Recently in Property Investment Category

I'm helping a close relative to obtain finance for a property he wants to buy. I have bought a lot of properties in my time, but every time I look for finance I am disheartened. The market is dominated by brokers, there are extremely few lenders, and those that are do not seem to give any kind of bonuses to those who want to borrow direct.

Brokers seem stil to push very short-term products, trackers or fixed rate deals that last for a two or three years, seemingly with the sole intention of forcing endless refinancing with endless refinancing fees. It's hard to see that any actual borrower would ever actually want a 2- or 3-year deal: transaction costs around house purchase would make it a disaster if you actually were going to move on that kind of interval. Although APRs are quoted there are so many flavours of fee that attach to mortgages that it's hard to be confident that the APR represents any measure of real cost. Especially given that the STV that kicks in after the fixed term might be competitive now but might be utterly usurous after a couple of years, especially if the lender decides that it's not interested in the UK market any longer.

The spreads over LIBOR or Bank of England repo rates being offered are still three or four (or five) times higher than a few years ago, except that lending criteria have been immeasurably tightened up, especially for commercial lending. 

The whole industry is a stitch up, the result of heavy regulation that prevents the likes of Zopa and other peer-to-peer lenders operating in this space. I wouldn't mind so much if these monopoly profits flowed to shareholders: at least then I could buy shares and get a benefit. It seems that all the excess income goes to pay very high salaries to senior managers in these banks.

The market has expressed it's take on the Vickers Report: it will be another piece of regulation that entrenches bank's anti-competitive position in the UK.

I spent a day at the Property Investor Show today. I have been to a few property shows, but I think that this is the first time I've been to this one.

The range of investments seemed pretty big to me, although some old hands said that the show is a shadow of its former self. The buzzword of she show seemed to 'SIPPable'. Everyone wants to offer investors assets that they can hold in their Self-Invested Personal Pension. The tax man seems determined to prevent people putting residential property into their tax-sheltered savings, so this is one that will run and run.

The overseas investment destinations ranged all over the world, but nobody was offering Greater China. Egypt was very visible, also Brazil and, in the form of distressed opportunities, the USA and Spain, but all overseas promotions together were outnumbered by people offering investments in the UK.

Of the UK opportunities the biggest, numerically, were the 'Below Market Value' investments. Essentially these are all the same: distressed assets, sold at a heavy discount with a large amount of debt financing. The usual plan is to get the lender to lend based on the 'Market Value', which is some theoretical number provided by a tame Valuer. This modus operandi seems much more believable now that a lot of borrowers are in trouble, and a number of corporate investors are exiting the sector, and I think that there is some value to be had. The most impressive on the day was an outfit called Property Investment Portfolio, although there was a lot of competition.

One firm has packaged BMV deals into a kind of fund. The idea sounds alright, but the rubric on the website, e.g. "The Fund aims to deliver a minimum return of over 100% which will more than double the shareholders investment over the life of the Fund" suggests that they are not targeting the sophisticated investor. I should mention the Rapid Property Group on the basis that they had, working on their stand, a happy investor who had been with them for a number of years.

There were a number of general purpose IFAs exhibiting, not particularly offering property, of which I was impressed by TailorMade and Abraham Associates. I was underwhelmed by St James Place however.

There were lots of people selling other services which I personally not very interested in. The most impressive of which was Hotel Solutions. If you ever want to start a hotel they are the guys to contact!

I had a chance to meet Duncan Fretter of Pure Acquisitions last week. He acts as a buying agent for real estate buyers. This is a familiar service in the US and in other markets, but somehow has never caught on here. I suppose the reason is down to the opaqueness of charging: a selling agent never has to ask for his client for a cheque, even though he charges, typically, many thousands of pounds for his service. A buyer's agent has no choice but to disclose a cash sum, and probably has to ask for some kind of bond or deposit. Although this is irrational: it's all money, it probably does scare off a lot of buyers.

Apart from finding the right property, filtering out obvious duds, Duncan can negotiate a realistic price. I am sure that even now, in street-smart Britain, there must be buyers who pay the asking price for properties. Even a five percent discount would easily save several times Duncan's fees.

