/North will often be non viable when S.24 cuts net profit.

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    Thank you for your valued thoughts DL, as always.

    I am pessimistic for the sector and optimistic for my own business

    That sums up my feeling perfectly.  Other landlords who treat their properties as a business can feel the same too. Smile

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    This is especially with newbies in mind now, but the number of people taking out the wrong kind of mortgage and leaving themselves open to having the mortgage called in by the lender and being blacklisted for lending in future.

    How many times have we seen posts from newbies having taken out a normal BTL mortgage thinking they can then develop the property into an HMO?  Also some thinking they can do flips using a normal BTL mortgage?

    Lenders increasingly have the ability to cross reference to pick up borrowers abusing the system and they can and do call in mortgages at the drop of a hat.  "I didn't know" isn't a legitimate excuse for a lender picking up abuses of the system.

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    All comments are made in good faith and are given to the best of my knowledge and experience but I would advise you to consult an expert before making important decisions and I accept no liability for comments made.


    You are quite correct

    a friend of mine who is an agent has been using BTL Mortgage to flip property

    She has been caught and is now no longer flipping

    Lenders are not stupid 


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    Learn Change and Adapt ?????

    All comments are for casual information purposes only. If you wish to rely on any advice I have given please ensure you obtain independent specialist advice from a third party. No liability is accepted for comments made.


    Excellent addition Annie.

    I am aware of a number of HMO deal sourcers who stack their deals on BTL mortgages, not HMO mortgages, and also say that newbies will get a commercial/investment valuation, not a bricks n' mortar valuation.  All extremely misleading and opening them up to all sorts of problems.

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    We are lucky rates are still low. It is a perfect storm coming and highly likely the below will happen at the same time.

    full effect of S24

    interest hike to normal level

    Brexit (a complete unknown)

    More regulation

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    True.

    Man will also be living on new planets.

    So how about ways to reinvent?

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    Govt know that hiking IRs would be an issue for millions of UK households

    Japan's IRs have been on the floor for close to 30 yrs!

    Savers would be ecstatic if rates rose but I doubt it will happen - but if bank deposits ever reverted to paying say 5% pa gross BTL would cease in SE

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    The principal issue that newbies and even existing LL fail to appreciate is  that their business  is predicated on a tenant always paying rent on time and for the contractual amount

    Doesn't always happen! !!

    Then factor in genuine voids and that mythical always rent paying tenant isn't necessarily  there to support the business.

    Too few LL appreciate  the dysfunction  of the eviction process.

    If eviction cannot be carried out quickly this can severely  affect a LL finances.

    Not many newbie LL can support paying 2 mortgages

    One their own residential and another BTL.

    Tenancies do go wrong and one just cannot hope to luck that one won't end up involved in an eviction.

    Hopefully tenant choices work out but few LL  have resources to manage things if they don't.

    This is why  RGI is so important for those LL especially the newbies!

    If RGI is required then this necessarily  restricts what type of property and where it is.

    LL  will need to invest in areas and properties that attract tenants who could qualify for RGI.

    This means investing in HB tenants is a very bad business proposition

    Only once you have substantial contingency funds can you risk the HB sector.

    Yet many LL enter this sector  initially precisely because it is cheaper to get into.

    Most LL will be lucky and build up resources through starting up with cheaper properties with HB tenants.

    But essentially  they are winging it for the first few years

    That is a risky business  strategy which could ultimately  involve them losing their own residential property  due to one rent defaulting tenant.

    If using  the risky HB strategy  then sufficient  contingency funds are needed if unable to achieve RGI on tenants.

    Few newbie LL make any enquiries about what happens if the tenant stops paying rent.

    IMHO I believe it should be the first thing for a LL  to understand  before they even become a LL.

    Such knowledge may well change how the LL invests and could even deter them from becoming a LL  in the first place.

    But all LL should have a deep understanding  of the evictiev process before they become a LL especially  if using a BTL mortgage to sustain the investment property.

    It is a very simple fact that very few LL  appreciate  what an eviction involves before the fact; they usually find out after the fact and that tends to cause  them much distress both financial  and otherwise.

    LL  need to think very carefully  before  they risk being a LL.

    Essentially  are they resourced sufficiently .

    Few are and so are taking substantial risks?

    The question has to be asked

    Is this wise?

    A question too few LL ask of themselves

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