Monday, Jul 09, 2007
More people renting but no through choice
Telegraph Online: Emerging sector cashes in on rate rise despair
This article is depressing me. Rather then sell up and rent, people are selling to a specific company, clearing debts, and then renting their home back from the same company. They live in their own home and appear exactly the same as before. This will reduce the number of properties coming onto the market and therefore, could prevent a decline in house prices. It will also lead to an increased number of people renting and lo, we are back to the bad old days. Well done New Liebour!
Posted by talking rot @ 03:22 PM (132 views) Add Comment
19 Comments
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1. Downsized And Waiting said...
So the vultures have started circling....
2. confused76 said...
I hope these discounted sales are booked as real sales and pull the price statistics down.
It will be a race to the bottom from there on
3. samone said...
This is a very specific product, and probably wont/cannot be taken up by everyone who’s having money problems. I’m sure some people will not be in the position to take a 20% hit on the value of their home, others may think it’s not worth it esp if they then decide to rent from a landlord rather than rent from their bank.
However there still it the possibility that prices wont crash but stick at current levels until inflation catches up, this will happen if unemployment doesn’t go up.
It’s all down to the players in the market, the Btlers, wannabe wags etc… who’ve rolled increases in one property to buy another will definitely not be able to use this product – they’re in the driving seat on this one; - oh and without and airbag or a seatbelt.
4. sold 2 rent 1 said...
I agree c76,
As the number of normal transactions dries up and these rent-back schemes increase the HPI figures will show a sharp decline.
What these companies are actually doing is making an illiquid asset more liquid.
This will speed up HPC, not delay it.
Liquid assets fall faster than illiquid assets.
Also, once HP start falling these companies will have problems financing these rent-back deals.
5. Bug16 said...
I don't know exactly how these schemes work, but does this mean that say I lie to get a huge mortgage on a house I clearly can't afford then sell the house to companies like these and rent it back at a sensible price? If so sign I can see that being open to rather a lot of abuse.
6. Algenon said...
Things will happen exactly as C76 suggests. If houses are really bought and sold as the article implies then these sales will form part of the statistics.
7. Bearfacts said...
If these companies are buying at 'discounts' of 20% then of course it will drag the average price down. It won't stop the crash atall, infact it will help precipitate it
8. dobber said...
c76 & s2r1,
Great comments, the buy back sharks, looking for the vunerable still think house prices only go up. They are going to be in for a big shock, as are the lenders that bank roll them. More sub-prime, more corporate debt, greater the credit crunch.
9. taffee said...
they sale prices will also become 'comparables' for surveyors.
These schemes will not exist in a bear market and they appear too good to be true....which they probably are
10. dugmug said...
These "sales" will have to go through the Land Registry by law (unless these companies are happy to leave the deeds in the name of the current owner - I think not!), so they will indeed show up in the average house price statistics. Therefore, Talking Rot, the more of these transactions go through, the more transactions will be recorded at 20% below current levels, hastening rather than preventing HPC.
Therefore, if these companies get really successful, they will only help the market go down further and quicker - thereby putting themselves into negative equity even despite their initial 20% discount. They will then have to wait some time before they can sell at anything other than a loss; would be interesting to know how they're obtaining their finance, I wonder if their sums add up?!!
11. Still Waiting said...
Seems to me that these companies may put additional pressure on the btl market, who otherwise would benefit from an incrased demand for rented properties.
12. Whatever said...
Guys give up, the crash is never going to happen...
13. Philld said...
How many years have we been waiting for this HPC? It hasn't arrived yet and if you look at the stock markets the money men are making a killing again, lets face it just because we aren't able to buy the houses doesn't mean the BTL vultures won't buy them all up and slap us back down once more.
14. p. doff said...
In my experience, the 'wewillbuyyourhousedirtcheap,com' brigade often pay 70% (or less) of market value. They are therefore fairly well protected against a significant crash. Not all houses purchased are rented back; some are put straight back on the market and sold for an instant profit. A possible failing market and widespread debt represents a buying oportunity for some - with handsome rewards.
dugmug - they are financed by banks/building societies in the usual way. This isn't difficult as there is genuine equity at the prices they pay. Some do attempt an element of 'fiddle' in so far as the advised purchase price often bears no relation to reality (even stated above true market value) to enable the company to borrow much more than they are actually paying. This releases even more capital to finance the next purchase - they will often initially buy using cash, then quickly remortgage (using a rediculously optimistic estimate of value) before the original sales records hit the Land Registry. It's all designed to hoodwink the mortgage valuer - they call it 'thinking outside the box'.
Yes, the LR details should show the true original low purchase price. The will also show the substantially higher sale price in cases where these companies sell the houses on.
15. confused76 said...
In short it is a scam, as per the very good comment of P Doff. However, if the house is bought for 70% of its market value, then what is its market value? 70%!!!
So the trick of buying and selling it back may work but not for long.
In addition (and I have logged on a couple of these sites) these companies buy and let to the former owner for one or two years. So they bear the risk of market devaluation during that time. You can argue that a 30% upfront discount should cover most of that risk, and that is probably true.
In reply to Whatever... agree never "going to" happen, it is happening already
16. confused76 said...
In reply to Philld...
"if you look at the stock markets the money men are making a killing again"
totally agree and that reinforces the probability of a serious HPC... people are going to realize that houses are a pathetic asset class. Once the "BTL investment" bubble is over prices will realign to salaries.
In fact, i think it was a mistake to call this site housepricecrash
a much better name would be "3timessalary.co.uk"
17. taffee said...
bearing in mind most crashes/corrections take place over 5-8 years....the likelyhood of any investor 'making a killing' is virtually nil
and a property going down in price is a very poor investment by any standards.
18. dohousescrashinthewoods said...
"The Council of Mortgage Lenders is forecasting that 18,000 homes will be repossessed this year, compared with 17,000 last year and 10,310 in 2005."
but
"In the last six months we have seen a lot of people coming to us after their cheap mortgage offers ended." - 750,000 potential customers according to the article.
The CML admits reposessions were up a little under 7,000 from 2005 to 2006, so (in a worsening climate) why would 2006-2007 be up by only 1000? The most probable outcome is that, as things get worse, repossessions will rise faster, so the minimum will be 24,000 and if the rate doubles (power law and all that) we could easily see 31,000.
19. monty said...
It's all speculation, of course, but the degree to which these 70%'ers will affect the market stats will obviously depand on how widespread the uptake is. If you think about it, Joe Bloggs is still going to paying 100% for his house, isn't he? It's only those offering the rent back deal that get a house for 70% of market value.