BUY-to-let landlords might want to consider stocking up on sleeping pills after a survey revealed this morning that an over-supply of new flats means rents are falling just as the cost of their mortgages is increasing and the value of their assets is plummeting. 

It's not meant to happen like this. House prices fall because people are reluctant to buy and rent instead. That pushes up demand for rented property and rents. Buying eventually becomes more attractive and the housing market cycle begins again.

Not in this market. The latest quarterly survey published by the Association of Residential Letting Agents (ARLA) this morning showed that demand for rented property remained at a historic high but rents fell by 7% for houses and 9% for flats in the three months to June.

Only three months ago, ARLA was predicting that rising rents were an indicator of 'the start of the next traditional housing cycle'.  Now it says an over-supply of new two-bed flats has demolished 'the myth of soaring rent levels'. 

'We are seeing corrections in individual locations throughout the country,' said head of operations Ian Potter. 'The main cause of these is the developments of new blocks of two-bedroom flats coming on-stream.'

At the same time the proportion of letting agents reporting that demand was outstripping supply remained at a historic high of 39%. The imbalance was strongest in London and the South East. 

All of which will give buy-to-let landlords a few more sleepless nights while they wonder whether the economic fundamentals underpinning their investment are really so sound. ARLA, which invented buy to let in the mid-1990s, says most landlords intend to sit tight and ride out the problems in the market, with 77% planning neither to buy nor sell.

However, the survey covers a period before the house price downturn got even steeper and before problems at top buy-to-let lender Bradford & Bingley forced it to increase the cost of its loans.

Posed by Jules Birch, June 9 

Posted in Buy to let

THIS time last year Bradford & Bingley thought it had spotted a business opportunity. Out would go safe, low-margin business like lending to housing associations. In came a market-leading role in buy to let and an expansion of self-certification mortgages.

This morning came official confirmation that it has all ended in tears in an announcement that wiped another £4bn off banking shares. A trading statement revealed an £8m loss for the first four months of the year, the departure of chief executive Steven Crawshaw for health reasons, the sale of a 23% stake to a private equity company and a restructured rights issue to raise £258m.

The bank sold its £2.2bn housing association loan book to Dexia in November in a move that Crawshaw said 'enables us to improve returns by redirecting our capital and funding resources to take advantage of the significant opportunities that exist in the UK mortgage market today'.

The Belgian bank unsurprisingly saw the deal rather differently, arguing that it would give it an 8% share of a low-risk market and 'the difficult financial markets environment is a source of development and profitability for Dexia'.

By February Dexia's judgement was already looking sounder when B&B revealed a 49% fall in pre-tax profits. Its accounts revealed that buy to let now accounted for 45% of its business thanks to buying £4.3bn worth of loans from Kensington and GMAC-RFC.

In April B&B did a u-turn by announcing plans for a rights issue it had previously denied a need for and this morning it got even worse. The credit impairment charge for the first four months was £36m, compared to £23m for the whole of last year, because of a sharp rise in mortgage arrears and 'a provision of £15m relating to a small number of organised mortgage frauds'. More than 5% of those acquired loans were in arrears of more than three months.

Not quite another Northern Rock, but perhaps it will make other banks think twice about abandoning boring old housing associations. Mr Bradford and Mr Bingley, meanwhile, must be eating the black bowler hats they wore in the former building society's old logo.

Posted by Jules Birch, June 2

Posted in Buy to let, Finance, Housing associations

RISING rents, falling prices - now must surely be the time to buy to let? That's the message from industry cheerleaders to prospective new landlords and it's one that beleaguered housebuilders must wish they heed. But should they?

Statistics released this week by the CML [download here] show that, far from collapsing as some people predicted, buy to let continues to grab a larger share of overall lending. While the number of new buy-to-let loans in the first quarter of the year was down 8% on a year earlier that compares with a 35% fall in overall mortgage lending. Buy to let accounted for 13% of mortgage lending while 1,073,300 mortgages were outstanding  - a rise of 5% on the previous quarter and 21% on a year ago. 

