BATTEN THE HATCHES – HAWKEYE
Landlords get a bashing
Last week the UK was repeatedly battered by a series of rain storms. Landlords may be excused from identifying strongly with the festival goers sheltering for cover in the big mud field that is ‘Glastonbury’.
Then we have been subject to a series of interest rate rises and with more on the horizon, which has in many cases swallowed up any free cashflow from increased mortgage costs.
Finally, if this was not enough, this week the poor old landlord has been under fire from various groups for pricing first time buyers out of the housing market because of a preferential tax treatment.
In a typically BBC London centric piece of journalism the good old ‘BEEB’ has picked up on A recent survey for the Greater London Authority concluded that two thirds of new-build properties in the capital were being ‘snapped’ up by buy-to-let and other investors.
Tim Craine, who co-wrote the report, concludes:
"As prices have risen, and as owner-occupiers have been priced out of the market the investors have stepped in and taken up the demand-slack at the price that new-build homes go for,"
"We’ve seen a complete shift in the industry’s focus from selling to owner occupiers to selling to investors."
In the real world
Any body in the real world knows differently.
For a start, landlords just like any other business owners are allowed to offset one of their main costs, loan interest against rental income in calculating their tax liability. Not to be able to do so would be absurd. It would be like not allowing a manufacturer to use account for the costs of acquiring a piece of vital machinery when calculating their taxable profit.
On the matter of pricing out first time buyers, it has been the willingness of investors to purchase new properties in large schemes often within the more run down parts of our inner cities has done much to stimulate the regeneration of our towns and cities. Without them the ‘urban renaissance’ that the Government wanted so desperately would not have happened.
Whether these schemes will prove such a great investment for these landlords has yet to be substantiated. I suspect for their efforts many of these investors may even catch a ‘cold’ at least in the short term.
How to survive the storm
Just like with any storm, the best way to survive is to batten down the hatches, which is exactly what I’ve been doing. With interest rates heading northwards I’m cutting my interest charges to the lowest possible levels whilst ensuring that I avoid excessive charges or fees.
In addition with price rises less certain in the next few years I’m swapping one mortgage to a repayment mortgage to turn it into a ‘cash cow’ and next year will look at doing that with several more properties.
Whilst in the short term, this will push up costs, ultimately payments will come down and in a lower growth environment swapping to a repayment mortgage increases your annual returns significantly. Have a look at the CALCULATORS to see how swapping to a repayment mortgage impacts on your returns.
The other thing that landlords should remember is that they should never stick with a standard variable mortgage rate. By doing this you are simply paying your mortgage company too much. Either negotiate a better rate or if they are not prepared to do this then look to swap products.
I am now confident that I have a healthy cash-flow and I’m in a strong position to weather what ever storms come our way.
Where’s the ‘silver lining’?
Landlords need to remember. With any storm there is always a silver lining. In this case rising interest rates are likely to throw up some investment bargains as overstretched home owners and landlords bail out.
Auctions are always a good place to find these types of opportunities.
The other silver lining is that whilst your less entrepreneurial friends and colleagues might be gloating about your short term trials and tribulations in the long-term you will be the one with the last laugh.
I have to remind myself that being able to retire from full time employment at 37 through property investment was worth enduring a few stormy times!