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  • Debt & Negative Equity

    When BTL goes wrong - no capital growth



    I received a distressed call last night from a Landlord who wanted some advice

    In 2007 The Landlord and her Husband purchased a property for themselves and they took in an Interest Only Mortgage for a term of Ten years

    They paid £97000 for a three bedroom terraced house

    They had to leave the house about 8 years ago because the Husband needed a new job

    They moved away and got consent to rent the house as the property had a mortgage.  They moved to a new area and rented their new home because the cash they had was tied up with their old home

    They could not sell their old home because of the 2007 crash and when they left the area for a new job, the property was valued at around 65K and they were in negative equity

    The crunch has come now hence the phone call to me. The term of the Mortgage will be up in 6 weeks time

    They thought they had a purchaser but the purchaser has dropped out

    I suggested she could get a new BTL mortgage as the property has a current tenant paying rent of £550 pcm

    The current mortgage is £77,000 and the value of the property is £80,0000

    The property is a good 3 bed home and its in first class condition

    I think its a deal I personally Via my Company  will do as its over an 8% yield

    I often see the comments "do an interest only mortgage when your doing BTL"

    Today I think this advice is wrong.  If this Landlord had gone Capital and repayment she would have had a smaller Mortgage and she could have renegotiated a deal with a BTL lender

    She did buy at the wrong time and she should have taken a 25 Year term but she did not and now she is stuck

    She is an accidental landlord and my own view is she will not be alone with this sort of thing

    Capital growth is a luxury and in my opinion it should be treated that way

    I might get a good deal on the back of someone's misfortune

    But this case shows how dangerous an Interest only deal can be if there is NO Capital growth

    A lot of Northern Landlords will agree with me I urge my southern Landlord friends to heed this story

    I am now working on the assumption there will be zero growth in the future in my business

    Buying on good yield is the safe way to invest and pay down the debt every month and you will end up in a situation where you are safe.

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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.

    Hi Dislexic - We do all our sums on the assumption there is NO capital growth - any that we achieve is a bonus but never expected. I don't thing capital should ever be expected .........

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    Agreed for me.

    However try telling to other lobdon landlords who have been buying properties yielding 3% as you invest for capital not yield in london...

    Its not something i agree if. Even in sw london i have never bought a property which i cannot het at least 6%. Means i havent been buying a lot since 2014 but such is life. Just dipping back into the market now its dropped

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    Totally agree with you it’s a bonus

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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.

    I agree with this comment. I would call myself a cautious investor and being in Northern Ireland possibly that is the for the best.

    For years I've been going against all advice and have been using repayment BTL mortgages combined with 10% early repayment without penalty to reduce my borrowed capital owed. Again most say bricks are a safe haven for money and capital growth, and I still believe this is true, but it is not a linear upwards growth trend. So if your timing of both buying and selling is all wrong you will get negative equity and an interest only mortgage will sting. I think your advice is spot on and they should remortgage with a new BTL lender. I hope it works out for them.

    Should something go wrong with my portfolio, my debts are now a lot less than they were six years ago.

    Assuming zero growth, and when you sell there is a capital gain made, can only bring a smile to your face. The downside is you have less buying power so you will have a smaller portfolio than possible which could mean less rental income but a better night's sleep.

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    I know the NI situation is very similar to the NE of England on this topic

    the east in general is just about back where it was in 2007

    so there has been no capital growth for homeowners who purchased just before the crash

    I believe strongly that the next ten years will see very low growth throughout the whole of uk for lots of reasons

    the plus side is it will give FTB a chance to buy and it helps affordability

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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.

    Whilst feeling a bit sorry for them they made several avoidable mistakes

    They bought in a largely  known no growth area

    They had 10 + years to adapt their strategy and unfortunately did not react to market conditions

    They made no real provisions it seems for 9.5 out of the 10 years to avert a disaster

    They would have done an annual review in  2008/2009/2010/2011/2012/2013/2014/2015/2016/2017/2018

    What were they thinking then . Hope for the best it seems .

    Did they save/ invest  their rental income or spend it elsewhere ?

    Interest only mortgages are fine if handled with care and you have an exit strategy for no growth

    Property Investment per se  is fine if handled with care

    Unfortunately they didn`t handle their investment with care and had no viable exit strategy

    You however DL have also had little growth but you are fine as you are an astute investor and adapted

    Southern LL`s hopefully will and do  heed that story

    And that is why they tend to lean invest in the south where CG has been and will be steady over the long term

    If you choose to climb a mountain which takes 10 years you ensure you take the right equipment with you

    And in addition you climb the right mountain .

    If not then after 2 or 3 years best to admit defeat maybe climb down and climb another one

    No shame in that  - learning from your mistakes makes yo a better investor

    Only a stubborn individual continues to climb and then becomes stranded at the top with no oxygen

    I hope they sort their problems out with your expert help

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    Jonathan Clarke. http://www.buytoletmk.com


    I agree they have been in error here

    but I posted this today that I strongly belive in capital and repayment

    as a southern landlord you haven’t witnessed low growth rates

    but they do happen even over a ten year time scale

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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.

    Totally disagree with you for a change here DL.

    As an investor you have to look at WHY there will be no CG, or chance of it. Once you've established that you can then proceed or not.

    I cannot see the point in an investment where there's no chance in CG because I've never bought anything where there's no chance of an uplift, other than when I first started off, realised, and got shot quickly.

    If there's no chance of CG then technically you're losing each year by at least the inflation figure, but possibly more.

    People are conditioned to do it all the time though, eg. when they buy a new car but do it anyway.

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    I invest just for cashflow

    if I get this deal I will put in 23k and make possitive cash flow of around £370 a month £4400 a year via my company

    that just under 20% return for 23k

    this is the sort of deal I have done for 30 years

    I will go capital and repayment so in 5 years I will have a return of capital plus a house worth 80k with a mortgage of 51k in ten years it will be worth 80k with a mortgage of 41k

    so I have an asset  on low levarge

    if it make capital growth it will be worth more which is nice to have

    but it’s a fig Adam I cant spend it so it has little meaning in my cashflow

    my nett worth grows either way so that makes me safer stronger capital growth is not the reason I invest I invest to see cash in my bank

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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.


    ``I invest to see cash in my bank``

    That`s 50% of the reason why I invest

    I invest to see cash in my bank and cash in my equity 

    Clearly better to have 100K in the hand and 100K in equity

    An investment model that only produces 100K in the hand is left wanting


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    Jonathan Clarke. http://www.buytoletmk.com