The accidental landlords are heading for a crash
Published 19/06/2016 | 02:30
There is little sympathy for buy-to-let investors. They are often depicted, much as they were in Victorian times in this country, as heartless people seeking to rack-rent hapless tenants.
Minister for State John Halligan recently described them as "bastards" who should be jailed and claimed some were making money out of people's misfortunes.
Rents are certainly shooting up. It now costs €922 a month to rent a property nationwide, and €1,454 a month in Dublin. The cost in Dublin is more than most people pay for electricity in a year.
But are landlords just greedy gits, who are hell-bent on extracting every last cent they can in rents?
That caricature seems off the mark (I am not a landlord). Undoubtedly, some landlords are heartless and greedy and using every trick in the book to extract higher rents. This is especially the case with those who have no mortgage on their rentals.
But many are accidental landlords. Due to poor decision making, bad timing or the financial collapse they have found themselves with properties that are unsuitable to bring up a family, in the wrong location or simply unaffordable.
Many accidental landlords are also tenants, as they have now moved and are renting a more suitable home. They are cash-strapped and see rental rises as a way to meet crushing financial obligations.
And they are under severe pressure from their lenders, whether that is a conventional lender or what the Central Bank calls a non-bank lender - vulture funds that have bought distressed mortgage books, or banks no longer operating here, like Bank of Scotland.
Many landlords with mortgages are now coming to the end of interest-only periods. They bought between 2004 and 2008, often on ultra low tracker rates, and interest-only deals.
Many of these are interest-only deals. Typically, these are for seven years, and many are ending now.
This means a landlord who took out a €300,00 tracker mortgage over 20 years could see monthly repayments go from €350 a month, to €2,000, a rise of 470pc.
And this is at a time when 20pc of buy-to-let mortgages are in arrears.
A large number of buy-to-let investors are professionals, like lawyers and architects. Accidental landlords, on the other hand, are more likely to have bought starter homes and were not investors.
Yes, property investors took an unwise gamble, but it is worth noting that they were targeted by the banks eager to boost their loan books.
What all of this means is that there is a crash coming for buy-to-let investors and accidental landlords.
Sunday Indo Business