Wednesday, Nov 21, 2007
BTL is over
Independent: Is the buy-to-let boom over?
Britain's biggest buy-to-let lender crashed yesterday. The game may be up for property investors
Posted by confused76 @ 10:43 AM (1072 views) Add Comment
9 Comments
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1. confused76 said...
BTL is the UK subprime
http://www.thisismoney.co.uk/news/columnists/article.html?in_article_id=426554&in_page_id=19&in_author_id=2025
http://business.timesonline.co.uk/tol/business/columnists/article2910684.ece
And finally the FSA will be called in!
http://www.mortgagesolutions-online.com/public/showPage.html?page=637624
“I am surprised that the FSA has not given guidance to buy-to-let mortgage brokers and mortgage lenders on what it expects them to disclose in respect to likely investment returns.”
‘Indeed, it is not difficult to satisfy the request of the repossession litigation specialists Moore Blatch. Moore says that brokers should include risk warnings when selling a buy to let product to protect themselves from litigation.’
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2. Ash4781 said...
Yes
3. Sold My Soul To The Never Never Never said...
Roy Boulger from John Charcoal says "We're going to get at least two bank rate cuts, so for an interest only loan that's a cut of more than 8% in mortgage payments".
That's being a bit presumptious - I read in article that it was unlikely that cuts would be passed on by the banks in order to increase profit margins. Standard Life increased their SVR on Monday - enough said.
4. uncle tom said...
I'm trying to work out Confused's little chants - looks like something the All-Blacks get up to at the start of each game...
5. tyrellcorporation said...
Widespread failure of high-risk lenders, brokers and EAs - Exactly what happened in the US as the housing market nosedived last year.
Expect a huge fall in the FTSE when Paragon go under. LOL! :)
6. A Saver said...
Just got notice today to quit my rental property mid-Jan as the landlady wants the property back.
She only bought it in July, for 175,000 (I thought she was mad at the time) so the rental won't be covering her mortgage.
Guess this will happen to a whole lot of renters. It's pretty inconvenient to have to move after only a few months, especially as I work from home, and there's very little available in this area. Next time I will make sure I am not renting a property that has been purchased recently, not that that's any guarantee. Or maybe I should just grit my teeth and try and snap up a Christmas bargain -sure wish I had never seem that article in the Economist in 2003.
7. New User 2007 said...
"There is a higher borrowing cost, and that may slow down activity," he continues. "But if you look at someone who took out a mortgage two or three years ago, then while they may have to pay 1.5 per cent more on their mortgage now, their rents have grown 15 per cent over that time."
The economic incompetence is incredible. a 1.5% rise in rates means 150 basis points. It is, assuming a rise from 4.25% to 5.75%, as I think he is, a rise of well over 10% in mortgage payments. A house that in mid-2005 was worth £250,000 (assuming a 90% mortgage) required a mortgage of £956pm and that has risen to £1,078....1.5%? AND assuming they got and will get exactly the base rate (indeed, assuming they are not stuck on a SVR from now).
Now on to the fiction that rent has risen by 5% (I do not believe this for a second based on my own experience) over the last two years compounded e.g. in London, and assuming it was £1,050pm (this is more than I am currently paying in a nice part of London for a private block two-bedroom flat) in mid-2005, then it has risen to £1,102pm today. This is an increase of 10%.
There is also no mention of the opportunity costs of holding these deposits i.e. they can be used elsewhere. If house prices were rising such leverage of a despoit worked, but not in a stable or falling market. Now that the same house is worth £320,000, the rent would no longer cover the mortgage--even if BLTs stop buying rather than selling, there will be a big shift in sentiment.
8. Rockandhardplace said...
Had to break my cover to comment on that Paragon idiot. Mortgage rate up by 1.5%, rent up by 15% = APPLES AND PEARS. No-one's mortgage costs have gone up 1.5%, that's just a nonsense number.
9. Aaron Mcdaid said...
Rents are going to fall because of the crunch. I've seen and heard too many people who mistakenly think there is a seperate rental- and buy-to-live- market. There is instead a single property market.
Also, supply and demand is misunderstood - in reality the supply and demand is the total number of houses and the total number of houses needed to house everybody. The numbers of houses on sale at any one time are irrelevant. Pundits should remember that houses are not perishable items that are destroyed once bought.
We are going to see a better use of our housing stock. For example, homes won't be allowed to stay empty. Secondly, potential buyers will rent instead - more than likely they'll be sharing a single property with other renters whereas previously they'd have bought one property. So rents will be dropping, and house prices will drop even faster. The only thing that'll go up is the mortgage payments of those who took out the stupidly large mortgages. Even those that do buy will often buy a smaller house - they'll do do the sensible thing of buying a house that's the right size for them and only upsize when their family grows.
In short, the market will make a very efficient use of all resources and assign the correct price to everything. How can anyone argue that the market will make less efficient use? Inefficiencies are caused by ignorance, but there is less ignorance out there now as people understand their (bad) debt better.