But they are doing a terrible job. In fact they aren’t even trying to do the job at all. They are doing the exact opposite.

As I have said the job of the Bank is to keep inflation below 2%. Now there are two different indexes measuring inflation. The Consumer Price Index (CSI) and the Retail Price Index (RPI).In January the CPI was 3.6%, the RPI 3.9%. Inflation is almost twice as high as it should be. Now I am no economist but even I know that if you want to lower inflation there are two things you must do.

1. Increase interest rates. High interest rates make mortgage payments higher, giving people less disposable income. This means they have less money to buy goods and services and prices don’t rise as fast.
2. Control the supply of money. Less money in the economy has the same effect as higher interest rates. Less money chasing goods and services means slower price rises.

So here are the two measures that they need to take to fight the problem. But what does the Bank of England do? The complete opposite in both cases.

Firstly they give us record low interest rates. Only one member of the monetary committee Andrew Sentance has called for a rise in interest rates. He is the only member of the committee doing his job properly- trying to control inflation- and yet he has been heavily criticised.

Secondly they continue with the policy of quantitative easing (QE). What a wonderful euphemism for what is basically printing money like there is no tomorrow, and with nothing to back it up. No gold reserves. That titan of economic thinking Gordon Brown sold off most of our gold when the gold market was at record lows. Well done Gordon. This new money literally isn’t worth the paper it’s written on.

In fact at the recent meeting two members of the Bank of England’s Monetary Policy Committee (MPC) David Myles and Adam Posen, wanted more money pumped into the economy than the £50bn that was agreed earlier this month, meeting notes reveal. The two voted for a £75bn stimulus to the economy in February, but the other seven disagreed. The majority considered that £50bn would be enough; with some saying no further action was needed.

So how does this affect you and me? It tells us that the Bank isn’t serious about controlling inflation, and that very high inflation will be around for some time to come. This means you have to buy real assets as a hedge against your money rotting away. Many experts recommend gold and silver. Others recommend works of art, or fine wine. Some recommend coins, even stamps.

I recommend property. Since the value of money is being eroded daily, the cost of a mortgage, in real terms is getting cheaper every year. If you bought a house in 1983 and paid the average price of £35,000 your monthly mortgage payment must have appeared to be a pretty hefty chunk of your wages. Twenty years later it was a small fraction of your earnings. The same thing will happen in the future. Buying an average house in London will set you back £450,000. A repayment mortgage on this will cost you £2,400 per month at 3.99%. That might seem a lot of money but in 20 years it will be peanuts.

The Bank is doing its best to keep the price of property high. Low interest rates make property more affordable. If the price of shares was going to half overnight the Bank would do nothing. If the price of property was going to half overnight the Bank would do everything in its power to stop it. That’s why property is such a special business. The dice is loaded in your favour.

Many people see inflation as an evil, dark force, which reduces their buying power and makes them poorer. And for the non-property owning classes it is. But for the property owner inflation is a dear friend that eats away at his debts and makes them easier and easier to repay every year. The institution that is charged with controlling it isn’t interested. The Bank of England just keeps stoking inflation up. God bless them.

John Longford 23/2/2012

Well I didn’t until I read today’s Daily Telegraph. A portfolio landlord is a person who owns 20 or more investment properties. I don’t know who decided that 20 is the magic number but there you have it. Now according to the Telegraph the poor old portfolio landlords are really feeling the pinch.

Here is what the Telegraph has to say:
“The latest findings from the BDRC Continental quarterly Landlords Panel research reveals the biggest rise in the number of portfolio landlords making a loss since the Landlords Panel began in 2006. The research shows that in the fourth quarter of 2011, the number of ‘portfolio landlords’ – those with 20 or more properties – who reported making a loss rose from just 1pc in the third quarter of 2011, to 8pc in the last quarter of the year”.

So let’s get this straight. 8% of portfolio landlords are making a loss. To be honest this figure amazes me. I thought it would be much higher. Let’s look at it another way-that means that 92% are making a profit or breaking even.

