Steve Hemingway

"Buy-to-let is absolutely dead and will never return" say the Wilsons in this article from the Guardian. The interesting thing is that the Wilsons are now making more profit and paying more tax than ever before, because they can borrow at 2% and receive a gross yield of 5% and a net yield of 3.75%. Their article is interesting because it gives some figures for yields (5%) and all-in maintenance costs (1.25%) which are based on fairly long-term experience, and not based on the fevered imagination of an agent trying to sell a new-build flat. There is a substantial industry of statisticians working on UK house prices, but there is an almost total absence of reliable statistics for gross and net yields, which, for buy-to-let investors, is the absolute key for profitable investment. The reason for the Wilson's pessimism is that although they are significantly cashflow positive now, they came close to bankruptcy when they almost could not re-finance their empire, which seems to be very highly-geared, and are concerned that if base rates rise to 'normal' levels - 3.5% their total cost of funding - about 2% above base - will destroy the economics of their investments. Obviously this assumes no appreciable capital appreciation, which does seem to be the prediction of derivatives markets, and most market commentators. But their track record is hardly spotless, is it? I'm not saying things are not bad, but it is not entirely clear that they are catastrophic. The Wilsons are not stupid. They avoided flats, they saw through the price rigging of 'gifted deposits' that most developers were playing, they avoided large family homes and preferred older tenants and they stuck to places around their base in Ashford in Kent. The most curious thing to emerge from the series of articles in the Guardian is that flat dwellers are much more likely to commit murder than those who live in houses. Even though only a small proportion of the Wilsons' portfolio in flats, all of the four murders that have been linked to tenants of theirs, all were in flats. Curious!