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The BTL Investor: The Symptom Or The Cause?

In a recent article in the FT a writer states the collapse of mortgage lending has created a bonanza for buy to let investors, the group widely blamed for bringing about the housing market crash by fuelling speculation.

In my mind that’s the equivalent of dangling a carrot in front of a donkey and beating it if it eats it. For what else is a Buy to Let investor supposed to do if not invest using whatever is available in the market i.e. cheap money.

Private landlords have increased their share of the UK housing market by 42% since 2007 and now account for 19% of the total value. Cash rich landlords are now benefitting from the lack of bank lending. This combined with the lowest level of housing output since 1923 have both contributed to drive up rental yields.

The article has claimed the tightening of criteria has helped rather than restrained speculative borrowers who helped trigger the housing market collapse by disadvantaging those first time home buyers who are unable to get on to the ladder. Presumably this would have the same effect on the BTL investor? Clearly they are all cash rich (??!!!)

This was clearly written by someone who perhaps hasn’t got a foot on to the property ladder and is very clouded in his perception. If there is cheap abundant money and the prices of houses are rising what will happen? Of course people will borrow and purchase Buy to Let properties. Can you blame the BTL investors for this? They seek profit in the market in the same way a lion seeks prey, that is their function.

If the blame should lie anywhere it should be in the way the money was made so readily available, printed from thin air and dispersed into the market, and in the derivatives market who chopped the loans into instruments and sold them on, classing them as premium securities which in hind sight they were not supposed to be.

The BTL investors where meagre symptoms of the problem not the cause.

It does go on to make some reasonable points by quoting someone else, one is the BTL investor of today is not focused on capital growth(unless he’s into central London) but the general aim is asserted to be to buy a property with good rental income with strong prospects so it will grow.

The under supply of property and lack of credit has attracted equity rich buyers from overseas into the property market, especially so in central London.

Most people see the constrained lending in the market is having an effect but do not appreciate the lack of housing on the supply side. The government target was 250,000 for last year, yet the output was only 105,000.

This lack of supply is pushing rents up as not many can afford to purchase.

Currently the property market is a fertile hunting ground for cash rich investors, and if you’re not cash rich why not clump together in a group. There’s strength in numbers, this is why many animals hunt in pacts.

Even if you can go for a property alone the best bargains to be had are in the top end of the scale meaning you can go for bigger kills in a group rather than individually. We currently have a freehold block with planning for three flats priced at £750,000 in a central Location. This can purchased in a company thereby saving stamp duty and making it seamless for a group of investors. The end value of this block is estimated to be £1.15m with an estimated spend of £200,000.

The Real Deal

Real deals brought from the street

We were approached by a working class couple, the husband worked in the Civil Service for a modest salary and the wife was a housewife. They realised in order to progress financially they needed to take some steps to invest otherwise in a decade when their two children had grown up they would be in no better financial position. The prospect of purchasing a property in central London frightened them due to the size of loan they would be taking on, which was expected to be about £225,000. This would be the highest loan they would ever have had after having paid off their residential home. In order to progress we suggested they group themselves with a friend or relative so the step is not such a big one. The aim after all is to progress financially and not to have a heart attack. And so they grouped with a relative and together will be exchanging on a three bedroom flat this week for £325,000.

This property comes with a parking space and a garage, it has a gated entrance. The property is sold as an ex-council but is not! Having sold two already in the same block we had discovered the history of the block, it had originally been built for council tenants but due to an oversupply the block had been sold privately. Previously we have purchased (on behalf of clients) two bedroom properties there for £315,000 and £310,000 with car parking spaces but no garages, these were good deals. So we knew this one was a brilliant deal, easily rented at £500pw and a market value of £375-£400,000 this would put them on good footing straight away and into the future.

The Victorian House

Urban & Middle class housing

Victorian houses were built for many classes and sectors of society, from a back-to-back in a Yorkshire Mill town to a mansion in the Scottish Highlands and everything in between. Aristocratic landlords built entire villages for their workforce complete with schools and churches. These model villages however remained in short supply and casual workers who were not entitled to them lived in appalling conditions.

The urban poor were housed in back to back terraced housing which were modest in scale and austere in design. These had begun to sprawl around mills outside Sheffield, Manchester, Bradford, Nottingham Liverpool and Birmingham. These were still being built in the 1890’s despite efforts to legalise them out of existence. Many charities such as the still existing Peabody Trusts became involved in housing the urban working class. Dozens of prison like blocks were erected for this purpose. No money was spared for non essential items. One notable construction built by the trust was blocks of flats in Islington which were built in 1865, and the original tenants of the two and three bedroom flats had to share kitchen and toilets with their neighbours. These earliest surviving Peabody buildings in London are on the Islington Estate and are protected under a conservation act.

Hundreds of thousands of individual homes built for middle class occupants were constructed during the Victorian period, these were modest detached or semi detached and terraced housing, prosperous professionals aspired to live at the edge of town in a villa, these could be built for £1,500. This idea of a villa had been imported from Italy by architects who admired the country houses built in Italy in the sixteenth century. One wonders how much the plush properties will go for in a hundred years given the rate money is being printed.

Suresh Vagjiani

Managing Director

Sow & Reap

A Property Investment & Financing company.

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