ej_topmost
Property Hawk

WHY LANDLORDS SHOULD SELL

Here at Property Hawk we maintain that a landlord should see property investing as a long term activity and not a way of making a fast buck.  Therefore, our advice to landlords is to hold their residential investments for the long-term. Why?  For a start trading property is expensive, figure on about 5% to buy and then sell a residential investment property, then there are also the tax implications.

From time to time however there are circumstances when a landlord needs to sell or where a sale of all or part of their residential investment holdings makes sense.  For instance, if a landlord wants the funds for other purposes or they want to recapitalise their portfolio to reduce their gearing.  If this applies to you, then here are five reasons why a landlord should sell NOW:

1. Affordability


Historically high house prices have stretched this to the limit.  The fact remains that buy-to-let investing takes place in a market which is still dominated by homeowners. A residential investment is only “worth as much as someone is prepared to and is able to pay for it”.

Affordability can be measured in several ways.  Traditionally, the key metric has been the multiple of average income to property value.  Historically this has been about 3.5 times average household income; it now stands at over 6.  Some economists argue that this measure is no longer relevant because of a paradigm shift downwards in interest rates making higher multiples more sustainable.

OK, point taken, in the 80s interest rates were for most part in or near double figures; in the 90s they probably averaged 6-7%.  This is high by current levels; particularly when the fact that mortgage margins have reduced i.e. the differential a borrower pays above the prevailing base rate.  In the 90s it ranged between 1-2%; before the recent credit crunch this had shrunk to in some cases to zero reducing the real costs of a mortgage even further.

Professional landlord insurance rates from Alan Boswell Group

What the housing ‘bulls’ (those that believe in a rising market) also argue is that what is more relevant in judging housing affordability is the proportion of household income paid out each month on servicing housing debt.  After all they would argue, people don’t think of multiples or margins when judging whether they can afford a property, their first thoughts are how much it will cost per month and how much income they have got after tax and other vital household expenses.  For an indication of this we can go to the statistics provided by the Council of Mortgage Lenders (CML).  These stats make interesting reading.  The good news for the bulls is that the latest figures for interest payments as a percentage of median household income was 17.7% in June which is well below the 27.1% reached in the first part of 1990 that heralded the house price crash of the early 90s. 

However it should be remembered that this high rate was prompted by interest rates which reached 15%.  More strikingly this rising figure is the highest since 1992 when the housing market was still in the depths of its last depression.  Whilst not conclusive on its own; it shows that by any measure the costs of servicing a housing debt are becoming an increasing constraint.

2. Price rises have outstripped the long-term trend. 


The Nationwide has generated a time series an analysis of house prices since 1975 that accounts for inflation.  Using these figures they have produced a trend line that indicates an average price rise per annum of 2.7% above the rate of inflation for this period.  This long run trend ‘suggests’ that the average house price today should be £133,751. The actual figure is £181,810.  This analysis suggests that house prices are on average 36% over valued in respect to this projected long-term trend.

3. The credit crunch


One of the results of the ‘credit crunch’ is that landlords not on trackers or fixed rates will be facing increased mortgage costs even if interest rates don’t change.  This is because of the increasing margin or ‘spread’ as lenders price in the added costs of lending from the wholesale market.  The ‘shake out’ resulting from the sub prime problems in the US are likely to result in lenders re-pricing risks attributable to lending on property assets.  This will make lending for landlords more restrictive and more costly over the next few years regardless of whether they are considered high risk or not.  These costs will put further strain on landlord’s already relatively low net yields.


4. Falling yields


For landlords with a good memory, they may be able to recall when gross yields on some investment properties were in double figures.  It was also up until relatively recently that many landlords could secure a reasonable level of income from their residential investment properties.  However, for many residential landlords these days have gone.  Small rental increases have not been sufficient to keep pace with rising capital values and rising interest rates.  The result is that the last Association of Residential Letting Agents (ARLA) review indicated that gross yields were less than 5% as a UK average.  This falls to 4.6% when taking into account rental voids.  If management charges are also taken off, then the net yield is likely to fall below 4%.  All this means that many landlords now face a cash outflow, which will remain for a number of years whilst rents increase and or interest rates fall.

5. What goes up must come down


There is a very basic investment principle that says assets that go up in price will at some stage eventually have to come down as well.  Like the laws of gravity, prices cannot go up inexorably without some falls being sustained along the way.  The general theory is that values that go up the sharpest tend to experience the most dramatic falls.  The average house price according to the Nationwide Building Society prices is up by some 367% (August 07) since 1993.

The message is clear. For landlords that are thinking of selling, they should do it now.  For those of us that are long-term investors; it’s a case of holding on to your hats and enjoy the ride!