You can find out more about the service here.

I still have quite a bit of money tied up in UK residential property and I am still interested in metrics which relate to this investment. I wrote the other day that information about yields is hard to come by. In fact I mis-spoke, as findaproperty.com has some excellent data available on its website here. Essentially yields are now (and have been) at around 4.5% throughout the UK, the only places where you can get a significant uplift being Scotland and the North East, where I would guess that the extra hassles and lower credit quality of the tenants entirely nullifies the yield advantage. In fact, given the overwhelming dependence on the public sector in those two regions, this premium seems very modest indeed.

I went to the London Property Network event in Piccadilly last night. It was my first time, and I think I'll go again. The drinks (for the West End) were reasonably priced, and there was a sense of energy (or perhaps just desperation) amongst the participants. I met a number of interesting providers, some of whom I could imagine doing business with, others of whom were simply too good to be true, including one who claimed that he could find me a property yielding 12%, locally in the UK.

The event was a mixed bag, with providers outnumbering investors by a big margin. This was nice for me as an investor, but most of the services did not entice me. The sorts of thing on offer were:

1. overseas investment, especially in Brazil,
2. property sourcing agents promising to find distressed sellers who would be happy to sell their property for 75% of the correct market value,
3. people still pushing lease options
4. people offering to magic away tax liabilities,
5. some very well established professional services companies offering block management, ground rents investments, lease renewals etc.

Interestingly I met absolute no mortgage brokers, which was a great surprise to me.

New BTL investors now seem to be pushed all the way into HMOs, because only with those can the yields support the sort of penal rates charged by the lenders. My own experience of HMO ownership is almost entirely negative, so I won't be joining the crowd, as usual.

If anyone fancies coming along to the next event, drop me a line and we can meet up, there, or before. It's probably advisable to eat first as there is no food provided, or available to purchase, and eating isn't really compatible with networking.

"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!

I have been investing in UK property for about thirty years. I have made some money, and lost some, but net I'm ahead. I don't claim to be a genius, or a 'guru', but I am looking a lot smarter now than many buy-to-let investors who took on excessive leverage with short-term and expensive financing. I have also stayed out of the market for the last six or seven years, which has helped a lot.

The market has changed. You probably noticed, but you probably didn't crunch 'the numbers'. I have been looking at the prices at which houses sold at auctions in the SE over the last few months. In order to do this I accessed the Essential Information Group's website, using a trial short-term login. Some basic information about past and future auctions can be obtained from a login, but full property details require a subscription.

I plan to buy some UK property in the new year. I could leverage up my expertise if I could join forces with some other investors to form a syndicate. You could be passive or active members of the syndicate, but you cannot become a member unless you are prepared to restrict investments to older houses with good yields and prosperous locations; you can also not become a member if you think that gearing is some kind of magic.

I could either set up the investment through a limited company (my preference) or through some other structure, like an LLP.

If you are remotely interested in joining forces then drop me a line to steve.hemingway@gmail.com. At the very least we could share access to research resources such as the Essential Information Group.

I am thinking of buying leads which will give contact details of people facing repossession and looking for landlords who are prepared to buy their house and agree to a tenancy so they can continue to live there and pay rent (sale and rentback, sale and leaseback - a classic business trick for obtaining liquidity that is now more and more popular with individuals who borrowed to much). These leads cost money (the sellers of the leads spend a fortune on Google Adwords - just do a search for 'quick sale' or 'quick house sale' and see the sorts of sponsored links that appear).

I spoke to Fred of Resident Broker. The website is down, but he is very much up and about. Resident Broker is a specialist BTL mortgage broker. They seem to know what they are doing and gave me a picture of the market. Essentially the banks are punishing new borrowers for the sins of their forebears. The *best* deals available now for BTL are from Birmingham Midshires, with 5.89% fixed for 3 years with an astonishing 2.5% initial fee. The best tracker rates are Bank of England base rate + 3.75%. Nobody will lend at more than 75% LTV, and *the only* no-fee deal is from Northern Rock is offered at 8.04% - practically a credit card rate.

