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Hope u gt a cup of tea handy b 4 u read this -
25 yrs plus in the lettings game and never have I witnessed the dynamics of the whole lettings scenario change as it has in such a short space of time.I have a large portfolio that incorporates diff tenant profiles so the dynamics of each tenant market I have a interest in.
Let's start with the student market in Oxford - the vast expansion of University owned accommodation to provide housing for their students has led to a marked decline in the PRS for student housing - never have I ever had 3 student houses not let within 6 weeks of November when the student lists go out from my 3 reputable long established lettings agents who let predominantly to students.1st wk of Feb and I have 3 not let for 18/19 academic year - in speaking to all the agents they say the whole market is quiet and tenant demand has dramatically reduced due to alternative housing from the Universities themselves - this situation is now , and Oxford Brookes Uni has over 1000 more new rooms due for occupation in Sept 2019/ Sept 2020 ??? - note these 3 houses are within 5 - 10 mins walk of the University Main Campus entrance.
What's more concerning is the large number of student HMO's that have 7 or plus rooms that are still avail, the market demand for these has fallen off a cliff - a dear friend has a 12 bed that in the past 20 years was always let within a month of becoming avail - now no one interested - he faces a huge dilemma - seek planning for flats ( unlikely to get ), let to professionals ( too big a unit to do so ), markedly reduce rent to try to attract interest in the hope it lets - either way it's a very worrying time for him and others who thought larger numbers HMO's were the holy grail.
Family houses - the demand is insatiable for these from social tenants but the rent paid is substantially lower than the market rent - prob is the private occupier demand is dramatically lower and pushing desperate landlords into putting in social tenants and thus accepting lower rents hence causing a downward trend in market rents which is then supportive evidence for rent officers to use as evidence to support the lower HB rental levels that are being offered.
Professionals - the uncertainty of Brexit has reduced the tenant demand of foreigners hugely - prior to Brexit a double room would be let within 24 hours of being advertised on Spare room with multitude of enquiries - now the enquiries have dwindled to a few and the supply availability of rooms is huge - thus a buyers market meaning that price is more important than ever - throw into the mix - AIRBNB / Rent a Room availability and there is a huge imbalance of rooms available to tenants looking, thus rents are heading South as opposed to North.
What's all this leading to ? Imho - with the inception of Section 24 started 6th April 18, loss of the wear & tear allowance - impending interest rate rises, tenant fee ban April 19, stricter borrowing regulation and all the above - its a very worrying time for any landlord no matter how experienced you are - for any one going into the PRS as a new landlord - please please do your due diligence incorporating every aspect of the business - the dynamics are changing month to month and the uncertainty / fear pervading the whole sector is self evident - when letting agents with a combined 50 plus years experience start voicing concerns over tenant demand across every tenant profile, its time to listen and take note and adapt to accommodate the change.
Those with High LTV's might even find that the values attained to the property might actually have fallen and thus putting them on even higher LTV that could prevent them remortgaging to lower attractive rates, thus keeping them stuck on unattractive / uncompetitive rates.
This is Oxford market experience as I see it presently- what's applicable in your town/ city I don't know - but if this post helps even one person to think / adapt to the market they operate in, then it's a good productive 20 mins of my time posting it.
Maz Moderator addition:See Maz's other post The Tsunami approaches ?
An excellent and informative post and thank you for sharing your business wisdom.
I believe you are confirming what many are stating
Private LL need to readjust their business model.
Now that essentially means fewer lower leveraged properties.
Yes that means the chance of CG on multiple properties reduces but quite frankly I believe LL can forget the idea of any significant CG in the next few years.
Therefore yield will be the key to survival .
So get selling off and reducing leverage so that lower rents are affordable .
Build resilience into your business model by dint of lower leverage.
The HMO issues you have identified are something which many LL will have to change especially in the student market.
Such properties will need to be repurposed as the student market is being taken away by the Universities themselves.
Who can blame them as they are seeking profit from students wherever they can.
Such universities were never going to allow all those lovely profits to disappear into private LL profits.
Uni's will wish to provide a One Stop Shop for the student market and that means no place for the student market LL.
I reckon these student properties would make ideal TA for council use
There is no shortage of demand for TA and the rent achievable from councils is eye watering.