Professional landlord insurance rates from Alan Boswell Group



Comments (0)

Name
E-mail (Will not appear online)
Subject
Comment
To prevent automated Bots form spamming, please enter the text you see in the image below in the appropriate input box. Your comment will only be submitted if the strings match. Please ensure that your browser supports and accepts cookies, or your comment cannot be verified correctly.
»
This comment form is powered by GentleSource Comment Script. It can be included in PHP or HTML files and allows visitors to leave comments on the website.
Most popular landlord information and FAQs

 

What rental yield should a landlord try to achieve?
Accelerated possession - Section 21 Notice
Non payment of rent
The Tenancy Deposit Scheme (TDS)
How to prepare a property inventory
Grounds for possession of a rental property
Fair wear and tear on a rental property?
Filling out a N5B form for possession
Landlord insurance advice
Letting to students
How do I choose the best tenant?
Should I use a letting agent?
Commercial Mortgages

Whole market search.
Instant personalised quote.
Rates updated in real time.

Find the most suitable mortgage for your individual requirements using our advanced buy-to-let mortgage finder.

Search
News and Advice for Landlords

MAGAZINE
Landlord Freehold Ground Rent Investments Many landlords are attracted to investing in proper...
Hello, I am Amy Castleman, a specialist Housing Solicitor at Premier Solicitors in Bedford. M...
One of the biggest issues that landlords face when tenants move out is the oven clean. Why is...
Should landlords let to students? Students can make good tenants & here’s why: ...
The risks of a leak in an apartment block To date I have bought two apartments in residential...
The three pillars of successful residential investment I’m often asked by newbie landlo...
This has been a question that has pre-occupied me for several years.  By instinct I don’t l...
I noticed recently there have been some significant repair bills coming through as the age of my buy-t...
“To furnish or not to furnish your rental property, that is the question” The dif...
‘Rent to rent’ sometimes known as rent2rent is the latest get quick scheme dreamt up by th...
What are tenancy renewal fees? A tenancy renewal fee is ostensibly the charges made by the le...
Cleaning Deposit Disputes between a Landlord & Tenant One of the most regular a...
If I had a pound for every time over the last 25 years of renting property and more recently running P...
Dates play an important part in a landlord’s life.    Pict...
Over the last two years, the property industry has seen an increase in the number of disputes between ...
Before you turn off thinking "oh yeah it’s another plug for  landlord insurance,"...
A vital part of being a successful landlord is to get the right tenant. In fact if the truth be known,...
For property investors, particularly first time property investors there a huge number of potential in...
BTL landlords are often portrayed as money grabbing, evil, exploitative beasts. We are accus...
How I started my property portfolio I started my portfolio back in the early 90's. We had jus...
INVESTORS CHECKLIST For potential property investors there is a huge amount to take...
We have spoken before about the life of a student landlord, but here's a little bit more advice for th...
Lease options are all the rage in some landlord discussion forums having usurped BMV or Below Market V...
Property gurus & experts The rise in the buy-to-let residential investment market has bee...
  Advanced residential investment strategies Buy-to-let investment is pretty st...
For landlords with residential investment property it’s rapidly approaching that time of year &n...
Since the introduction of the Tenancy Deposit Scheme (TDS) on the 6th April 2007 it has been a legal r...
It seems timely with the deadline for paying and submitting your self assessment t...
Lee Sharpe from TaxInsider.co.uk looks at the implications for property businesses considering incorpo...
This modern day ‘knight’ of the urban realm can be hero or cowboy depending on the one you...
I'm fascinated by 'financial engineering' and how every so often, quirks of timing cause financial opp...
Rental period confusion One of the most confusing aspects of let...
Caveat emptor for the non-linguists means ‘Let the buyer beware’.  Loosely translate...
Property Hawks Property Manager software is mainly designed for individual buy to let landlords to man...
Here we go again. The leaves are turning a riot of oranges & reds before we descend headlong into ...
Landlords could be forgiven for feeling a little brow-beaten. Over the last 12 months, we hav...
The Government have produced a new Section 21 Notice. We have updated the version of our free...
A number of users have contacted us to share their concern over the proposed tax changes in the Budget...
Is Landlords Boiler insurance worth it? Getting your boiler fixed can be costly for landlords...
Landlords looking for a buy-to-let mortgage will face more restrictive lending criteria in the future....
Cash Back Offer Landlords looking at taking out a buy-to-let mortgage want to look at the Pro...
The Chancellor has not been overly generous to landlords and the buy-to-let sector in his Summer Budge...
PM3s is the 4th generation of our Free Property Management Software. The software has been free to use...
Section 21 Notices are about to change as a result of the Deregulation Act 2015.  Rebecc...
Following the election result. many landlords are breathing a sigh of relief.  Economic stability...
