Saturday, Dec 27, 2008
Slowly the odds are stacking against BTL
the times online: Lenders tighten grip on buy-to-let
Britain’s biggest lenders are tightening their criteria on buy-to-let mortgages, depriving would-be investors of the chance to take advantage of plummeting prices and record-low interest rates.
Nationwide-owned The Mortgage Works, the market-leading buy-to-lender, said this month it will refuse applications from “property developers” — cutting off thousands of landlords from remortgage deals next year.
Posted by dantheman @ 10:21 PM (794 views) Add Comment
4 Comments
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1. techieman said...
Yes bankers are a bunch which, when they realise they have made a mistake batten down the hatches. The way it works is they lend lend lend while its profitable to do so. They lend agressively in certain areas (eg mortgages MBS etc.) based on the fact that others are doing it and making money so they dont want to be left behind (greed of shareholders plays a part). So they keep lending until the market falters. No probs - lets keep lending and up the LTVs (after all we all know that property only ever goes up) , so they push prices a bit higher still. Then at some point there is a change in perception (that studio in pimlico isnt really worth £230k). And an adjustment begins. So now there is less collateral - particularly for those banks that have lent most at the top. So what to do? I know STOP LENDING to that sector. How? Just make ourselves more uncompetitive. increase rates, increase deposits etc.
Hold on though if we all do that then wont that mean that no-one can buy and we will have even less collateral as prices fall further so we will have to restrict lending even more? Yes braithwaite thats correct, but we wont be holding the baby going forward as there will be no new loans that will go bad on us... hold on - so what about the existing loans? Ah not our fault - Curruthers was in charge then - its his fault - we cant do much about that its the market dont you know...
So individual banks try to protect themselves but by doing so they basically guarantee the market spirals down and race to the bottom. How does that get reversed?
1. Pain
2. A white night needs to come along and realise that the King needs to be clothed one way or the other. I think in the 30s it was JP Morgan.
When will this happen? When its good and ready - that my young man is the nature of the long term credit cycle and the K-Wave.
Cant we kick start it with a bit of keynesian theory - well we can but not yet, that needs to happen nearer the bottom. To do it now is just throwing money down the plughole.
End of fractional banking? End of money? Doubt it - we have been here before in history - mississippi [Spelt?] bubble for a start.
2. peter_2008 said...
"rent covers 125% of repayments with the interest rate pegged at 7%" The overwelming majority of BTL can't afford that.
But the disturbing fact is that, these figures atually should have been the norm in the first place, so RIP BTL.
3. Dbc Reed said...
@techieman must be about right in his descriptions of banks' group-think/funk.He asks how the down-wave
"will get reversed?".As regards mortgages (how they must regret getting so far into this market once dominated
by building societies),the banks must be hoping that average house prices will drop so far that they can start
lending at prudent multiples or at rates they manage comfortably.That way the chastened banks might
become the new best friend of HPC, unlikely but just within the bounds of remote possibility.
What the banks need now is an announcement that the Guv will introduce Land Value Tax or some other tax
dampener ,when house prices start to inflate again.This way those owners in denial will realise that the mad days
are over and begin selling down to an affordable level,where the inflationary element (the land value) is kept to
a small proportion of the bricks and mortar+ land price = market price of houses..
4. braindeed said...
Techieman: - good analysis, but disappointed you couldn't work in the rabbit with 10/6 in it's hat.
To think these cretins will be paying themselves bonuses with promisary notes based on my future income tax rises!!!