Is the buy to let market making a comeback?
Despite the fact that many economies around the world are still struggling to recover from the financial difficulties which began back in 2008, there is increased demand for buy to let properties. Indeed a number of lenders around the world are now targeting the buy to let market as a means of increasing their exposure to the property arena. So, is the buy to let market making a comeback?
Even though many people who had their fingers burnt when the buy to let market collapsed in the aftermath of the 2008 US mortgage crisis it has always been a relatively strong market. Indeed many people have made an enormous amount of money in the buy to let industry using capital from one property to finance the next, etc, etc.
Rent arrears at record lows
The UK buy to let market, if we take this as an example, is very strong at the moment and official data shows that rent arrears in the private sector are now at their lowest since 2008. This comes despite the fact that rent values across the UK have moved significantly ahead of late at a time when the UK economy is struggling and many household incomes are coming under pressure. It seems that demand for accommodation in the private sector is forcing tenants to pay up on time, wherever possible, to ensure they are not evicted.
Quote from PropertyForum.com : “Despite the fact that the worldwide recession of 2008 saw many buy to let portfolios collapse, it seems that buy to let is now very much back in favour. What are the pros and cons of buying a property to let? How can you protect yourself from any price corrections in the property market?”
This continued improvement in rental arrears plays into the hands of landlords and indeed buy to let lenders. It therefore looks as though we will see an array of new buy to let lending arrangements revealed in the short to medium term. Whether this will encourage yet another bubble in the UK property market remains to be seen but the buy to let industry is very cyclical.
Global buy to let market
While every element of the property sector around the world is impacted by human emotions, fear and greed being two in the investment arena, there is no doubt that the buy to let sector seems to suffer more than most. When property prices are moving higher and demand for private sector properties strengthens this attracts an enormous amount of money. In the good times it seems to be easy money but in the bad days even the most well-organised property portfolio can suddenly begin to collapse like a pack of cards!
It is the fact that many buy to let entrepreneurs use capital from their existing property portfolio to fund new properties and new income streams which puts them at particular risk. There is no doubt that in the good times, when everybody is paying on time, and property prices are moving higher, it can be very lucrative but once the economy starts to turn it can be difficult.
Leveraging your portfolio
When property markets turn downwards, when economies struggle and when household income comes under pressure, this can cause cash flow problems for landlords. If a landlord falls behind the mortgage on one property, banks very often take a short-term view, especially where guarantees are in place, and can very quickly call in financial arrangements on relatively small arrears.
This can then force a landlord to sell a property in a buyers’ market, reducing the fair value, and cause a knock-on effect to other areas of their buy to let portfolio. Taking a slowly, slowly approach to buy to let portfolios, and not overextending your leverage, is the more conservative way to build a solid foundation but many people are often in too much of a rush in this day and age.