The current fallacy I hear everywhere in London is: "As people cannot afford to buy home anymore (as if they could afford it during the past 3-4 years in London...) rents are going up and it's a good time to by a buy-to-letter.
Well, I think it's time to get real. You cannot say "Real estate prices are going up, so we'll increase your rent" and then, one year later say "Real estate prices are going down, so rents are going up". This simply doesn't work.
Now, the news are starting to show how things are getting worse or worse as buy-to-letters start understanding what leverage means, having been hit by a very bad experience and having lost 90% of the equity they had as their deposit:
There are about one million buy-to-let loans in the UK but, worryingly, around 200,000 were taken out last year at the height of the boom.But hey, don't forget, when you leverage, you can lose more than your equity, so soon, we'll see people who have lost 200% or 300% of their initial deposit...
Many of those were amateur investors acquiring their first buy-to-let property with no professional property experience.
After a decade of booming house prices it must have looked like a one-way route to riches.
Interestingly, this page from the FT shows the UK subprime market as well as the BTLers. They actually consider that areas with high BTL exposure is a risky area, as much as subprime. And guess which area is the most exposed to BTL? The first 8 eareas in the lest in terms of pourcentage of BTL are the 8 areas of London!
So why would BTL be considered as a reason to see further decline in the house prices? The answer is easy to guess, but the FT gives us the answer here:
So here it is: a lot of properties are coming on the letting market as well as the sales market. What does economy 101 says about demand/offer/prices?
Property owners unable to sell their homes are being pushed into the lettings market, but many are finding rents insufficient to meet their mortgage repayments.
Lettings agents said these “accidental landlords” were not only having to top up rental income from their own pockets, but were being forced to pay for renovations and safety checks to meet requirements.
With mortgage approvals at a record low, estate agents said even those sellers who cut asking prices by 20 per cent were still often unable to find a buyer.
This has led to a significant increase in the number of homes with both “to let” and “for sale” signs outside.
Hamptons International, which has seen a 44 per cent year-on-year rise in the number of properties available to rent, said the increased competition in the lettings market meant owners were having to spend more money repainting and renovating their homes to attract tenants.
Evening Standard is carrying this article: Buy-to-let landlords hit as rents fall by 20%
Time Online is carrying this article: Repossessions rise 40% as mortgage arrears worsen