Landlords should be fully aware of the importance of being adequately insured. I know it's a pain to s...
Taxing Concerns for the Buy-to-Let Market The UK’s property market was given an unprece...
I hate change and regulation.  Most of it is badly thought out, counter productive & pointles...
The latest legal case to unsettle the traditional certainties of a landlord’s world is the case ...
Private Rental Sector – Party Policies The big day approaches and finally it will be yo...
Changes that came into force this week (6th April) (see for instance http://www.bbc.co.uk/news/business-32087038) now allow many ...
When selective landlord licensing was introduced  by the Housing Act 2004 it was intended to be a...
My small claims court experience My case came about because my tenant stopped paying the rent...
Rents are rising. Great!  According to the Rentindex they are up over 2.5% over the last year. ...
My tenant has always been an exacting type but it's now getting beyond a joke. Every few week...
Most landlords know that they need specialist landlord insurance.  Why? Because household policie...
It's been a while since I've sold one of my buy-to-let properties, but the potential of a new buy-to-l...
Christmas is a time for reflection and after over 20 years in the landlord game I've seen a fair few c...
Landlords are never off duty.  Last week I was in the middle of a patisserie class of all things ...
Tenants are getting more politically militant! They are mobilising, pulling together, and forming grou...
After 12 years of owning and renting out a flat, the freehold landlord has decided they want to start ...
Refubish to let – finance is key 'Refurb to let' is the latest trend in buy-to-let acco...
The the referendum and the party conferences of the past few weeks have thrown politics back into the ...
We have warned landlords before about the purges on landlords. The cash strapped Revenue periodically...
My problem tenant has gone, and finally I have possession of my rental property. ...
What interest rate should a landlord charge on late rent payments? My problem tenant has fina...
Tenancy Deposit Scheme disputes Tenancy deposit disputes are a messy business, so we asked th...
My tenant has left - time to celebrate? This week I was greeted by a text from a friend/neigh...
Revenge Evictions –time to act? 'Revenge eviction' is a new concept to me .  It&rs...
Letting agent questions I’m just in the process of selecting a letting agent.  I&r...
Buy-to-let hotspots are the ‘talk of the town’ right now.  Clearly we are in some kin...
Letting agents are not the ‘favourite kids’ on the property block. Landlords tend to view ...
Landlords should get fixed up I have been eyeing the latest developments in the economy and t...
What are the new court fees for possession? The court fees for landlords obtaining possession...
What are my allowable expenses? I’ve been contacted recently by several landlords who w...
Solicitors are costly. I'm all for landlords using their initiative and avoiding paying unecessary pro...
Section 21 notice dates – where are we now? Rebecca Brough our resident expert from Fid...
People frequently ask me what is my biggest tip on how to be a successful landlord. The answer is simp...
Not all our users realise that having signed up to our website they are FREE to start using our Proper...
I've been hit recently by a range of maintenance issues on my buy-to-let portfolio, including a number...
We are just a couple of weeks into 2014, so I thought I’d take a look at some of the best deals ...
OMG!  It's here again.  The ‘bloomin’ personal assessment tax deadline looms lar...
It looks like ‘Austerity’ …..‘Prudence’s’ long lost sister is on ...
The Section 21 Notice has not been the easiest of things for landlords to get right. Using the right o...
In the week that the Land Registry released historic data going back 18 years, I thought I would share...
Rebecca Brough solicitor at Fidler and Pepper highlights the potential dangers and consequences of the...
It appears that landlords are starting to fight back over unfair licensing charges by some local autho...
Access to finance is key When I started as a landlord the key for me was access to ...
Prospective property investors thinking of dipping their toes into the residential property market, or...
Longer tenancies?  Sounds like bliss to most landlords. Most of use love the thought of long-term...
The section 21 notice is a powerful tool. It is the one document that gives a landlord the certainty o...
When is a landlord not a landlord? Well the obvious answer is when they are a leaseholder.  ...
Creeping landlord licensing is on its’ way affecting many landlords.  A perfect example is ...
I was talking to one of the waitresses in my local.  She is so excited! She’s ...
Tenancy agreements are our thing.  We have been providing a free tenancy agreement to the landlor...
The latest projections see no immediate end to the long run of low interest rates.  This week Mar...
Our Property Manager software has come on leaps and bounds since we first developed it as free propert...
In these tough financial times some landlords may be looking at how they can pull in a few extra quid ...
The Government's latest proposals are to introduce a statutory obligation on landlords to check whethe...
Many landlords have been thrown into confusion over the last few months as tightening legislation and ...
I love being a landlord.  I’ve recently set up another new business.  I work ...
According to figures from the Dogs Trust, 46% of the population currently own a pet.  Now assumin...
Recently, I was talking to a new landlord about their first ever tenants.  They had been chuffed ...
