Monday, 21 May 2007

Buy-to-let morons "still confident"

Here is a cracking piece on the buy-to-let brigade. Apparently, a minority of these part-time property speculators are going to push through higher rents to cover their higher interest rate costs. However, the majority are swallowing the higher costs with lower profit margins, so should that read, "greater losses".

I enjoyed this article.

Paragon Mortgages, buy-to-let specialists, sent out a press release last week proclaiming that all‘s well with the buy-to-let market.

Apparently, in a recent survey, “almost a third of landlords said they were reacting to rising borrowing costs by increasing rents, while another 43% reported they are taking no specific action as a result of the interest rate rises.”

That’s not all. “As further evidence of their confidence in the future, in the survey 12% of landlords said they were increasing their involvement in buy-to-let as a reaction to the rises in borrowing costs.”

Wait a minute. Did we miss something here?

So “almost a third” of landlords - that’s less than 33% - are trying to push through rent increases to protect their profit margins against rising interest rates. Meanwhile, 43% - that’s nearly half, if you want to be really rough and ready about it - aren’t going to do anything. And that leaves at least another 25% - a quarter - who presumably have been unable to raise rents either.

In other words, more than two thirds of landlords aren’t going to raise rents, even though interest rates are rising. That can’t be good news for the buy-to-let market - particularly when so many recent entrants to the landlord market are already stuck with negative yields (in other words, their rental income doesn’t cover the payments on their interest-only mortgages).

The second quote is even more telling - 12% of landlords are taking rising interest rates as a cue to buy more property. This is “further evidence of their confidence in the future.”

There’s a few bits of twisted logic to untangle here. For a start, if 12% are buying more property, that leaves 88% of landlords who don’t feel confident buying more property when rates are rising - which strikes us as sensible.

Thinking charitably, the “confident” 12% (that’s just under one in eight, by the way), have decided that rates won’t rise much further. That could mean this is a good opportunity to drive down selling prices as others panic about the prospect of a 6% base rate by the end of this year. Or less charitably, it suggests that one in eight landlords don‘t really know what they are doing and have fallen for the whole “property prices never fall” hype.

In any case, it certainly shows that the providers of landlord mortgages are rattled. And that’s unsurprising. Even the mainstream press is catching on to the idea that interest rates haven’t peaked - high profile columnists Roger Bootle (The Telegraph) and Anatole Kaletsky (The Times) are both calling for rates to hit 6% or more.

And at the weekend, the Sunday Times, for example, ran a piece on why householders need to be planning for a base rate of at least 6% - that would put the typical standard variable rate at 8%.

None of this bodes well for buy-to-let or the wider market.

4 comments:

M. Friedman said...

What this country needs are some good old-fashioned monetary targets

Gordon said...

Does anyone remember a song "Gordon is a moron". I thought of that song when reading this blog. You are a moron, Alice.

Julie said...

Gordon is a moron - Jilted John

http://www.youtube.com/watch?v=Y3rD8fUmbRA

Anonymous said...

Alice is a moron
Alice is a moron
Alice is a moron
Alice is a moron
Alice is a moron
Alice is a moron

Its not fair, I don't care.
Its not fair, I don't care.
Its not fair, I don't care.
Its not fair, I don't care.
Its not fair, I don't care.
Its not fair, I don't care.
Its not fair, I don't care.