Saturday, Nov 10, 2007
YEEEESSSSSSSSSSS.... It's a meltdown... 20% fall in BTL deals
Herald: Credit crunch begins to hit home as rising numbers turned down for cards and mortgages
"Lenders are also pulling mortgage deals from the market. Moneyfacts calculates that the number of homeloans has fallen by 40% over the past few months. The biggest drop is in so-called sub-prime loans - mortgages for people with poor credit histories. But there has also been a 16% fall in the number of prime residential deals and a 20% decline in numbers of prime buy-to-let mortgages."
Posted by confused76 @ 06:28 PM (1160 views) Add Comment
17 Comments
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1. confused76 said...
oopss... less 20% "prime" BTL deals, but how about the subprime BTL, which is by far the majority?
BTL is close to collapse.
2. crash bandicoot said...
C76 - you're having a real feeding frenzy at the moment aren't you!
The upside from this story is that we no longer have to wait for a change in sentiment. The numpties are having common sense dictated to them by the lenders (finally).
3. japanese uncle said...
The only difference between BTL and pyramid scheme is, the stake is by far the bigger in the former. One failure, and you will be enslaved for the rest of your life. Poor sheeple!
4. dohousescrashinthewoods said...
I finally watched the "Truth about Property" series from BBC2 online and was quite impressed at the range of issues and ideas surveyed. I felt for the guy who wanted to put all his profit into BTL. "Everyone elese is doing it" seemed to be his only rationale. At least he had figured out that he should put the cash to work but I hope he doesn't lose it all.
5. uncle tom said...
From my own business activities, I am seeing a very sharp slowdown in consumer spending. Notably, this is not so much a reduction in the number of sales, but a reduction in the value of each sale..
..this will probably be a good Christmas for market traders, but a very bad one for jewellers and other stores with high value merchandise - e.g. Dixons. On the food front, Tesco and Sainsbury will probably have a good season at the expense of M & S and Waitrose.
In theory, this should be a good season for Woolworths - but their management is so poor, I would not advise buying shares.
6. japanese uncle said...
UC:
I slightly disagree. Tesco is desperate to uphold sales, givingaway 10% discount vouchers to all Club Card members. Sales at Tesco and other superstores may at best remain flar. High end retailers will naturally suffer badly.
I recently realised that Woolworths' apparently unfocused marketing strategy (what do they want to sell? Lollipops? bicycles? or DVDs? kitchen knives? or compost?) may be the best strategy of all, given the inexplicably fuzzy nature of consumer behaviors, hence their survival for the last century after all.
7. japanese uncle said...
Sorry correction; the second and third sentences should read:
Tesco is desperate to uphold sales, givingaway 20% discount vouchers to all Club Card members. Sales at Tesco and other superstores may at best remain flat.
8. down wave said...
B(u)y To Lets have been Skating on Thin Ice and that an't Nice. Now it is a Loosing Ticket in a One Horse Race.
The BTL idiots have increased the value of my home from £130,000 to £320,000 in 8 years. I shall feel much better when its value is back to a sensible value, that represents the land value and the rebuild value of £600 per square meter.
If the BTL's have not operated using the protection of Limited Company vehicle, then now, they stand to lose everything including their residential home. The banks will give them 30 days notice to pay of their business mortgages, if the equity in their portfolio is less than the value of their debt. Good Ridens to BTL's.
9. Jonb said...
Down Wave, even if they did operate using a Limited Company, they still stand to lose everything, because the banks will always ask for personal guarantees.
They generally don't operate via Limited Companies, because capital gains get taxed twice. First the company has to pay tax on the gains, then the shareholder has to pay tax on the resulting gain in the share price.
10. stillthinking said...
Wait.
This means that we will get deflation? Shares down, houses down, employment down. Surely this means deflation and the debt ridden BTLs, who after all just wanted to get rich (like me), enter 12 years of slavery. I mean the idiot ones. Some did very very well.
11. confused76 said...
Still
Some BTLers did up to 100% equity return (50-60% capital appreciation minus interest paid) in the past 2-3 years (I place the beginning of the BTL frenzy around 2004-2005) there was very little market before. But ** at today's prices, and arguably greater financial leverage ** it only takes one bad investment to go down 20% to wipe out any previous gains.
So expect many of the rich investors simply to go back to square one in the next two years.