How many sectors of the economy can boast that 92% of its businesses are in the black? Especially in such uncertain economic times. How many pubs, clubs, restaurants and shops are losing money every day? Pubs are closing at a rate of one per day in London alone. In my high street shops and restaurants are starting up and closing down so fast I can’t remember what shops are located where. I went to my local pound shop last week and found it boarded up and deserted. I bet the retail sector would be delighted if only 8% of them were losing money.

Of course this loss is only based on the monthly rent not covering the mortgage. It doesn’t take into account the capital appreciation on the properties. The value of the portfolio will increase over time. Maybe not this year but soon, and this increase will be massive. Don’t forget about inflation which eats away at the mortgages, making them cheaper in real terms every year. And don’t forget the fact that rent will continue to rise, so this unfortunate 8%, who find themselves in the red, should soon find themselves back in the black again. But to read this article you’d think that this figure is a total disaster, signaling the end of buy to let as a going concern.

If you are an investor take my advice on this. Any industry that can boast 92% profitability in the current economic climate is one that you should take a very serious look at.

John Longford 17/2/2012

One set of articles tell them that they would be stupid to buy. For example Howard Archer, chief UK economist at IHS Global Insight forecasts a 5% fall in prices next year. Another economist cites the uncertainty caused by the problems in the euro zone. They are told that the fallout from this could lead to a currency crisis and a property crash. Then they are told that interest only mortgages are being withdrawn, which will make mortgages even scarcer and once again cause a drop in prices. All doom and gloom.

Other articles say that now is the time to buy because affordability is back to its long term average. At the moment it takes about 30% of a person’s wage to service their mortgage. Then there are the articles that tell them that because of the low interest rates, they would be £1400 per year better off buying than renting. Yet more articles that tell them to rush in and avail of the stamp duty holiday. Stamp duty for first time buyers buying properties up to £250,000 will be reintroduced on 25th of March. So they would be foolish to pay the tax- an extra 1% on their property. Eddie Goldsmith, chairman of the Conveyancing Association, said it wasn’t too late for buyers who wanted to beat the deadline, “but time is running out”. Positive buying signals.

Of course the same article then says that the prices in the £125,000 to £250,000 have been artificially inflated by the impending end of the stamp duty holiday, and therefore they should wait till after the 25th of March and bank on the prices coming down. The theory is that the price falls will more than compensate for having to pay the 1% stamp duty. I don’t know if their heads are spinning, abut all I can say is that mine is – and I am not even a first time buyer.

What I find odd about all this is that everyone in the media approaches buying your first home from a business point of view. All the analysis is done based on cold mathematics. The emotional side is totally ignored. I know that this is a sensible approach, and the only approach when dealing with investment property. Professional investors know that there is no place for emotion in property investment, and they are right. But this is not just any investment; it’s your home, so you are allowed to bring emotions onto the mix.

When you own your own home you have a sense of security that you just don’t have with renting. It’s yours and you are not vulnerable to the whims of your landlord. You can decorate it any way you like, no matter how whacky your tastes might be. You can invite people to stay without worrying about breaking your lease. You can make long term plans, you can’t be asked to move at the end of your six month contract. You can work on your garden knowing that you will be there to enjoy the benefits of your hard work.

You can make a circle of friends. Your kids can settle into the local school, without worrying about having to move house and therefore move school. You can put down roots, and until you do you never really find your place in the world. You will have an inner sense of being a grown up, independent person. It’s a kind of rite of passage to adulthood. You get a truly amazing feeling when you are handed the key to the front door of your very own house. This is something that all first time buyers need to factor in when deciding if now is the right time to buy.

John Longford 16/2/2012

The couple renting out their shared ownership flat for the past two years. The problem is that the housing association won’t give them permission to sub-let on an indefinite basis, thay want them to move back in or sell. The prices have dropped since Mr Verazzo bought the flat and he would lose a substantial amount of money is he sells up. So he has two choices

1. Sell and lose money
2. Move back into the property with his wife and child

The couple maintain that the housing association, Moat, are being unreasonable.

Well there’s gratitude for you. The shared ownership schemes were set up to help middle and low income families onto the property ladder. Mr Verazzo was happy to avail of the benefits of the scheme when it suited him. He was allowed to buy 35% of the property and then pay subsidised rent on the rest. He had the best of both worlds, he was able to live in a property that basically he couldn’t afford, and do so at below market value.

