- Not everyone wants to lock themselves into long term mortgages, renting keeps their future options open
- Getting a deposit together for some is tricky
- Risk-adverse attitudes to getting mortgages after 2008
- Outside the US and the English speaking world, renting is quite popular, perhaps the default option, e.g. continental Europe. Therefore the demand is quite high for renting and lower for buying
The real question is, why aren't banks and hedge funds moving into this area, using their clout to access cheap financing and then buying attractive properties en mass and renting them out. This would take advantage of the current low interest rate environment.
Indeed. If you require a mortgage for BTL, you're effectively just an agent for the bank. You take all the risk and pay the up-front costs, and the bank gets a good return for signing off a few forms.
BTL has been a good deal for the last few years, but it's getting squeezed now by tax changes. It looks like a sure thing but it really isn't, because profitability is very dependent on:
1. Tenant quality. One bad tenant can wipe out a few months of income.
2. Tax changes. The trend in the UK is clearly not in favour of landlords.
3. Interest rate changes. A good chunk of BTL property is overleveraged, and a change of a couple of percent will make it unprofitable. This seems unlikely now, but I think it's quite possible after Brexit a few years from now.
4. Legal changes, including rent controls and tenancy terms. We haven't had much of this in the UK, but it could happen with a different government.
5. Expenses. Insurance and replacement can take a gross rate of 5% down to a net rate of much less.
Some of these are UK-specific. But it seems likely that AirBnB is a better bet for property in a good location.
- Not everyone wants to lock themselves into long term mortgages, renting keeps their future options open
- Getting a deposit together for some is tricky
- Risk-adverse attitudes to getting mortgages after 2008
- Outside the US and the English speaking world, renting is quite popular, perhaps the default option, e.g. continental Europe. Therefore the demand is quite high for renting and lower for buying
The real question is, why aren't banks and hedge funds moving into this area, using their clout to access cheap financing and then buying attractive properties en mass and renting them out. This would take advantage of the current low interest rate environment.