After all property is the most illiquid asset in the universe. It will be fun to watch these millionaires (on paper) go back to the slums they came from. Expect many foreign investors buy one way tickets to avoid bank liabilities
12. Orwell said...
I have heard that even those buying in 2003-2005 will not make a profit with a small decrease. It is only those who bought in about 2001 who will benefit.
If that is the case and there is a small decrease of say 20% in real terms then ...
Well put it this way I am glad I am a litigation lawyer...
13. Baffled Ftber said...
We won't get deflation, for the same reason we didn't get inflation during the housing boom, as houses etc aren't in the CPI.
14. Coolerking5 said...
The best BTL stories I've seen are in todays Personal Finance section of the Mail On Sunday. "Music Teacher Claims she lost more than £100,000" She responded to an advert by property investment company Inside Track in August 2004, attended a free workshop and then spent £2,495 to attend a two day seminar on property investment. She then paid £6,000 to join Inside Track's Platinum Club ( Platinum always sounds good eh? ) and she said "I thought, fantastic, these are professional property investors, I'll pay them to build and manage my portfolio" Now she says "I must have been mad" She bought properties in Florida and Spain. "It seemed normal", she said. "Hundreds of other ordinary people were doing the same thing" Within weeks she had bought two more flats, one in Nottingham, and the other in the golf resort of Turnberry. They told her she could charge hundreds of pounds a night when the golf tournaments were on. Another woman who bought flats in places like Sunderland and was told she could get £700 per month in rent has lost £160,000. The local agents literally laughed when she suggested a rent of £700 per month. Doesn't your heart just bleed for them? This whole mess has been built on greed and they deserve everything that is coming to them. Bring it on.
15. magnifico said...
UT I can see the likes of Lidl and Aldi really see their volumes double over the Xmas period.
I do shop there and have been for years: quality, good prices and no ponciness. They have a very interesting line of luxury items at a fraction of Tesco Best. OK I've given myself away as a no style fogey... never mind.
16. stillthinking said...
What about deflation though? How can we, reasonably, not know whether we are entering an inflationary or deflationary period ! The two are so different.
Please everybody put your opinion next time you post. I get the impression Japanese Uncle holds deflation from past posts.
I really have no idea myself and I spend a huge amount of time reading about the two. My opinion is that we have deflation now, but real income is dropping so that it appears that we have inflation. If that makes sense. Very similar to stagflation I suppose but they seem different.
17. bidin'matime said...
My money’s on deflation. The credit crunch, made much, much worse by fears over the value of what was supposedly less risky ‘secured lending’, is going to rip the balls off the consumer boom. People just wont have the money to spend. What with this and the US economy going into meltdown, the UK economy will enter a long period of profound recession. Interest rates will (sadly – they pay my rent!) probably be lowered, but will be chasing the market downwards.
JU’s opinions are obviously influenced by the Japanese experience - whilst there are clearly cultural differences, by the time the property market has plummeted in the UK, and consumer confidence with it, when people start to realise that there really is only one way to secure your retirement and that is by saving, there is no reason at all why the UK should not follow the same path.
Households have £1.3 trillion of debt to pay off – of course, not all of it needs to be paid off, but the turn around from increasing debt to decreasing debt will have double the effect that the increasing debt had on the way up. People will go through the same thought process as I (and many others) did in the mid-nineties - they will take a smaller mortgage, buy a cheaper house, save rather than spend, etc etc. Young people will grow up seeing their parents made miserable by debt and will resolve not to fall into the same trap. Over the cycle, as normal, the correction in debt will over-correct, so that people become too careful, with each new set of economic data both proving them right to be careful and, of course, being made worse by their lack of spending. Maybe this seems fanciful, but it’s been the story on the way up, so why not on the way down? It just needs enough people to be hit hard enough – and I seriously think that this is a strong possibility this time. It is so much worse than the end of the 80’s / early 90’s, when (as a self-employed person) you still needed 3 year’s accounts to get a mortgage (I’m an accountant and I can't remember the last time I was asked for 3 years’ accounts for a client, it was so long ago) and in those days it was restricted to 3.25 x main income plus 1 x second income, or 2.5 x joint incomes. Seems laughable now, doesn’t it? And we had inflation eating happily away at the real value of loans.
When they write the history books, the early 90’s crash will be marked up as a ‘blip’ in an otherwise uncontrolled upward trend, a brief period of relative restraint, that was recovered from by throwing caution to the wind and going for broke. And broke is where most people are about to find themselves.