Now all of a sudden this cosy arrangement doesn’t suit. He wants to stay a more spacious property. But he has no concern for the other people who would love to take over his property on the part ownership scheme; he wants to hold onto it until prices rise.

Why should he be allowed to do this? He says that he should not be forced to take a loss, yet if he were to sell at a profit would he donate the money back to the housing association? Of course not. He wants it all ways, subsidised rent, become a buy to let landlord waiting for prices to rise so that he can make a handy profit, and all the while block another family from availing of the benefits of this scheme.

The housing trust has done him a great favour, they allowed him to sub-let for two years but understandably they won’t tolerate this situation any longer. Yet he makes them out to be a totally inflexible pack of fascists. How ungrateful can you be? They decided to move to the wife’s three bedroom house, they are not being forced out. They are doing this for their own comfort and convenience. Yet the way the Guardian paints the picture you’d think they were helpless victims of inhumane housing association rules.

Let’s not forget one thing-the housing association own 65% of the property, Mr Vazarro only 35%. So of course the housing association should be allowed to decide what happens to the property. They are the majority shareholder after all.

My advice to you Mr Verazzo is this. Sell your 35% share in the property and let someone else enjoy the benefits that you were happy to avail of when it suited you, but now you no longer appreciate.

John Longford 11/2/2012

http://www.guardian.co.uk/money/2012/feb/10/when-shared-ownership-goes-sour

I am referring to the story about tenants being evicted during the Olympics and Paralympics, to make way for sports fans. The landlords in question are planning to cash in on the massive rental demand during the games. A number of other high profile estate agents have sections dedicated to Olympic properties on their websites. Foxtons is renting out 1,100 properties for the Olympics, with prices ranging from £525 a week to £100,000 a week. The hapless tenants, who of course can’t afford to pay this exorbitant rent, are being turfed out. This is wrong in so many ways, both morally and financially.

Firstly, I am a landlord myself, but I would never dream of kicking out my tenants just for short term gain. I try to cultivate a good relationship with my tenants. Not a friendship, but a good professional relationship. This takes time, but is well worth it for the goodwill and peace of mind it brings. If you have good, honest, reliable tenants they are worth their weight in gold. They deserve to be treated with respect; the property is their home after all. I know that the words “high moral standards” and “landlord” don’t often appear in the same sentence-unless its “lack of high moral standards”. But some of really do have a conscience, and don’t like to store up bad karma.

Secondly let’s look at the financial side. These telephone number rents (£100,000 per week?) won’t happen. Why would you pay 100k to stay in an apartment when a 5 star hotel would be much cheaper? There will be a rental increase but not on this scale.

Thirdly the properties will have to be vacated well before the Games in order to be renovated and cleaned. So there will be a period of vacancy and a loss of rent. What happens after the Olympics? All the short term lets will come back on the market causing a glut of properties. These greedy landlords might find it difficult to find a tenant quickly, and so any gains might be eliminated.

Personally I hope this happens. I usually stand up for landlords, we are a much vilified bunch, but these landlords are just plain greedy. They give the rest of us a bad name.

John Longford 5/2/12

“Buying a property in the UK is 16% cheaper than renting; a huge change from three years ago, new research shows”. “Buying a home in the UK is over a £100 a month cheaper than renting”. “The typical monthly cost of buying a three bedroom house in the UK was £600 in December 2011, some £116 or 16% lower than the average monthly rent of £716 paid on the same property type”.

The figures come amid claims that first-time buyers are beginning to return to the property market. The biggest barrier for young buyers – the huge deposits required by lenders – is beginning to crumble as more and more 95% mortgages have become available in recent weeks. Since the start of 2012 several building societies, including Ipswich, Newcastle and Skipton, have launched first-time buyer loans that require just a 5% deposit.

Let’s get this straight. Its £100 cheaper per month to pay a mortgage on your own home than to pay rent. Wow-imagine that. Not owning your own home is making you £1200 poorer every year. And don’t forget the equity which you will amass in the property as prices rise over the years. You will also gain equity every month as you pay off your mortgage, and have a valuable asset to sell in 25 years time should you choose to do so. When you are renting you leave with nothing, no matter how much rent you have paid. This is the economics of the madhouse.

