Investment Landlord Tips Opinion

Piling On The Pounds

David Rutland
Written by David Rutland

More landlords than ever are taking out additional loans against their properties – but why?

Statistics can tell you an awful lot about the realities of a situation – on the ground truths, if you will. Declining bee populations point to a lack of worldwide biodiversity as the planet is plundered to feed mankind’s rapacious appetite. The shocking number of parents who don’t vaccinate their children points to a fabulous opportunity to invest in firms making tiny coffins.

So what can we learn from the newly revealed statistics which baldly state that 5.6% of landlords remortgaged properties last year to pay for home improvements?

Sure, it’s not a huge number. One in 20. But it’s up from 1.9% in 2016, and it’s 150,000 people. Is it an anomaly? Is it a spike?

It could be the shock effect of the government clamping down on energy efficiency in Buy to Let properties – forcing lazy owners to finally install double glazing and central heating or lose the right to let any out properties at all.

Perhaps the freak weather conditions and numerous storms in 2017 prompted that one in 20 to invest in storm shelters hurricane shutters to keep their tenants safe. Maybe.

Let’s extrapolate from the meagre data we already have:

These are properties which are already mortgaged. It’s a remortgage – and they’re borrowing even more money.

These are properties which have been owned for at least three years. We’re guessing here, but we know that most mortgages have a tie-in period of between three and ten years. If you want to remortgage within that time period, there are financial penalties which can reach several thousand pounds.

So, in three years (or more) 150,000 landlords haven’t made enough cash from their properties to put by as an emergency reserve which they can use to carry out essential repairs or desirable upgrades.

Are these reasonable assumptions to make? We think that they are. If you actually have the cash reserves, you’d spend them rather than borrow more at interest – it’s common sense.

We’ve already pointed to the statistic that the average landlord ‘owns’ 1.5 houses in addition to their main dwelling. Here’s another statistic:  The average let brings in around £950 pcm. That’s an income of just under £1,500. How much must their outgoings be that 150,000 average landlords can’t squirrel away £20,000 over a three year period (or longer), and need to ask the bank for money to make their already debt laden purchases viable?

Being a landlord is a business, and remortgaging is a property is essentially a business loan.

Do you know what happens to businesses which take out loans on top of already existing loans, while their income streams stay static? We shouldn’t really need to point this out, but they tend to go bust because their outgoings grow and there’s even less opportunity to put money aside in case emergency improvements are required or the opportunity for expansion rears it’s glorious golden locks.

As a property owner, home improvement funds are something you should be paying into from the moment your first rent cheque arrives on the doorstep. Not something you realise you forgot about three years down the line.

 

Image credit: Scott Schiller

About the author

David Rutland

David Rutland

With a decades long career as a professional writer, David Rutland has worked as a journalist on local, national, and international newspapers, before embarking as a career as a freelancer.

He has ghostwritten several books, as well as producing travel guides, manuals, humour articles, and more internet blogs than you can shake a stick at.

David maintains offices in East London, but spends most of his time in a shed near Liverpool, where he writes, as well as developing apps for Android.

What people say about him:

Arrogant and abrasive - Alan Davis, Editor in Chief North Wales News Group

An absolute liability - Matt Simms, Editor, Vale advertiser

Are you sure this won't get us all arrested? - Mohana Prabhakar, Editor in Chief, Apex News Group

Go and have a shave. You're all prickly - Mrs Donna Rutland.

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