It’s positively biblical. I mean, all this fire and brimstone being hurled at us buy-to-letters. Take the august Financial Times, with its not very promising headline, “Capital buy-to-let turning sour”; apparently London is languishing with zero capital growth and only modest rents.
Meanwhile, the north, though relishing fabulous capital growth at the moment, will probably soon follow suit. Anybody hoping to buy there, says the paper’s property guru, has “missed the boat”.
Even though only 12 weeks ago the FT was suggesting that buy-to-let might still provide “reliable income for the long term”, now that interest rates have moved it strongly suggests that we landladies should probably be selling up.
Within my own modest property portfolio, I’m leaving my flats rented out, but we have had such gloomy rental predictions about our family house, which we are about to vacate for another one, that we have decided to sell it.
“But only if it will get a certain amount,” warns my husband. He’s the selling half. Naturally, I’m the rental half, so I feel rather fed up. But since there has indeed been next to no capital growth over the past year, I rather suspect we might be at the top of this current cycle, and I suppose it is better to sell now, when the garden is looking lovely, than after a year’s worth of trashing by careless tenants.
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“I have sold one of my flats, a two-bedder in Epsom,” says ITV presenter Jonathan Maitland. “I have made £200,000 in cash on it, which works out at about 35 years’ rent. After tax and deductions, I was getting only £6,000 a year on it, and I think sometimes you can get obsessed with these little amounts of income. Why not take the capital gain all at once, even if you have to pay some tax on it? It’s like taking the fruits of your work.
“I think it’s a good time to sell, because I reckon over the next five years, prices will stay the same or go down, and the place has become flooded with buy-to-let flats. When I started, there were about 30 flats for rent in the area. Now there are about 200.”
Ever the gambler, he considers buy-to-let to be like a game of pontoon. “It was twist or stick. Twist is get another tenant. Stick is take the winnings. Now I can walk into the sunset with a profit.”
Others are happy to keep on twisting. Stephanie Pattinson has five flats in Islington, north London, and is about to complete on another pair. “We bought two two-bed, two-bath flats off plan last year for about £250,000 and £270,000. Three months later, I heard similar ones were going for more than £300,000,” says Pattinson. She hopes to rent them out for about £425 a week.
I say this seems optimistic, but Pattinson says she is willing to dip down to £375, “and I will if I need to undercut the market, which I usually try to do”.
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So isn’t she tempted to do a Maitland? “We have no plans to sell anything. We are in this for the long term and we don’t believe that putting money anywhere else is worth it. My husband had money in Equitable Life, and lost it all.
“Yes, of course, capital gain would be a bonus, but the plan has always been to keep the flats for the long term, and either use them for our three children or use the rent as income when we are retired.”
What if everybody else starts selling? “I’d be very happy. Frankly, I would prefer everybody else to sell up and leave the market. It would stop it becoming oversaturated.” However, Pattinson blithely admits that her portfolio is 75% geared, since she has remortgaged her older flats to afford the new ones. And that is the sort of level that makes other landlords sweaty in the night.
“Capital values are now so high that buying more doesn’t really stack up any longer,” says Jaques Walker, my Leicestershire landlord. I speak to him at the Le Mans rally. After he tells me he has spent the morning in a pit stop, he gets back to the matter in hand. “It is a dangerous time now, particularly for new entrants,” he says.
Walker’s predicament is the same as Maitland’s, only a bit larger. Twist or stick? He has a portfolio worth £2.8m, mortgaged to a value of £1.7m. He has tried to get a single loan to cover it all, but quitting his current mortgage arrangements would cost him £30,000.
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Flogging the lot via an auction house was his next idea, but he worked out that would cost him £30,000 in mortgage fines, plus £25,000 in costs, plus the nasty aftershock of capital gains tax. As he puts it, “I would be staring down the barrel at a £280,000 capital gains bill.” Which would leave a profit of £800,000, which is not all that great if you consider that Walker, a die-hard landlord, has 25 properties.
“I am considering what to do, but I think I would rather take the risk of the market falling by 10% and keep my portfolio intact,” he says. “I am going to develop the business by reducing my gearing. The only thing is that if interest rates go past 5.5%, then even people with modest mortgages, like me, will have to start doing something.”
Meanwhile, in west London, Martin Heims, who has a portfolio of about 18 flats and houses, is sitting tight. At least, he doesn’t sound as if he is about to fall into the nearest Foxtons in floods of panicky tears. “We are not buying,” he says. “But I don’t feel too uncomfortable. It’s dangerous for people who have just come into the market, those who haven’t the assets to cope. But even if interest rates go up to 6%, we will still be able to cover the debt.”
Heims says he is about 60% geared, and is willing to lop his portfolio if necessary. “Yes, tenants are selective at the moment, and we have one or two voids. I am thinking about selling a couple of peripheral properties. From time to time you need to do a bit of pruning. That’s all it is.
“I never hold too much stock by what the papers come up with anyway. It tends to be very conflicting.” My, but he’s a comforting person to chat to.
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Meanwhile, in the north, where newcomers have apparently missed the boat, things still appear to be bobbing along happily. “I am holding onto everything I have at the moment,” says Barry Monaghan, who has four houses and flats in York. “I think York is very solid and I don’t see any great problems in the future. Our gearing is quite modest.”
Yes, but what about the big imponderable, the interest rates? “The key figure is 7%. If interest rates go to that, you will start seeing a buy-to-let exodus.” I told you it was going to be biblical.