Soldato
I'm not saying it will happen
Mortgage Rate Rises
- Thread starter glenimp617
- Start date
Elaborate? In recent years the only reason BTLs have been worth it is the equity growth. Anyone who thinks otherwise has missed the point of being a landlord.
Rent is determined by what the population is able to pay rather than the costs of the landlords. Landlords don't wait for their own costs to go up to increase rents, they always charge the maximum the market is able to pay. If they already charge the maximum they can (which is the case 100% of the times), their costs going up wouldn't result in rents going up, there won't be anyone capable of paying them that rent.
House prices and rental yields had for years stabilised around the point where rent is equal or slightly more than the monthly payments on a 75% BTL mortgage. Since rents are not in the housing market's control (limited by the ability of the renter to pay, which is a function of labour market and cost of living) and house prices are not fixed (can go up or down in the market), house prices more or less have been a function of how much the population can afford to pay in rent and the current interest rates on a BTL mortgage.
However in the last couple of years house prices went up outside the above balance due to Covid, and due to cost of living crisis the population's ability to pay rent has been diminished. At current house prices and current interest rates, a landlord can't charge their 75% BTL mortgage monthly payments as rent, nobody can afford to pay it.
A flat near mine was paying £1000 for rent, landlord wanted £1300 because they claimed their costs have gone up by £300 and the tenants refused so landlord decided to evict and find a new tenant. They found another flat for £1100 (better location too), but the landlord expecting £1300 waited for over 4 months to find a tenant and in the end could only get £1100 AFTER he did renovations.
A free market works both ways. House prices insanely high and a population unable to pay rent in the middle of a cost of living crisis is not a profitable scenario for landlords. This is going to be a very tough for them. Good riddance.
House prices and rental yields had for years stabilised around the point where rent is equal or slightly more than the monthly payments on a 75% BTL mortgage. Since rents are not in the housing market's control (limited by the ability of the renter to pay, which is a function of labour market and cost of living) and house prices are not fixed (can go up or down in the market), house prices more or less have been a function of how much the population can afford to pay in rent and the current interest rates on a BTL mortgage.
However in the last couple of years house prices went up outside the above balance due to Covid, and due to cost of living crisis the population's ability to pay rent has been diminished. At current house prices and current interest rates, a landlord can't charge their 75% BTL mortgage monthly payments as rent, nobody can afford to pay it.
A flat near mine was paying £1000 for rent, landlord wanted £1300 because they claimed their costs have gone up by £300 and the tenants refused so landlord decided to evict and find a new tenant. They found another flat for £1100 (better location too), but the landlord expecting £1300 waited for over 4 months to find a tenant and in the end could only get £1100 AFTER he did renovations.
A free market works both ways. House prices insanely high and a population unable to pay rent in the middle of a cost of living crisis is not a profitable scenario for landlords. This is going to be a very tough for them. Good riddance.
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What's going to happen to all those flats they're building?
Literally 1000's of properties for example in Welwyn. Those are all 300k FTB properties
www.whtimes.co.uk
Literally 1000's of properties for example in Welwyn. Those are all 300k FTB properties
Welwyn Garden City developments explained
Welwyn Garden City's reputation for planning and architecture is thanks to figures such as Ebenezer Howard and Louis De Soissons, who helped create…
www.whtimes.co.uk
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Soldato
Snapped up by foreign investors perhaps?What's going to happen to all those flats they're building?
Literally 1000's of properties for example in Welwyn. Those are all 300k FTB properties
Welwyn Garden City developments explained
Welwyn Garden City's reputation for planning and architecture is thanks to figures such as Ebenezer Howard and Louis De Soissons, who helped create…
Soldato
You really think a landlord is going to cover the £££ shortfall between the rent from the tenant and the uplift in their BTL mortgage due to the increased rates?
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going off the estimates for my house now a ~15% slide would put it back to what i paid for it anyway, during the first wave of covid house price insanity, but not the latest one which seemed even stronger. A crash in to negative equity is my only worry but would hope it wouldn't slide that far. I was joking originally when i said this would be my first and only house...tides are changing on that one.
What's going to happen to all those flats they're building?
Literally 1000's of properties for example in Welwyn. Those are all 300k FTB properties
Welwyn Garden City developments explained
Welwyn Garden City's reputation for planning and architecture is thanks to figures such as Ebenezer Howard and Louis De Soissons, who helped create…
New builds have already dropped by 10-15% nationwide, and will drop yet another level once HTB equity loan goes away. I suspect these £300k properties (if they don't sell now) will be less than £250k next year.
What else can they do? If there's no tenant able to pay that £££ shortfall? If a tenant could afford to pay an extra £££ per month, the landlord would already be charging £££ more, they don't tend to wait for their own costs to go up before raising rents.
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Soldato
Sell and still lock in some of their gains from the past 10 years?
Exactly. Yet more downward pressure.
Got to be looking at 15 percent minimum decline here.
It must be risky for developers to even build new developments.
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Soldato
It's not just what a tenant can afford, but also market value. If all other properties are £££, then there's no point in listing a comparable property at £££ *1.3, because nobody will be interested.
However, if every landlord is getting increased rates (which they will if on a BTL mortgage and their fix ends), then they will all increase their rent, and so market value increases.
It's not like housing a discretionary purchase that you can choose to go without - tenants need somewhere to live so they will have no choice. (Obviously there is going to be a ceiling where tenants simply can't afford it, at which point they will just not pay.)
Soldato
Do you think their BTL is anywhere near what they charge for rent?
Soldato
Of course not, but there are still other costs to cover. Do you think they won't increase the rent if their BTL mortgage increases by several hundred £/month?
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Soldato
Possibly, it depends on the market. If people still have jobs then sure they will try to get more.Of course not, but there are still other costs to cover. Do you think they won't increase the rent if their BTL mortgage increases by several hundred £/month?
Soldato
imagine the property was 100% mortgaged. £300k house costs £6k in interest at best. Income from rent is taxable and landlords can't offset rental income at the 40% rate. Add wear and tear, vacancies and the rent needs to be £1k to generate any kind of return. Then add in interest increases and that figure probably grows to £2k. So do I think 1k is fair to rent a 300k property. Personally yes based on the costs involved, but that is predicated on 300k being the right cost of the property. The real answer is that the property should be 150-180k so that the renter stands a chance of saving a meaningful deposit to get on the ladder.
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Their margins are 30% on new builds, even higher on new build flats. They will still make profits, just a little less.
Market value depends on what people are willing to pay. If nobody can pay, say £1500 for a flat. It doesn't matter whether the costs to the landlord is £1000 or £5000, the market value is still what someone is able to pay.
We are always at that ceiling, because if there were any headrooms the landlords would already be charging more. Landlords don't leave money on the table waiting for their costs to go up before increasing rents.
The only time rents increase is when people bring in additional money to pay, not when landlords have additional costs. When we had wage growth and low inflation, there were additional money to pay. Interest rates were going down for a decade, did rents go down? No.
The rental market is not that liquid. If you're a landlord and have a rent paying tenant paying £1000 and you want £1500 to maintain your previous margins, evicting them means months of nobody paying any rent and you searching for a tenant that may or may not exist. If tenants stop paying the landlords can't find someone who pays immediately. If house prices do drop then there would be new landlords buying properties who have a lower mortgage, and are able to undercut you on the rent.
These stuff are not theoretical, the concept is very well studied. Rents don't follow interest rates, you can plot rents and interest rates and see no correlation. Rents generally follows wage growth.
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Permabanned
When we first got a BTL the rent barely covered the mortgage. It's now mortgage free but doesn't really make any profit as such.