Wednesday, Feb 13, 2008
BTL Bubble, OECD: UK homes 40% overvalued
FTAlphaville: Markets LIVE, Numis report quote
"Buy-to-Let (BTL) bubble: BTL has supported the UK property market, for the first
time allowing property to fund property purchases. In Q1 1999 there were 11,100
BTL mortgages against 119,300 first time buyers (FTB). By Q3 2007 BTL volumes
were up 750% with FTB numbers down 19%. For property prices to have tracked
income growth over the past 25 years house prices would need to fall by over 44%.
The OECD and IMF also believe that the UK property market is at least 40%
overvalued. B&B is the most exposed stock we cover to the property market. If BTL
is deemed to have been mis-sold (we can not see how it is appropriate to hold
1000% of your net worth in one asset class) B&B is bankrupt."
Posted by guiriduro @ 11:22 AM (829 views) Add Comment
6 Comments
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1. guiriduro said...
...and if Bradford & Bingley is effectively bankrupt, what does that say about the majority of BTLers?
2. Beachbum said...
I can see why they say UK homes are 40% overvalued. I'm selling up our flat and going to rent for a while. Looking to buy a 3 to 4 bedroom house in the future after the crash.
A nice 3 bed house to buy in Brighton is £475K which will cost around £3000 a month on a repayment mortgage - http://www.rightmove.co.uk/viewdetails-19177193.rsp
However a nice 4 bed house to rent in the same road with the same postcode (BN1 6GR) cost £1400 to rent - http://www.rightmove.co.uk/viewdetails-13941106.rsp
The latest figuires from the BBC show Semi Detached houses in Brighton are down 6.2% for the last quarter - http://news.bbc.co.uk/1/shared/spl/hi/in_depth/uk_house_prices/html/ml.stm
Something tells me we have an overvalue problem in Brighton.
3. japanese uncle said...
So does this mean houses that ought to be valued 100K is currenltly valued at 140K?
Meaning the correction should be (100 - 100/140)% = 28.6%. What an optimistic assessment!
50%-60% overall, 70%-80% in London will have to be the real (excluding general inflation element) size of correction, believe me.
And I guess this inflation element will be something negligible for the coming decade due to deflationary pressure.
4. Brit1234 said...
There are lots of buy to let investors now having problems re mortgaging at the moment as Mortgage Express (B&B arm) has stopped lending on newbuilds. MEX was always their chosen lender.
Times article
http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article3361692.ece?Submitted=true
5. guiriduro said...
I guess it means 40% off its present price, i.e. 120K underlying value (relative to incomes) in a 200K priced home.
Given that we usually overshoot to the downside, it probably will be 50% off, maybe a little more in London, at market bottom... around 2010/11
More B&B analysis with a nasty BTL outlook from the Numis report :
"The numbers: Profits declined by 48%, margins fell to 1.10% from 1.19% and we
expect margins to fall further. The dividend yield of 8.6% is attractive but it is just
0.7x covered. B&B claim all is well in the non-standard mortgage market and that
fundamentals remain strong. We see CDO price hits as an early warning sign for
mortgage assets in general. We expect there will be a time lag between the
property market weakening and BTL investors realising that they have a terrible
investment and sell. The stock trades on 16.3x 2007 earnings."
6. happyrenterz said...
"we can not see how it is appropriate to hold 1000% of your net worth in one asset class"