So far, so good for the cheerleaders - especially when put alongside the RICS lettings survey earlier this week that showed increases in the number of surveyors reporting higher rents and a fall in those seeing landlords sell when leases came to an end. Not so good for anyone looking for an affordable home who cannot afford to buy and does not qualify for social housing - or for local authorities looking to secure private sector accommodation.

But other CML statistics show that a more mixed picture.  Arrears and repossessions among buy-to-let landlords [download here] are still lower than for home owners as a whole but they are catching up rapidly. The proportion of buy-to-let homes repossessed has doubled since the end of 2006.

In the first quarter of the year, lenders repossessed 859 buy-to-let homes - compared to 443 a year ago. Even more alarmingly for lenders, they had 1,610 repossessed buy-to-let homes on their books - compared to just 620 a year ago. How long before the music stops?

Posted by Jules Birch, May 23 

Posted in Buy to let, Repossessions

DON'T panic. Buy-to-let landlords are holding firm in the wake of house price falls and just 2% are planning to sell when their tenants' leases expire. Panic. The banks are pulling the plug on buy-to-let loans and the era of the amateur landlord has effectively ended.

Two contrasting stories this weekend from The Independent and The Times that illustrate all too clearly the confusion, exaggeration and feverishness of media coverage of the housing market at the moment.

The Indy's 2% comes from a survey by the RICS in the wake of the cut in capital gains tax at the start of April that gives landlords an incentives to cash in now and keep more of their profits. Rather less convincingly, that's backed by quotes from buy-to-let lenders and mortgage advisors who, surprise, surprise, argue that now could be the time to buy.

In complete contrast, The Times says that lenders are either pulling out of the buy-to-let market or severely tightening lending criteria for anyone without a substantial deposit.

But it's not just buy to let that has the media not knowing where to turn. A forecast over the weekend by the Centre for Economic and Business Research that repossessions will rise 25% this year to 33,000 got extensive coverage in the papers and on the BBC - including half of today's World at One. Dire news though that is it makes you wonder where they were in October when, before the credit crunch had really started to affect the housing market, the Council of Mortgage Lenders forecast a 50% rise to 45,000 in 2008.

All will become much clearer - or will it? - later this week when the Halifax and Nationwide release house price surveys that could see annual house price inflation go negative for the first time. The latest ones from the Land Registry (for March) and Hometrack (for April) both show monthly falls. 

Posted by Jules Birch, April 28 

Posted in Buy to let, Housing market, Repossessions

Amid all the apocalyptic talk of house prices falling by 2.5% it's all too easy to lose a sense of perspective. Two new surveys today provide a sharp reminder that things have only slipped slightly from the top of a massive boom.

The IPD Residential Investment Index shows that, far from suffering from the credit crunch, returns from investment in rented housing rose by a record 17% in 2007 - more than the return on commercial property, or shares or bonds.

And new figures released by Shelter show that the average price of a first-time buyer home has trebled since 1997. Even though interest rates are lower, it is now 78% harder to access the housing market.  

The IPD index includes factors such as management costs and maintenance that make it directly comparable with indices used by investors in other types of property. It shows that net income return (from rents) was just 3% in 2007 although this was up on 2006. However, capital growth was 13.3% - this despite the market slowing down in the final quarter.

That compares to a total return of -3.4% in commercial property, 5.3% on equities and 6.4% on bonds.

The figures explain why the boom in buy-to-let borrowing continued last year. But the mystery of why big institutional investors still seem so reluctant to plunge into housing deepens: returns on residential have out-stripped all other forms of investment over the last seven years. Perhaps it is because they see investment in terms of real things like rents rather than speculation in house prices?

One reason why they may be even more cautious now is fear of what will happen when house prices fall. Look what happened last year in commerical property, where investors earned more in income (4.6%) but lost 7.7% in capital growth to make an overall loss of 3.4%.

The result for residential was also skewed by 25.6% captial growth in 2007 in central London - exactly the area likely to be hit hardest by City job losses following the creidt crunch.

So do buy-to-let investors sit tight on their huge paper profits - or get out now and benefit from the government's cut in capital gains tax? It's too soon to tell but the answer to that one will go a long way to deciding how deep the downturn goes.

Posted by Jules Birch, April 17

Posted in Buy to let, Finance, Housing market, Private renting