The future of buy-to-let
Amateur landlords refuse to panic in the face of higher mortgage repayments and a cooling property market
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Judith Heywood, Lorna Blackwood and Lucy Alexander
RATES are rising, rents are falling, which is all bad news for the 400,000 buy-to-let investors in Britain. Or is it? As the growth in house prices slows down – or stalls in many parts of the country – investors can no longer count on paper profits to console them as they meet the cost of maintaining a portfolio. Many may rue the aggressive remortgaging that released profits to buy yet more homes, rather than retaining a buffer zone of equity to protect them in hard times.
But, even as interest rates seem certain to rise further – the National Association of Estate Agents reports that rents are up just 1.8 per cent – buy-to-let property owners are keeping their nerve. Almost all of those interviewed by Bricks and Mortar are philosophical about having to subsidise property investments, as rents fail to reflect higher house prices; they say that their homes are a long-term investment.
Take Shiona Goodman, below, who with her husband Geoff invested £100,000 of savings in a small home to help their children. Counting their blessings that their own West Sussex home had almost tripled in value in a decade, the couple decided that a property investment would help to make sure that their children, aged 10 and 6, would also one day be able to get on the ladder. They were willing to sacrifice plans for a holiday home to achieve that.
Fiona Leteney needed a home for her divorce settlement, but was priced out of Stoke-on-Trent. Determined to find a means to bolster her pension savings, she found an apartment in Florida within her price range. Even as the shine comes off the US market, Leteney sees the long-term value of hanging in.
How to be a buy-to-let survivor
Even many of the most aggressive investors remain confident. Laurent Ezekiel has built up a portfolio of ten flats – not including his home – in just four years. But, as he explains on page 18, he has left enough equity in each apartment to ensure he can remain calm amid the current talk of slowdown. Like many who have made lavish paper profits, Ezekiel is aware that, should he sell, the capital gains liabilities will be more overwhelming that any shortfall in rent. Ezekiel is one of the investors who think prices may continue to rise – it’s difficult to see a slowdown when sealed bids are still common in the East London areas he invests in, he says. That may discourage the readers engaged in furious debate on Times Online this week, many of whom argue that fewer investors will mean more hope for priced-out owner-occupiers.
They will be further cast down to know there are even now rays of light for investment buyers: the latest quarterly survey of Association of Residential Lettings Agents members, out next week, shows that tenant demand is rising in 70 per cent of Central London agencies, the highest level recorded. This, with confidence in the South East, will help to push rents up, easing the plight of buy-to-let investors.
THE CONCERNED PARENT
SHIONA GOODMAN, below, and her husband Geoff have been so alarmed at the upwards trajectory of the property market that they recently bought a £250,000 house for their children, aged 10 and 6. The couple don’t expect that Isobel and Alexander will ever live in the two-bed new-build in Haywards Heath, Mid Sussex, but hope that it will one day fund the children’s first steps on the property ladder. Until then, they will let it.
The Goodmans, who live in Cuckfield, West Sussex, had been considering buying a holiday property in Portugal but decided that the family home would be a better investment because it could be rented year-round. They put £100,000 of savings down and believe that rent will cover the £150,000 mortgage.
Shiona believes that they have “been very lucky with property”. They sold a three-bedroom townhouse in Fulham and bought their 1920s family home for £325,000 a decade ago. It is now worth £900,000. But they have no plans to build up a buy-to-let portfolio. Shiona says: “We are not big risk takers. I would not like to buy another property unless we had some money to put down and we would have to save that first.”
THE DJ’S OTHER JOB
THE radio DJ Dr Luuurve is otherwise known as Ambrose Harcourt, right, and, when not playing songs and dispensing advice on radio stations such as Sovereign and Arrow FM, he has been building a buy-to-let portfolio worth £1.5 million.
Harcourt, in his fifties, bought a two-bed flat in Brighton eight years ago when such properties cost £70,000. “I bought in Brighton because I knew it well. I knew that it was about to become a city and that prices would go up,” he says. It was a wise decision: Brighton is the city with the fastest-rising property prices. , Since then, Harcourt has focused on buying two-bedroom flats, which he thinks are most easily let, in areas such as London, Brighton and Crawley, which offer good transport links and relatively high rents, and more recently, former show homes on Barratt developments.
To manage his portfolio, Harcourt relies on an accountant, bookkeeper and lettings agents. He believes that property is a safe home for his money – including proceeds from his PR business – but will wait until the interest-rate outlook is clearer before buying more, though “if I found a good deal I would go ahead”, he adds.
THE PENSION SAVERS
GARY and Jenny Boreham, right, bought their first buy-to-let property in late 2001. “A lack of confidence in company pensions made us look at buy-to-lets,” he says.
