Just been reading the book â€œWhoops â€“ Why everybody owes and nobody can payâ€ which is all about the financial meltdown and the lack of credit available to business and home-buyers.
It has a chapter dealing with Zombie banks where banks are not killed off but neither are they able to flourish as they are forced to reduce their ratio of capital reserves to lending. They simply exist in a sort of limbo land – the Living Dead. Similarly, the newspapers have been discussing â€˜zombie mortgagesâ€™ of late where home owners canâ€™t refinance but will be in deep trouble when rates rise.
But, there are Â â€˜zombie landlordsâ€™ out there as well!Â One magazine recently reported the case of a landlord who had Â£4m worth of BTL property from which he was making a net income of just Â£40,000 â€“ presumably because he was so highly leveraged.Â Thatâ€™s just a 1% Â return a year.Â Itâ€™s inevitable that rates will increase at some point in the not too distant future, and when (not if) they go up by just 1%, this Zombie and thousands like him will be in deep doo doo.
Property investment advice from the House Crowd: focus on high yield properties with moderate leveraging (or, better still, none at all) so you are always in a positive cash flow position and so you can cope with interest rate rises when they come.