Friday, Feb 29, 2008
BTL, you are doomed: your LTV is cut to 75%
MoneyMarketing: When the going gets tough
"Woolwich announce it will be cutting buy to let loan to values to 75 per cent. In an email to brokers, the lender says it was to withdraw its 85 per cent LTV BTL. range so that is can effectively manage the flow of business it has received" This means an immediate drop of 40% in the house price (just do 100/85% compared to 100/75%) what a crash AAHHAH AHHAHAAHA AHHAH reported by a broker so situation must be worse AHAHH AHHAHHAH
Posted by confused76 @ 11:56 AM (1576 views) Add Comment
17 Comments
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1. theboltonfury said...
it's this sort of trend that is clearly starting that now invalidates finger in the air projections. This is obvious and even a blindman wearing a blindfold in a darkened room can see that this sort of news points to a serious downward trend for HP
good!
2. hpwatcher said...
i'M wITH cONFUSED76 on this one....
hehehe
3. Plato said...
Knight adds: “I am taking a very long look at the market. It is dreadful out there and it is deteriorating every day. It is a waiting game at the moment. We are doing work on our systems and processes in the meantime.”
Here it is : The magic and immediate 40% effective drop in value as a direct result of LTV realism. An absolute certainty given the hyped up state of the market.
Dominoes now Springs to mind.
Next : The Drop in Real Value. Very Very Nasty Indeed. **% ?
4. uncle tom said...
If you crunch the numbers for the BTL 'portfolio' brigade, it soon becomes apparent just how vicious this trend is for them.
To make ends meet, they need to re-mortage regularly, liberating capital to make up their income/payment deficits, and also avoid getting lumbered with their lenders punitive SVR rate after their initial 'fix' runs out.
Now they can't re-mortgage on the same LTV as before, so they can't liberate cash, so they get stuck on the SVR.
Now wait for a rash of forced BTL sales and a rapidly increasing default rate on BTL mortgages..
..buy-to-let..
..sell-in-debt.....!
5. jack c said...
BTL now = Bridge That Loss
6. mark wadsworth said...
C76, that's the right way to calculate it, but the wrong inputs. Anybody who took out an 85%-or-less mortgage two or more years ago and didn't borrow additional money and kept up with repayments is OK, because the loan will have shrunk to 75% or less of current 'market value'.
But does anybody have an idea how many properties there are owned by BTL-ers where the mortgage is more than 75% of their property by value? They've been buying 100,000 properties a year or something, so it's only a few hundred thousand properties that may be affected, which might well be enough to precipitate a crash - here's hoping.
7. p. doff said...
Yeah, but even Halifax are offering BTL mortgages at 85% LTV, provided rental income equates to min 125% of interest only mortgage payments - and you can borrow up to £10 million!!
There are still plenty of sources for BTL money for anybody daft enough to jump on the bandwagon.
8. Mikelivingston said...
RE[[[[ mark wadsworth said...C76, that's the right way to calculate it, but the wrong inputs. Anybody who took out an 85%-or-less mortgage two or more years ago and didn't borrow additional money and kept up with repayments is OK, because the loan will have shrunk to 75% or less of current 'market value'. ]]]]
Ah but the loan will have shrunk to 75% of the current value. But that is based on Sept 2007 prices. What we now have is a negative feedback loop!
Some BTLers will have 85% mortgages, they are at the margin and will get clobbered by this change. So many will sell (also consider April tax effect).
Once they start selling, prices will fall, so those who were previously at 75%LTV, will suddenly be at 85, 95, 100%, LTV. What will they then do then? Sell ! ......and so it goes on.
My gut feeling is we will head back to 2001/2002 prices before things start to recover. Prices were already OTT in 2003 and should have fallen in 2005 excpet for the rogue interest rate cut.
Expect more BTL pain to come.
9. 51ck-6-51x said...
Hmm. The presence of all these BTLers has increased competition in the rental market; if some are forced to sell it is more incentive for the others who can afford to stay (with the tighter LTV offers) to do so as less competition in the rental market* will push up what they may demand for new rental contracts. All this along with inflation pushing up what they may charge on their existing & new contracts. I don't see this as an impending crash, but it will slowdown the market further which could well have a knock on effect onto lending again, then the slowdown may accelerate, but it is a slow feedback.
Oh dang - I forgot about the media, OK well we may see a crash once the journalists have sold their portfolios ;p
* and at the same time more demand for renting for the same reasons.
10. justwatching said...
p.doff
But for how much longer??
mark, I prefer C76's maths. Your second line, 'shrunk to 75% or less of current market value' HAS IT?
Are we now not seeing lower valuations. A couple of months ago there was the blog from the re-mortgage lady whinging about surveyors giving lower valuations and 'losing her remortgage business'
TRUE market value. Now thats worth a giggle.
11. jack c said...
Halifax generally get Colley's (who they own) to do the survey's/valuations - you can draw your own conclusions from this "arrangement" (but I'd be interested if p doff has a view?)
12. Montesquieu said...
I wonder where in the UK you can buy a house at 85% LTV which will generate 125% of the interest payment in rental income ... ?!!!
Would need to be a crack den charging an entry fee, at current house price levels
..... hey there's a new business model for all those Liverpool city centre flats ....
13. hpwatcher said...
''Are we now not seeing lower valuations. ''
I would say these are currently minimal, but I expect then to drop quite significantly.
14. mark wadsworth said...
Justwatching, I am not sure what the inputs should be either. What it boils down to is, how many properties are owned by BTL-ers where the LTV is more than 75%. I wouldn't even know how to begin to guesstimate it.
As Montesq says, there's also the 125% limit, which is way too low of course, ten years ago this was 140% which seems more sensible, the B&W even said you have to add 1% to the current interest rate and then times it by 140% and compare this with gross rent.
At 4.5% gross rental yield (does this seem about right?), the BTL mortgage interest would have to be a mere 4.8%, i.e.
£100,000 cost/value x 4.5% = £4,500 gross rent ÷ 125% = £3,600
£100,000 x 75% max LTV x 4.8% = £3,600
So the BTLers who want to remortgage are pretty much screwed. Tee hee.
15. inbreda said...
"..... hey there's a new business model for all those Liverpool city centre flats ...."
LOL
16. P. Doff said...
JC @ 11.
I know several Colleys surveyors. I can't say I've heard of any pressure being applied to treat HBOS/Halifax mortgage cases more favourably. Some of the HBOS group (eg Bank of Scotland) do have a 'downvaluation procedure' which means that any downvaluation has to be actively justified - so there may be a disincentive to downvalue in marginal cases. I'm not sure about cases where houses are being sold by a Halifax estate agency - I've always thought there was potential for a conflict of interest there. The same would be true for Countrywide Surveyors which is owned by the Nationwide, who also own estate agents (such as Beresford Adams - refered to last week).Their legal bods will have approved it though.
I wouldn't get too upset about Colleys doing valuations for Halifax. This is nothing out of the ordinary as most banks and building societies have their own staff surveyors.
As an aside, many lenders are cutting back on 'in house' valuers. I've heard Abbey have got rid of some staff surveyors recently. Colleys are closing some area offices and many surveyors will have to work remotely from home. Some of their surveyors have become self employed consultants off the Halifax payroll. Countrywide are also closing area offices. All of this suggests to me that banks/lenders are anticipating the market downturn and are cost cutting and adjusting their staffing levels accordingly.
17. confused76 said...
"..... hey there's a new business model for all those Liverpool city centre flats ...."
MWAHH AHHAHA