Here’s a sign of the times. Judith and Fergus Wilson, two ex-maths teachers who have long been the poster couple of the buy-to-let bubble, are selling up. Over the last few years the two, in what The Guardian calls a “frantic series of deals” that often saw them buying several houses a day, have bought over 900 houses, mostly around Ashford in Kent. They now reckon their portfolio is worth around £250m and that their typical loan to value is around 65%. This suggests an “equity cushion” of around £90m.
That sounds nice – who wouldn’t be happy to feel worth £90m? – but it also means that the Wilsons have mortgage debt of not far off £160m, at a time when the property market is barely budging and when refinancing mortgages is getting more expensive by the day. Not long ago you could get a buy-to-let loan fixed at well below 5%. Now you’d be lucky to get one for under 7% – and to get that you’ll have to pay a whopping fee. Yet at the same time you’ll find that you are making regular capital losses and your tenants are either defaulting as unemployment rises or demanding lower rents as the flood of once-for-sale, now-for-rent properties on the market bumps up their bargaining power. No wonder the Wilsons want out. It’s “been a nice ride”, says Fergus, but “the party’s over”. Indeed it is. The question now is just whether he and the rest of the nation’s legion of disappointed buy-to-let investors can get out with their party bags intact.
The Wilsons clearly can’t get out of their investments in a hurry. In a barely moving market, 900 houses aren’t going to be snapped up – the couple plans to sell over several years starting from this Christmas. So when they’re done will they have £90m to splash about? We suspect they won’t. With house prices already falling at speed, the mortgage market looking for excuses to contract, and confidence evaporating along with the stockmarket and the economy, UK house prices are clearly going to keep falling: a house that might look like it has 35% equity in it today could easily have 0% in three years. “We are not a penny behind on our loan payments,” Fergus told The Guardian, “We are reasonably safe. If we go under then everyone’s going under.” That’s the bit we’re worried about. Anyone still in the buy-to-let market might look to the king and queen of buy-to-let and wonder if now might be the time to come up with an exit strategy.
A week in the property market
• Hotel investment firm GuestInvest has long promised investors that they can “earn money while others sleep” by buying hotel rooms. Not for much longer, it seems. The company went into administration last week after its joint venture parter HBOS pulled a lending facility. But even without the credit crunch the business looked questionable, says The Times. GuestInvest bought property – at the top of the market, as it turned out – then offered individual rooms for sale at as much as £250,000. In return investors got to use their room for 52 nights year and a share of any profits. But concerns about occupancy rates and resale risks appear to have kept sensible investors away. Justin Urquart Stewert of Seven Investment Management made the correct call when he said in February 2007: “It’s a fashion fad, and fashion fads can turn into next year’s tank top.”
• House prices fell by 1.7% in September, according to the Nationwide House Price Index. A typical property has lost £23,000 over a year, leaving the average house price at £161,797, after an annual fall of 12.4%, according to their figures.
• Meanwhile, Nationwide says London’s house prices dropped 3.9% in the third quarter of the year. They are now down 9.4% this year, leaving the average London house price at £274,124.
• Repossessions rose by 17% in the second quarter of this year compared with the same period in 2007, according to the latest figures from the Ministry of Justice. In Devon and Cornwall, the number of repossession claims rose 41%.
• For the first time in ten years the Bank of England has recorded negative figures for equity withdrawal. This means people are now paying off their mortgages more than cashing them in. Equity withdrawals have been declining since the last quarter of 2003 when they peaked, with homeowners taking equity worth a total of £17.2bn out of their properties.