Most people are afraid to buy because they fear a house price crash. We have had the biggest recession since the 1930′ and a massive banking crisis. Prices have fallen nationwide, and may continue to drop a little over the coming months. But if you are waiting for a price crash before you buy then you will have a very long wait. The crash has come and gone.

But, as usual for London property owners it gets even better. Because, according to the Halifax, buying is currently most affordable relative to rent in the capital with the average borrower in the capital paying 10.2% less per month than the typical private tenant. That’s a lot of money. Have you ever seen a greater incentive to get out there and start looking for a place of your own?

John Longford 3/2/12

We get a lot of flak from people on the left wing of the political spectrum, especially environmentalists. We are seen as destroying the environment without caring one jot about the consequences. We wouldn’t care if all the countries National Parks were concreted over, and turned into one hideous estate, just as long as we could buy the resulting properties at a discount and charge exorbitant rent. We are environmental vandals, with the morals and social graces of Attila the Hun.

Of course this is not the case. I for one care deeply about the environment and approve of a lot of environmentally friendly legislation. There are two reasons for this. Firstly I want to live on a pleasant, pollution free planet Earth. And secondly, environmental policies can make me a lot of money. Let me explain why, starting with a piece of legislation which was way before its time and has had a great impact on life in the capital- London’s Green Belt.

Personally I think that the Green Belt around London is a great idea. It was created in the 1930’s as a way to stop London from sprawling all over the countryside. It has done its job, almost everyone is glad it was introduced, and wouldn’t dream of getting rid of it. But it has had one massive consequence for the property sector. Because no one can build on the green belt supply is greatly restricted. There just isn’t enough property to go around, and with the green belt there never will be. So a shortage of supply and high demand can only lead to one thing-high prices.

This is one of the main reasons why rent in London so high. The green belt has the effect of transferring a massive amount of money from London tenants to London landlords every month. So if you are renting you must realise that you are paying hundreds of pounds of extra rent every month just because the existence of the green belt has driven up the price of rent. Think about that next time you write a rent cheque. The green belt puts money in my pocket every month, and I am its most staunch supporter.

On the other hand I am totally against the new high speed railway line that will link London to Birmingham. The trains will run at 225mph, and will cut the 140 mile journey time, by 49 minutes. It will blight huge swathes of the beautiful English countryside, and I pity anyone who will have it running near their house.
But of course there is self-interest at work here too. High speed rail links are bad for London property. If you can live out of London and commute into work quickly and comfortably, why would you pay top rent for a place in the city? High speed rail links give alternatives to people; they have much greater choice of a place to live. This decreases demand for flats in London, and prices drop.

So here are two cases in which I staunchly support the green lobby. I know I support from a selfish point of view but does that make my support less valid? Isn’t wanting to live on a beautiful, unpolluted planet a selfish viewpoint too?

Being a landlord and being green aren’t mutually exclusive. In many ways they go hand in hand.

John Longford 29/1/12

Then it all changed, and if you told someone that you were buying a buy-to-let property they looked at you as if you had just informed them that you intended to set up a sand shop in the Sahara desert. Once again you had a large tattoo on your forehead saying “village idiot-destined to die poor”

Now the pendulum is swinging back towards buy-to-let again. Record low interest rates and booming tenant demand have made it possible to buy cash positive properties again. In simple terms this means that the monthly rent will cover your mortgage and there will be some money left over. This is how it should be.

During the buy-to-let boom leading up to 2007, people bought cash negative properties. The rent wasn’t covering the mortgage, so the property was costing them money every month. It’s not sound business practice to engage in business deals that cost you money; in fact it’s a sure way to bankruptcy. And the crazy thing is that these people knew they would be losing money every month, and they still went ahead with the deals. This is totally certifiably insane. They behaved like amateurs, but then I suppose that’s exactly what they were. They never heard of one of the most important rules of property development:

Never ever buy a property that doesn’t carry itself.

These people were banking on property price rises to compensate. They thought that the rise in property values would more than make up for the money they were losing every month. They were operating on the best case scenario, another highly unsound business practice. Here’s another vital rule of business:

Always anticipate the worst case scenario.

