Life of a landlord

Are the lives of landlords really as rosey as we are led to believe?

Figures from the Council of Mortgage Lenders (CML) revealed that buy-to-let rose by 48% last year, but with the average house price now nearing £190,000 I would have though it was becoming increasingly difficult for property investors to get the sums to add up.

Research from Hometrack shows that in many areas of the country people need to put down a deposit of about 40% if they want their rent to cover their mortgage payments. Yet mortgage providers are continuing to relax their lending criteria with an increasing number willing to lend up to 90% of the property's value. In addition, while historically lenders required rental income to equate to 125% or 130% of the monthly mortgage payments some now only require 100% of rental cover. They say the reason they are doing this is because there are fewer defaults on buy-to-let mortgages, than on standard residential loans. Indeed, the CML's latest figures revealed that the number of buy-to-let mortgages more than three months in arrears feel from 0.64% in the first half of 2006, to 0.59% in the second half - this compares with the wider market where 0.89% of loans are in arrears.

However, with interest rates having risen 0.75 percentage points since last August and at least one further increase expected later this year, landlords with variable rate mortgages will have seen significant increases in their monthly outgoings and their rental income is unlikely to have gone up to the same extent. Many of those who only have the minimum amount of equity in their buy-to-let properties may therefore be facing a shortfall each month. Undoubtedly, a lot of these people will be investing for long term growth and be happy to plug the gap with income from elsewhere - maybe from other buy-to-let properties or maybe out of their monthly salary. But some will be struggling. Land Registry figures show that the value of new build flats, which are popular with investors, have fallen slightly over the last two years  and auctioneers are reporting an increasing number of repossessed properties are coming up for auction.

Are you a buy-to-let investor and if so what is your experience? Are you still seeing good investment opportunities and adding to your portfolio, or have you decided to sell some properties off because the sums no longer add up?

Comments

[Newton]

I know a buy to let investor with 5 or 6 properties. He has done well and thinks that prices of property will continue to rise. However he admits that to sell any of his properties now would result in a substantial capital gains tax bill. Pointedly he is not thinking of buying anymore, so does he really believe property will continue to rise. In his heart of hearts, I think not.

[V&V properties]

As a small time BTL'er trying to hold down a job as well, the only way to get the portfolio (5) to self finance is, keep the gearing down, look for the best mortage deals, do anything to avoid voids, even if that means £60pcm reduction in rent and claim everything possible.

I have not brought for two years, the figures don't appear to add up.

Collegues who bought new build, found estate agents claims for rentals didn't materialise and are now subsidising someone to 'stay' in their place.

Increasingly the government are imposing hoops and hurdles (housing act 2004, Rent deposit scheme) and the tax man is casting a beade eye as a result of the media's upside 'spin'. Is it worth the agro of tenants, agents and government?

Those who got in early can stick it out. When costs exceed income, confidence will be lost. B2L'ers are likely to sell more quickly than owner-occupiers with emotional ties. Given the increasing market share of investors in the under £200K bracket, the market could turn downward more quickly than seen before.

Yes, I'm old enough to remember the last property boom and bust.

Still, its better than tradition pensions plans.

[John Blackmore]

I knew things were bad but Rental Income of only 160% of mortgage payments ? With 50% mortgage and 50% equity this means the only way that any real money can be made is if property prices continue to increase. Not a good time to go into Buy Let.

[Em]

I'm a very small scale BTL investor with only 6 properties and a portfolio gearing of about 50%. Currently 5 of 6 have stable tenants (one year or more) & the 6th has just undergone a refurb after a 3 year tenancy. The refurb has wiped out any profit this year from that property.

Rental income is 160% of mortgage payments. Only one mortgage is on a variable rate - the rest are fixed for 2,3 & 5 years, with built in flexibility re. overpayments & drawdown.

My last acquisition was in 2003. As I manage them directly, I couldn't cope with any more and hold down a day job. I hope to sell one later this year - good little earner but I now live more than an hour away so it's a hassle to keep a maitenance crew in another town for just one property.

I don't own any new build flats - their prices are not justifiable, neither as owner-occupier nor as investor. However, early indications are that static rents among new builds will allow me to rent one cheaply (from an investor with more money than sense) while I rent out my much more too-large-for-me family house with garden, good schools, etc.

Fingers crossed.