Banks will not lend on HMOs any more, they are reluctant to lend to student lets. It seems practically impossible to get any finance for property investment. This sort of situation is going to result in some real bargains coming onto the market.

The situation is improved by the existence of people like PJT Finance who can structure deals to achieve much higher levels of gearing than banks officially are happy with as long as 'BMV' (below market value) prices are available. Having been deeply sceptical about the whole BMV concept in the past, I now can recognise that with new finance being impossibly expensive compared to existing finance there will be sellers who may be prepared to sell at any price to "de-leverage" (un-gear?). There are a number of sites offering 'BMV leads' - i.e. the contact numbers of desperate home owners facing repossession. This is maybe not the sort of bottom-fishing that everyone is comfortable with, but with the prospect of a house being sold at a no-reserve auction by a bailiff instructed by the mortgage lender (which, as we saw above, has no compunction about taking it's pound of flesh at the point of lending) I can see why some owners might choose this option. A couple of sites offer this service - Network Property Buyers and 24-7 Property dot Com. You can see a consolidation of leads at this forum at Singing Pig.

The credit crunch has hit the high street The UK love affair with shopping has proved to be a key factor in the economic prosperity and urban regeneration of the last decade. But the global economic downturn, along with a shift towards shopping online, has seen a High Street slowdown that is having a knock-on effect for the flagship shopping centres that in the past have often been centrepieces of urban regeneration. "There's far more capacity out there than ever before and demand is relatively flat," says retail sector analyst Richard Hyman of Deloitte, a consultancy, warning that retail-led urban regeneration may be over for good.

This post on skyscraper city describes the content of the programme. There is a link to the downloadable audio file in the post. It is well worth listening to.

Local authorities are desperate for the revenue they receive in business rents and the notorious Section 106 planning gain payments so they have huge incentives to grant planning permission for retail schemes, and in some cases will give away car parks and similar land owned by the council as an incentive for the developer to agree to the scheme, greatly to the advantage of the developer, and of the elected officers, but not to the advantage of the long-suffering council tax payers.

This article by Jim Pickard suggests that all is not well in the BTL market place.  BTL lending doubled in 2006 compared to 2005 at a time when property prices were hardly moving, certainly in sectors dominated by BTL activity. Repossessions are now rising too.

My own view is that this is bound to continue. A lot BTL investment is driven by the following cocktail:

(i) large cash payments made by developers to BTL investors 24 hours after completion. These have been developed to get around the problems of the previous gifted deposits where mortgagees agreed to lend on a 'market value'  that was higher than the actual sale price of the property,

(ii) specially-discounted deals provided by lenders for the short term. These provide very low-cost finance at the expense of high arrangement fees and expensive reversion to expensive 'SVR' mortgages,

(iii) tenants with bad credit risk being persuaded to pay above market rents for poor quality properties,

Good quality advisors can put together deals for property investors which avoid these problems, but the typical investor probably doesn't have the ability to discriminate between the good, the bad and the ugly. Because no investment product is being offered, the whole sector has nothing to do with the FSA.

Property Snake is a cool site. It scrapes data from other property portals and tracks reductions in advertised prices. Rightmove and the rest will flag a property as having had a price reduction, but will never reveal by how much. Of course most large reductions just reflect unrealistic initial pricing, but there is a distinct difference between the number and size of price reductions in Cardiff and that in Hertfordshire.

As you might guess, my interest is in selling a flat in Cardiff. The sad news is that I am unlikely to get any more for it in pound terms, than I paid for it five years ago. So much for demand outstripping supply, and so much for the reports by Kate Barker and others that we need to build more homes in the UK.

Property Snake seems to source its data from Oodle. I have not come across this site before, but it seems to be really rather good - it aggregates advertisements from some very disparate sources - certainly local papers (Herts24) and from eBay. I am not sure it collects them from Gumtree and Craigslist - if it did it would really be the first choice for finding something locally.