Do your calculations based on that. I’m not being pessimistic, just realistic. If the numbers still work after doing your analysis based on the worst case scenario, then go ahead with the deal. It still might not work out but you have done all you can. You have approach your business professionally and nobody can do any more than that.

Did it not cross anyone’s mind that property prices could fall and that they could be stuck with a monthly drain on their finances that they couldn’t get rid of without losing a small fortune? These people were the property amateurs who got burned in the last crash. Imagine the pressure of shelving out £200 per month of your hard earned wages in order to pay for a mortgage on a property that was slipping further into negative equity every day? And that’s only on one property; many people had more than one.

But what about today? The average buy to let investor was getting a return of 3.7% in December. This means they were getting £6,107 in rent, but on average they were paying out £7,611 in mortgage payments. So they were losing £1,504 per property per year. But rents are rising. They have risen by about £50 per month since 2008. In the past year they have risen 3.5% on average in the UK, and a whopping 5.5% in London.

Official figures from the Department for Communities and Local Government (DCLG) House Price Index showed that property values fell annually by 0.3 per cent last year – so are fairly stable. According to Nationwide and Halifax house price indexes, house values are still down drastically from pre-credit crisis levels. The average property price touched £200,000 in August 2007. So prices are stable but rent is increasing at a very healthy rate.
If property prices maintain the same trend as the last three months; an investor could expect to make a total annual return of 4.8 per cent over the next 12 months – equivalent to £7,841 per property. So they would be making £230 per property per year.

This is a massive tipping point, from cash negative to cash positive. This is where buy-to-let starts to get interesting again. If you are making money, even just a little, you are in a very strong position. If prices fall you can hang on for as long as it takes for them to rise again. The pressure is off; you don’t have a cash negative property bleeding you dry every month.

The figures that I have quoted are national average. I know that this tipping point has already been reached in London, because of the frankly insane demand for decent rental property. The switch from cash negative to cash positive is a green light.

Buy- to- let is back!

John Longford 27/1/12

I’m going to stand up for estate agents!

It’s important to realise that there are two totally different kinds of agent. Those who do sales, and those who do lettings. Now there are three bodies that regulate estate agents:

1. The National Association of Estate Agents
2. The Property Ombudsman.
3. ARLA

“Lettings agents are not regulated as stringently as sales agents, and this is where most of the problems occur” according to Mr Ed Mead who sits on the Property Ombudsman board. So what he is saying is that most problems are caused by the letting agents, not the sales agents. Most people don’t realise this.

I must say I only found out this recently myself, and it makes perfect sense. I have had many complaints from my sitting tenants about the behaviour of lettings agents when I have been looking for new tenants. From making appointments and not turning up, to turning up at all hours without appointments, to being rude and even downright racist. I have heard it all. One of my tenants, an attractive young female, arrived home one afternoon to find the lettings agent rummaging around in her underwear drawer. Another tenant had a laptop stolen. I am not saying that the agent stole it; he just failed to supervise the people who were viewing the property properly. Although how someone could sneak out with a laptop under their jacket without being spotted by the agent is beyond me.

This is why I feel sorry for estate agents, but only the sales agents. They get put into the same category as the lettings agents, even though most of the complaints that the ombudsman receives have nothing to do with them at all. It’s just not fair to tar all agents with the same brush.

There are many excellent agents out there, people with integrity, honesty and sound judgement. Indeed, here are some agents whose judgement I value so highly that I regularly turn to them for a second opinion. They know I am picking their brains, looking to tap into their wealth of experience for free, but they always try to give me the best advice possible. That’s what I call integrity. Of course, I have known these people for years, and have grown to trust them.
Sadly these people don’t make the headlines; no one is interested in how wonderful an estate agent is. Stories of how dishonest, untrustworthy and shifty they are make much juicer reading. So I feel sorry for the majority of estate agents, they are just ordinary people trying to do a good job.

So next time you are at a dinner party and people are swopping stories about dreadful experiences they have had with estate agents, find out if the agent was sales or lettings.

My money is on lettings.

John Longford 23/1/12

It means renting out your home and moving into rented accommodation. It often happens when sales fall through and people still want to move but can’t afford to buy a property until they sell the old one. So they end up renting out their home and paying rent elsewhere. The theory is that you should be making money on the rent every month on your own home and this helps to pay your rent on your new property. So it looks like a perfect solution-the best of both worlds.But if you are planning to do this be careful.