Should I use a letting agent? The perennial debate amongst landlords is should I use a lettin...
Landlords who may be thinking about buying into purpose built student accommodation should stop and th...
Landlords are increasingly often under a time pressure. With the burgeoning regulatory requirements of...
Most of us ‘hard bitten’ landlords get fed up with the endless splurge of meaningless head...
Are rents about to fall? Landlords have been insulated from many of the harsh economic winds since the...
Tenancy Deposits – ESSENTIALS I’ve recently had a scare over one of my tenants de...
The queen is dead! Yes off course I'm referring to Margaret Thatcher.  Now she never sai...
Landlord Insurance Minefield My landlord insurance falls due this month.  As u...
We have frequently expressed opposition to a blanket landlord registration scheme - the ‘so call...
We’ve all had it - the phone goes, it’s one of your tenants’.  Do you:...
Better The Devil You Know?   I've recently advertised my rental property follo...
I was contacted this week by a fraught landlord who was the subject to a negligence claim from their t...
The buy-to-let mortgage market has gone from bust to boom again over the last few years.  With le...
This is a regular discussion point amongst many landlords.  Those that have been dissatisfied wit...
It's a landlords’ dread!   A nice respectable looking tenant, with a good...
Rebecca Brough of Fidler and Pepper Solicitors asks whether landlords need a tenant guarantor, and exp...
The thing with managing a portfolio of buy-to-let property is that for much of the time you don't have...
Brings Threats and Opportunities Many landlords are adopting a wait and see approach to the G...
Severe rental arrears fell by almost 16 per cent in the fourth quarter of 2012 according to data from ...
Should a landlord let their tenants smoke? Landlords are acutely aware of the bad smells and ...
New Year celebrations are well and truly over, so it’s back to work, and for many landlords, sma...
I was thinking today, what would be the top 5 things I would wish for next year as a landlord.  S...
You may think that as a landlord you are not liable for your tenants’ water bill. Well up until ...
I can't begin to explain how fraught the last few weeks have been.  Most part time landlords will...
The buy-to-let mortgage market has been in the doldrums for several years after the ‘crash&rsquo...
Rebecca Brough of Fidler and Pepper explores the world of fees and charges in respect to a landlords ...
Don’t forget your section 213 notice! Property Hawk has been urging landlord not to forget about...
You are just about to let your buy-to-let.  So what are the essential bits of paper work that you...
Is there such as thing as the ‘fair wear and tear’ of your buy-to-let property? ...
Landlords looking to obtain possession have two basic choices when trying to get their buy-to-let prop...
So it all goes wrong!  The tenant moves out (disappears) and owes you months of rent.  They ...
We recently had a enquiry on the Landlord Forum asking whether it was a good idea to serve a section 2...
Landlords seeking possession frequently have to decide between the merits of using a Section 21 notice...
Renewing a tenancy is one of the most straightforward aspects of managing a tenancy.  But many la...
Getting possession of a rental property when your tenant falls into rent arrears Th...
I read recently on a landlord forum a suggestion from one disgruntled tenant that landlords should be ...
My latest round of tenant gripes has hit me after a relatively quiet period. I suppose it was...
After launching the new version of the property management software we felt the actual site pages look...
Rental yields have always been a critical metric when evaluating a buy-to-let investment and they are...
Any landlord who follows London politics will not have escaped the fact that the private rented sector...
I was chatting this week to my joiner Steve. He was having a nightmare! Steve had done most o...
The Co-op announced last week that it was stepping up lending into the buy-to-let mortgage market by a...
Legislation should be in place by the end of the year to allow landlords to benefit from the Green Dea...
It's January which means only one thing for most landlords, yes it’s time to get to grips with t...
As the year comes to an end many landlords will be drawing up their plans for 2012. With the ...
I was contacted several weeks ago by one of our longstanding users. Kevin wrote to highlight ...
I'm like the majority of small landlords in that I have opted to use the Deposit Protection Scheme (DP...
Europe is at it again! Not content with their crazy project “Euro”  putting ...
You might be aware that I’ve had a number of new tenants recently. This has i...
It’s a great time to be a landlord. Many of us including me are making record rental pr...
I was contacted last week by a landlord looking to gain access to their bu...
I’ve written before about landlords not needing to use a letting agent. We al...
It's been a while since I've had a new tenant move in. The new tenant seems amiable enough. A middle a...
My landlord insurance fell due at the beginning of this month. DAMMM! Yet again the dilemma. ...
It is possible to get a company to fill out your N5B.  This will cost anything upwards of £...
Most landlords use an Assured Shorthold Tenancy agreement to let their property. So how long ...
I've been looking at some recent enquiries from landlords who use our Property Management software to ...
Most landlords who let a property that is tenanted will not be liable for council tax.  This is b...