They paid £106,000 for a one-bedroom maisonette in Leatherhead, Surrey, and have enjoyed a steady rental income from it since. So much so that in 2005 they decided to buy another property in the same development. “This one cost us £140,000 but it came with a bit of land,” says Gary, who thinks the two properties are now worth £180,000 and £190,000 respectively.
The couple also bought in Spain, but with the Spanish market flat they decided not to let it and instead use it as a holiday home.
The Borehams, both in their forties, look at the properties as a long-term investment and say there are plenty of tenants to be found in the Surrey area. They are happy to keep the houses for 20 years or so, providing the rental market stays healthy. However, they won’t be adding to their portfolio. “It’s far too expensive to buy any more and it isn’t worth our while – we are just breaking even on what we have.”
THE US INVESTOR
FIONA LETENEY, left, a self-employed consultant from Salford, was prepared to invest in an apartment in Florida without seeing it or having visited the US. But at the last minute she lost her nerve. “I flew in on a Friday and out on Monday and stayed in a similar apartment,” she says. “It confirmed the good impression I had from the brochures.”
Leteney, 48, had been planning to invest in a terrace house in Stoke-on-Trent and to let it to students at the nearby university. She had anticipated spending £40,000, but when her divorce settlement came through, in 2004, the price of the properties in her former home town had doubled in a year.
She discovered the $135,000 (£68,000) apartment in a refurbished Hilton hotel near Kissimmee through Currencies Direct, a foreign exchange company that she uses in her e-learning business. She was won over by the fact that the flat required no work and was overseen by a management company, which has secured “90 per cent occupancy from day one”. “I am on my own, and I have a business to run and there’s only a certain number of hours in any one day.”
Leteney is considering investing in another property, but would now consider buying in Salford Quays, where she lives, where prices are being boosted by an influx of BBC workers. “I had looked at things like shares and ISAs. Buying property was about not putting all my eggs in one basket,” she says.
Although property prices have been faltering in Florida and across the US, Leteney believes that her apartment, bought in 2005, has held its value, particularly because it is so close to Disney World. As a long-term investor she is prepared to ride out any temporary storms and, at times, to subsidise costs.
Buying and getting a mortgage, in her case for a 20-year term, in the US proved surprisingly trouble-free: “In America they don’t look at the person, they look at the property, so you can be 60, 70 or 80 years old and still get a mortgage. I have a personal banker with SunTrust bank who replies to e-mails within hours. I wish I had that kind of relationship with a bank in the UK.”
THE PROPERTY MAN
WHEN Sanjay Arora, above, moved house in West London in 1999 he became an “accidental landlord”. He decided to let his former home rather than sell, and it went well. So he began to buy more properties in Berkshire and Middlesex.
Arora worked as a manager in a City accountancy firm and spent his evenings and weekends fulfilling his duties as a landlord. “I did the full management and rent collection myself,” he says. “Then in 2005 I started buying properties all around the country – Manchester, Leeds, Liverpool, Birmingham – and the travelling became too much.” In August 2005 he gave up his job and concentrated on buying properties for resale at a profit, or to rent – now he has a portfolio of 32 properties.
Arora is aware that he picked a good time to invest and anyone starting today as a buy-to-let landlord may not be so fortunate. “I was lucky to start buying my properties a few years ago. A one-bed flat I bought for £90,000 in 2002 sold last year for £140,000, and the original £120,000 house I moved from in 1999 was sold last year for £225,000.”
He admits that rising interest rates are a headache: “The fixed-rate mortgages I took out five years ago are coming to an end, so I will have to remortgage or stay on high rates, and there’s no loan out there that matches my current deal.” But the threatened Revenue crackdown on landlords does not worry him: “As an accountant, I’ve always done my own tax returns and know the rules. However, I do know of landlords who don’t think they have to declare their rental income because their yields don’t cover their mortgage repayments. They’re banking on capital appreciation – but you have to hang on to your property to ensure that.”
He is sanguine about the future: “Property has proved to be better investment than the stock market, and I am positive it will continue to do so.”
THE NEW LANDLORD
ANDREA JAKES, right, is a novice landlord. The 28-year-old accountant from Hertfordshire is about to take the step of buying a home with her boyfriend. But instead of selling her own two-bedroom flat, she has decided to enter the buy-to-let market. “I didn’t have much choice,” she confesses. “The penalties to get out of my mortgage were so high (£3,000-£4,000), it seemed the obvious thing to do.”
Andrea bought the flat three years ago for £120,000 and believes it is worth about £135,000 on today’s market. She has had letting agents view the flat and received a good response, saying that it should rent out quickly. She also feels that holding on to the property means that she has something to fall back on, a comfort blanket of sorts, and also helps with the pension.
If buy-to-let laws change radically and it all seems more hassle than it’s worth she has decided to sell it. But for now, she is happy to keep her options open and to hold on to her property.