First of all when doing your calculations that you will have to pay tax, agent’s fees and accountant’s fees so you profit per month won’t be as big as you think. Then there will be repairs, decorating, maybe some vacant time. So do your calculations carefully. You must also remember to keep receipts for everything you buy for the old property. Set up a spread sheet and log in all expenses, even if you aren’t sure you are allowed to claim for them. Your accountant will sort it all out for you at the end of the tax year. Keep all receipts-better safe than sorry. Your accountant will also want to see your P60, P45, pay slips and bank statements. So keep these all on file. Get organised, because if you don’t then doing your tax return will be a nightmare.

Yes I do advise you to use an accountant to do your tax returns, even on one property. Go and talk to one before you make a final decision about becoming a landlord. He or she will know about all the expenses you can claim for, and you’d be surprised how many there are. If you don’t use an accountant you will save a small fee, but end up paying far more tax. Its money well spent.

Don’t under any circumstances be tempted try to avoid paying tax on the rental income. The Inland Revenue will find out, from the records of the estate agent you use, or from the council tax records. These will prove you are not living in the property. A guy I know tried to get around this by keeping the property in his own name and paying the poll tax himself. He reasoned that the taxman couldn’t prove that the property was rented out if he was paying the poll tax. The rent was paid in cash so there was no paper trail leading to his bank account. He had it sorted –or so he thought. But he forgot about the gas, electricity and water bills which were in the tenant’s name. He was caught, and fined for tax evasion.

Also, if you live in a flat, be sure to get permission in writing from your freeholder before renting out the property. If you don’t you will be in breach of your lease, and action to repossess the flat could be taken against you by the freeholder. You must also get permission from your mortgage provider; they will probably want to put you on a higher rate, so don’t forget this when doing your calculations.

But strangely, the biggest problem is not with paperwork, tax, finding tenants or even dealing with estate agents. The problem is your emotions.

You must realise that renting out your own home can be very difficult emotionally. Most landlords buy a buy-to-let property and rent it out. They have never lived there, so there is no emotional attachment. It’s just bricks and mortar to them. Your situation is totally different. You have an emotional bond to the property-it’s your home. You have happy memories of all the happy times you spent there. Christmas dinners, birthday parties, maybe your kids took their first steps there. It’s been a home, a place of refuge and hopefully happiness for you and your family for years.
So how are you going to feel about someone else living there?

It’s different if you sell the property; it’s out of your life. It can be painful leaving a house you love but at least you make a clean break. But as a landlord you will be visiting the property from time to time. How will you feel if your tenants cut the shrubs you planted so carefully, when they mow the lawn, or want to rip down the wall paper you spent ages choosing, because they think it’s naff? The danger is that you will start to take these things personally, and this you cannot do.

Don’t underestimate emotional attachment. Emotions have no place in business. I know about this problem because I rented out a property I had lived in for four years, and bought a bigger house. When we bought the property the garden was a mess, and we spent weekend after weekend working on it. It took an awful lot of work, but when it was finished it was lovely, and was my wife’s pride and joy. We would never have done this in a buy-to-let property, but we know we would be living there for a long time.

When new tenants moved in problems started. Obviously they didn’t take the same care of the garden as we did, and it soon began to look overgrown. My wife, being an emotional person, got very upset, and I was caught in the middle trying to calm her down and still maintain a good relationship with the tenants. It caused a lot of tension and indeed causes some even today. I know that this was just the garden, but I am sure you can see the potential for conflict in other areas.

So when you rent out your home you must stop thinking of it as your home. It your tenants home now and you are a buy-to-let landlord with no emotional attachment to the place. You must be professional, it’s hard, much harder than with conventional buy-to-let but you have to do it. If you don’t you will have no end of conflict with your tenants, and this will lead to disaster.

I am not saying that let-to-let is a bad idea; I’m just saying that you must go into it with your eyes open. Maybe you have no other choice, but if you do, weigh up the pros and cons carefully and make an informed decision. It will be one of the most important decisions of your life.

John Longford 22/1/12