Thursday, Dec 20, 2007
35% deposit needed for buy to let on new build
Firstrung: Woolwich restricts lending to 65% on buy to let new build
Woolwich have stunned the buy to let mortgage market by announcing that they will not consider LTVs (loan to values) above 65% on new build property. Firstrung would suggest that were Woolwich lead others will follow, particularly those lenders who source wholesale funding from, for example Barclays, Woolwich's parent company...
New Build - Where an application is received for a Purchase, Remortgage or Further Advance for a new build property (where the first registration of the property was 2 years or fewer) the loan to value will be restricted to 65% regardless of the property type
Posted by converted lurker @ 12:12 PM (1361 views) Add Comment
20 Comments
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1. planning4acrash said...
Put simply, this prices in the risk of 35-40% fall in property prices over the loan period.
2. bidin'matime said...
Also means that only people with £30k + in spare cash need apply - this rules out all the 'nothing to lose' people who have gone into BTL in recent years and anyone with that sort of savings is going to have the intelligence to invest it more wisely in the current climate. Puts paid to BTL completely, really.
3. Si said...
What about BTL mortgage renewals? Surely there's going to be carnage as BTLers have their houses revalued, can't get a new mortgage and find they can't avoid the SVR.
4. Orwell said...
I agree they are predicting falls of 35% then...
5. jack c said...
In addition to the reduced LTV (Loan to value) lenders including Woolwich are taking a very tough view on rental assessments and are also looking at the borrowers own financial circumstances so that they can afford to pay the mortgage if rental voids occur. At the moment generally it is very unlikely that BTL will stack up as a good financial proposition.
6. inbreda said...
The other addition to the snowball effect is that now Woolwich have set a max LTV of 65, those BTLers that would have gone to the Woolwich and been offered something in the past will now have to go elsewhere - meaning that other banks will have a higher proportion of higher risk BTLs - despite not altering their credit criteria at all. This means that they will have to adopt a similar stance simply to stop their books becoming ever more skewed.
The result is that some BTLers are left out in the cold, and they are the margin that set prices.
7. drewster said...
A few days ago, an infrequent blogger by the name of "sinewaveboy" made the excellent observation that a BTL investor with £15,000 in the bank can buy property worth £300,000 at a 95% LTV. However if the LTV drops just from 95% to 85% then the same investor can only buy property worth £100,000. The second-greatest shortcoming of the human race is our inability to understand leverage.
(With apologies to Albert Bartlett and his famous quote, "The greatest shortcoming of the human race is our inability to understand the exponential function")
8. planning4acrash said...
It is a great thing that banks are taking a more prudent approach and asset prices will fall. Why must government delay the inevitable with fixed CPI and low interest rates? Its just not healthy.
If I was GB, I'd want the property crash over and done with as soon as possible, in time for a recovery just before the 2010 elections.
9. inbreda said...
I just found this on youtube:
www.youtube.com/watch?v=kUldGc06S3U&feature=related
well worth watching RIGHT TO THE END
It has been posted on here before, so apologies for adding it to a (relatively) unrelated topic, but it's interesting to note when it was created (April 07).
I'm off to watch it again!!
10. doomwatch said...
P4C, it's now a given that BTLs have added 30% onto prices (based on the interest tax offset). 10% overshoot mean a 40-50% drop to the bottom. Momentum means a realistic 60%.
11. inbreda said...
"6. planning4acrash said...
It is a great thing that banks are taking a more prudent approach and asset prices will fall. Why must government delay the inevitable with fixed CPI and low interest rates? Its just not healthy.
If I was GB, I'd want the property crash over and done with as soon as possible, in time for a recovery just before the 2010 elections."
Realistically I think that it is more possible to prevent the crash for another couple of years than it would be to start the crash and try and have it finished and forgotten about.
12. Jonb said...
Doomwatch. House prices are 9x earnings, so a 60% drop just takes you back to the long term average of 3.5x. Overshoot, momentum and all that stuff means a 80-90% drop is more realistic.
13. george monsoon said...
I agree with Planning4Crash, this is to price in a potential drop in value on the price of the property, should the investor get itchy feet and want to sell up.
As for preventing a crash for 2 years. Not a chance because its already here and its going to get heavier.
I welcome it with open arms, even though I may not be in a job much longer, when the depression hits, i just want the satisfaction of gloating at all the tosspots that talked this bubble up.
I want a home for my wife and children to live in, not an investment or a Buy to Leech property. BTL has officially dropped out of the running with regard to viable investments. Good! hope they burn in hell for a long long time.
14. uncle tom said...
That's a great bit of YouTube - looks like you can make a rollercoaster video out of any graph using that platform - anyone fancy doing one for the UK?
As for this press release, it pretty well sums up the consensus of the mortgage market now - BTL is a market that does not hold up to stress tests, unless approached with great caution..
The scope for new BTL investment using borrowed money is all but finished - existing players will now come to the end of their golden hello periods and find themselves stuck on crucifying SVR's because no-one will let them re-mortgage on similar terms.
Despite a sea of pundits scribbling their opinions - not all of whom have a vested interest to support the market! - I can't recall anyone (away from this site) recognising just how critical it is for BTLers to keep buying - and in volume - if current prices are to be sustained.
The BTLers are about to experiance death by 1000 cuts, - and we are the witnesses to the execution...
...try not to smile too much...:-)
15. Peahead said...
Well done Woolwich... very prudent. Judging by the most recent auction results, recent new builds are selling at 25-40% off their original sold price in 2004/05. Makes sense to price in at least a 35% drop...I don't think they will be the first or be the bank requesting the highest LTV within a few months time.
16. Hpwatcher said...
''Good! hope they burn in hell for a long long time.''
Amen to that. The funny thing is that estate agents are still spouting absolute crap about prices rising....
17. Infrequent said...
Don't most BTL just tell the lender they are FTB anyway in order to get a cheaper mortgage rate?
18. it_is_going_with_a_bang said...
So basically they want the borrower to underwrite the mortgage.
There's confidence for you.
19. planning4acrash said...
George, The last crash took ages to bottom out partly because of interest rates going down rapidly. I don't think they can put off the start of the crash, but they can put off the bottoming out of the crash.
20. Meow said...
For all the people on here after house price roller coasters please see as per my sig. on the main forums for the past several months...
for example... http://www.housepricecrash.co.uk/forum/index.php?showtopic=63570&view=findpost&p=888873