Assetz® News - More Trouble with Buy to Let Rents

More Trouble with Buy to Let Rents - Landlords Will Win in the End

28th June 2008 |

More interesting news reported in the Financial Times today with "Landlords Told to Lower Unrealistic Rents" :

www.ft.com/cms/s/0/986ff854-4473-11dd-b151-0000779fd2ac.html

Yet at the same time we see in the same article an example tenant complaining about having to increase their rent from £1600 a month to £1800 a month and saying they would move to Hamburg to avoid this. Very realistic. It reminds me a little of the student who complained to the BBC ( news.bbc.co.uk/1/hi/england/west_midlands/4711528.stm )a while ago over Unite raising his rent significantly by charging for more weeks of the year. He complained a lot and ended up on the BBC but he wanted to live where he was living and did not move out and paid the increased rent.

I expect we will see a lot more complaining tenants over the next couple of years as rents go stratospheric. Unfortunately rents rather than mortgage payments are in the CPI inflation figure and will be taken into consideration over interest rates - I guess you can't have everything.

What the article was pointing out is that London rents have already had their first surge of around 15% to 25% over the last two years and are pausing for breath. Other parts of the country seemed to be doing much better. Other than London, it is just the the regional city centres that have had (temporarily) too many new build flats built over the last year or two that are still hanging back on rental growth but with all city centre property development now ceased it won't be long before these start to increase at very significant levels as we have previously predicted. It's interesting to see comments in the article that tenants are being forced into outlying areas because premium locations are beyond their budget. Again this is exactly what we would expect to see if rents in a location are starting to reach realistic levels again. There are too many poor quality tenants (partying at night against terms of the landlords lease, causing damage and leaving with a month or two's unpaid rent at the end) living in high quality property in city centres and this situation needs to sort itself out over the next year or two if the laws of supply and demand and fair pricing are to come into play.

This type of news-noise is exactly what we need to see if tenants are going through the pain barrier and if rents are starting to rise well above previous expectations in order to compensate for increased mortgage margins by banks who have raised rates whilst the Bank of England has dropped the base rate. In just the same way as people complain to the banks over unreasonable mortgage rate increases, tenants will now pay with unreasonable, and above inflation, rental increases. For regular Assetz blog readers this is a pretty old story and I said tenants would pay for bank mortgage rate increases back in early July 2007 ( investors.assetz.co.uk/blog/?postid=39 ).

If the banks continue to profiteer in order to rebuild their balance sheets then both tenants and bank shareholders will pay dearly in the medium term. It is only in the short term that landlords and the banks themselves will suffer from the consequences of a credit crunch. Property investment is a medium to long-term activity and for most landlords it is just time to sit back and wait for their just rewards.