Buy-to-let is here to stay
One of the most intriguing items adorning my desk alongside the crisp 2005 diary is a new CD, winningly entitled Music for the Property Investor, by Barbara Goldsmith. Ms Goldsmith is clearly an enterprising landlady, who, in between running a portfolio “worth in excess of £10m” comprising 50 properties in east London, has had time to get on the old joanna and compose 14 tracks, presumably with a view to inspiring fellow buy-to-letters.
Although the tracks themselves are vaguely abstract, their titles are not — as Make Money While You Sleep and Portfolio Profits make clear. Maybe this is the sort of thing that people such as super-landlords the Wilsons (number of properties: 600, personal fortune: millions), listen to subliminally in their sleep. As music goes, it’s quite inoffensive in a sub-Michael Nyman way, although whether I could leave the CD cover on open display is a moot point
Anyway, according to a new report, I should be tapping along to Track no 9 (Property Princess) at the moment, because the property crash is off. Well, sort of. The buy-to-let crash is off, apparently. Landlords, according to the estate agent Savills, are not going to precipitate a crash by flogging their buy-to-let properties in a panic, which is not quite the same as saying that the property crash isn’t going to happen, but at least means there’s not a rental investor fire sale on the way.
In fact, it seems as if we landladies are still in buy mode; according to research from Paragon Mortgages, a year ago buy-to-letters owned an average of 11.3 rental properties. That has risen to an average of 12 and is estimated to grow by 5% over the coming year. Even though the trend for low rents means some landlords are subsidising their investments (apparently, 17% of mortgage payments have been propped up by owners alongside their tenants), Savills Residential Research says 61% of the landlords surveyed said that capital growth was more important than rental income. It seems we are happy to be in this game for the long term.
So, much like Stonehenge, the buy-to-let phenomenon looks as if it will be here at the summer solstice and for many months thereafter. Particularly leading up to April 2006, when you will be able to include new and existing buy-to-let properties in a personal pension. It’s enough to make me whistle along to Double Your Money from the Goldsmith CD.
Solicitor Karen Currie is delighted to hear about Savills’ findings. “I’m not selling off anything. I’ve rented out my large one-bed flat in Notting Hill for £425 a week, as well as the two I own in Wapping,” she says. “My rents, particularly in Wapping, are not bringing in the returns but I am holding tight. I re-rented the Wapping pair just before Christmas, and I was lucky to get the same rent, £260 a week for the one-bedroom flat, and the second flat went for the same price as well. I have thought about selling them, because the service charges on each are high, but I’m sitting tight. Properties are very hard to part with once you have them. I’m not going to liquidate because we don’t know where the market is going.”
This question about the market is what has stopped an out-and-out crash; we have been insulated from a mass exodus because so many of us are waiting for the market to pick up again. Some people think that is just around the corner. “Last Friday I packed in the day job. I’m becoming a full-time landlord,” says a regular to this column, Jacques Walker, who owns 25 properties in the Midlands. Unable to remortgage his current portfolio because of static capital values, he’s decided to move on in the game anyway.
“I’ve run out of money to buy any more, so I am meeting a property consortium that wants to invest in my line of buy-to-let: small residential houses rented out to medium-income young professionals. In 2006 there will be a huge amount of money coming into the property market with the new pension arrangements.
“Anybody with a Sips (Share Incentive Plan) will want to invest, which means the time to buy is now, not later. Now is the time to take a leap of faith in buy-to-let. I always use the same old formula; I buy a small house and redecorate it to a plain but good standard. And my rents are creeping up. £425 a month is now £450 a month.”
At the high end, things also appear to be going well. “Both my flats are rented out and I am happy,” says former Warburg’s executive Stephen Yorke, who owns a brace of apartments in the flash Norman Foster-designed Thameside block, Albion Riverside. “I’m certainly not considering selling.
“The exit costs for a landlord to switch out of property into something else are substantial, so you would need a cataclysmic long-term view to exit a residential property investment. Even if you thought prices were going to drop by, say, 10% over a two-year period. Landlords aren’t dumping their stock. It’s a good time to enter the market.”
It’s just as well. I’ve just had a call from one of my tenants. She wants to move out. Quick, slap on the CD again. I need to boost my confidence with Track no 7, The Sky’s The Limit. An accurate depiction of the rental market or just wishful thinking? Watch this space.
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