But operating as TA is going to mightily p### off the neighbours!!!
I believe your assessment of the market as it pertains in Oxford and it's environs very much translates into all other parts of the country and as such LL need to be very worried.
Reviews of business models are urgently required
The status quo of the past 20 years is GONE!
Time for us LL to wake up to the new paradigms which you have so accurately drawn attention to
It sounds like Oxford now has a over supply of student accommodation.
It's very important not to put all your eggs in one basket.I have made this mistake but I have been diversifying since s.24 was announced.
I would have thought that Oxford would be popular with tourists and short term serviced accommodation.
The problem with changing use of these former student properties that are now seemingly redundant is that lenders will not give permission for the changed usage as you suggest could occur.
very well said indeed
The whole sector is under attack in a number of ways
I get it in the neck on PT from some commentator's that I spread Doom and Gloom
I don't do this lightly I see such great dangers in the sector and my belief that the end of BTL is very close indeed closer than others fail to realise
Your post says so much you are experienced and knowledgeable and I want to thank you for such a good blog
I feel there is a lot of Landlords who bury there heads in the sand (I HAVE ALWAYS MADE MONEY FROM BTL Sort of attitude
I was keener than most before Osborne Law came now am very negative on BTL
I can say this the penny will drop and the Positive Landlords may not be as positive as this all unfolds
The important thing today is Think hard very hard before you enter this sector and if you do Don't Borrow
and Pick Bog standard houses for renters to make homes
A very good Agent who is normaly up beat has said he is seeing a rise in the number of his Landlords who are selling
Two last week and Three this week an its Flats in City Centre locations
This is only the start of what is to come
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.
Part of the issue is no landlord will believe a surplus of properties and falling rents will happen in their area until it actually happens.
It is expected that a lot of Europeans on low wages will return home as a result of Brexit and that will leave many properties vacant with pressure on rents.
Thanks Mazhar. Very well written piece. It's always useful to hear empirical evidence of these market changes, and then reflect on your own situation.
Good luck in your future endeavours.
Thankyou for your kind words and sentiments expressed - im one of the lucky ones in that I have low gearing across my entire portfolio which thankfully operates in 4 markets - students / families / professionals & flats , in doing so a downturn in 1 or 2 of these markets I can handle cause i have the flexibility to reduce rents to achieve 100% occupation - and all my student accommodation is within 5 / 10 mins of the main campus so location wise u cant better better, the 3 current empty are part of 24 student houses in that area I have, so yes it's very disturbing the change in student demand. But what it teaches me is that I've got to and will up my game to compete full on with the Universities and there accommodation and provide bolt on services to the students creating my own USP that will facilitate a positive differentiation of my houses from all others - highlighting the benefits my houses have over others and the Universities own rooms.
Yes i may take a hit on the rents and overall profits but imho its the achievement of 100% occupation that should be the goal, because a lower X rent with tenants is better than a wanted Y rent with no tenants ?
We all have to learn new tricks
sticking to what worked in the past is not an option
Landlords need a great deal of cash now
The days of high leverage are over The Rich Dad Poor Dad Days are finished.
"The days of high leverage are over The Rich Dad Poor Dad Days are finished."
I disagree DL. The rules have changed so we adapt. I still Leverage up, but stick them on 13/14 year repayments as I don't need the additional cashflow right now. I would still leverage at 75% 25 year repayments if I was starting out. It is however more important now more than ever to buy high yielding properties but Leverage still works fine.
Yes we have to pay more tax, a grossly unfair one, but it's no different than when we had to pay higher mortgage rates. It didn't stop us then, shouldn't stop us now.
Rents will rise because of s24, this will be abolished at some point as the homeless crisis goes through the roof, calmer seas will return.
We don't give up sailing as there's a storm. We batten down the hatches, sail on through and come out the other side to calmer waters, blue skies and sunshine.
Further to this. A sage piece of advice that stuck with me to the question of "When is the right time to buy" answer being now, it's always now. You can't buy in the past or we'd all go back to 1995 and hoover up.
I bet there are people who don't buy in the next few years who state in 10 years time, "God, I wish i'd bought X number of houses in 2018 for X money, as now they'd be worth XXX.