Tuesday, Aug 11, 2009
Banks of M&D throw away retirement funds
BBC: Is the worst over for home sales?
"Estate agent David Smith is much happier than he was a year ago when the BBC website last asked him how business was going. "
"It's quite amazing, the number of buyers we get coming in with mum and dad in tow, he says. The majority of the people we are registering on our books are coming with the big deposits from their parents. Many have been putting down large sums of money to finance the 20% or 25% deposits their children often need to buy flats or houses. One of the flats I sold at the weekend, the buyer brought his mum and dad down because they are putting down the deposit of over £100,000," says David. It is without question family funds, you can't save that sort of money in just one or two years."
Posted by phdinbubbles @ 07:35 AM (1486 views) Add Comment
22 Comments
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1. alan said...
Yes, houses are a bit over priced. But...a few Mums and Dads see it this way....
Young folk are starting Uni in London next month. Lots of parents face high rents for squalid properties.
Newly built flats look like a way forward. They can always rent the spare bedroom to a mate.... The cash is only earning pennies in the deposit account anyway...
2. Poppins said...
Banks of M&D throw away retirement fundsBBC: Is the worst over for home sales?
"Estate agent David Smith is much happier than he was a year ago when the BBC website last asked him how business was going. "
"It's quite amazing, the number of buyers we get coming in with mum and dad in tow, he says. The majority of the people we are registering on our books are coming with the big deposits from their parents. Many have been putting down large sums of money to finance the 20% or 25% deposits their children often need to buy flats or houses. One of the flats I sold at the weekend, the buyer brought his mum and dad down because they are putting down the deposit of over £100,000," says David. It is without question family funds, you can't save that sort of money in just one or two years."
MORE FOOL MUM AND DAD THEN!!!! No wonder our youngsters have grown up with no sense over the last 10 years! I though parents were supposed to advise their offspring! My daughter is getting married next year and an agreement has been made that money given for a house deposit will be given when the market bottoms out!! Spin by a vested interest again!!!!!
3. mrflibble said...
"We have so many buyers it's frightening," he says.
It is, frighteningly funny... Sadly it will be frighteningly tragic in twelve months time when these buyers realise they were the last of the suckers to be milked by the great housing scam.
4. bidin'matime said...
As your heading says, M&D throwing away such retirement funds as they may have - and/or mortgaging themselves up to the hilt so that, when they start to draw their pensions, they have to use them to pay the loans they have taken out. This housing bubble continues to take victims - maybe I feel a bit more sorry for these people who presumably believe that prices are in a temporary dip and that this represents their offspring's only hope of owing a property. As parents we always want to do the best for our children, even as they reach adulthood. Still, all the better for those of us who hang back – unlike during the original bubble, when we wanted people just to STOP BUYING, now we want any remaining buying capacity to be flushed down the pan with the rest of them before the crash resumes for real, so that there are fewer in a position to compete with us when things really do reach the bottom…
5. paul said...
If anyone thought the BBC had an ounce of credibility left (montiesque?), this must surely fry it off.
No numbers, just a page-long anecdotal that the reader is asked to take on the estate agent's word. Of course estate agency is a highly trusted and well respected profession - just the type of people who should be relied upon to give an impartial view of the current housing market to the BBC.
They might as well put a big banner advertisement up across the middle of the page - "SAVE BBC EMPLOYEES' BTL PORTFOLIOS - NOW!"
6. Agentimmo said...
Agree Mrfibble.
This bubble is amazing to follow. It's really sucking in all and sundry , even in it's final breath. Truly astonishing.
I thought the dotcom bubble would be my "once-in-a-lifetime" event to watch unfold. I saw many, many people get wiped/burned in the late 90s. An friend in IT was still placing a lot of his savings in dotcom trust funds/shares when the bubble had burst and prices started to slide. He said it would be a blip and his £75K would be worth > £250K by 2005.
But this housing bubble is beating it hands down, with the media still stoking the remaining flames.
My advice? Sit Back And Enjoy........................................
7. drewster said...
It's only anecdotal, but I've seen the same thing. A colleague bought a house recently with significant help from mum and dad: £100k loan towards a £175k three-bedroom house (the son earns less than £20k per year, so couldn't afford the house alone). The plan is for the son to rent out two of the three bedrooms to lodgers, paying the rental income to the parents. The plan is working, in that they now have lodgers who are paying rent. I don't know what the yield figures look like though.
Ultimately there's only a fixed supply of cash-rich parents and their numbers aren't growing. Eventually they'll run out of cash too.
8. jack c said...
@drewster - I cant think of one lender at present who would advance money if they were given the facts you describe - quite a bit of information (IMO) must have been concealed to get the deal through
9. drewster said...
jack c,
I don't see why the banks would mind. The borrower(s) have a massive deposit, so even if house prices fall another 40% the bank is still in clover. The outstanding mortgage of £75k is just about affordable for someone earning <£20kpa. The bank's lien on the house takes precedence over mum & dad's rights in the event of a default.
The parents just wanted their son out of the house, I think they're not too worried about losing a few quid anyway!
10. David D said...
@drewster: I would be suprised if in n years when they've paid off the remaining £75k mortgage, and been through: another bout of interest rate rises, an oncoming drop in rental income (currently offset by low interest rates) and the odd month or two of an empty house; that they will feel it was a smart investment decision. Fair enough they are helping out a child and that is worth a lot to them, but from a monetary point of view, they are taking a risk.
However, I think that they've made a great decision if they don't believe they'll need that £100k as if they set it up properly this is a good mechanism for avoiding some of the death taxes their children will incur if they were to leave it in a will
11. greenshootsandleaves said...
Oh the joy of being an estate agent! The Bank of M&D is there to help you during those awkward gaps between housing bubbles and, thanks to the BBC, advertising doesn't cost you a penny!
12. jack c said...
drewster
The deposit is coming from the parents and based upon such a large amount the lender would very likely want a legal clause that this is a gift without reservation. Most lenders much prefer that borrowers save up their own deposit - ie they like to see evidence of regular disciplined savings.
The mortgage is £75k and thus based on a salary of £20k (you state he is earning less than this) equates to a salary multiple of 3.75
The lender will expect the borrower to be the sole occupant (as will the insurers) with the ability to fund the payments in his own right and not rely upon lodgers
In the long term this arrangements has disaster stamped all over it (rising interest rates for one thing) and personally I would have declined it without even approaching a lender.
13. vacuouspolitician said...
...more foolish parents. What a bunch of suckers. If this is true (where is the data?) it is pathetic that the parents are doing this.
Also where is the self respect from the children letting their parents do this?
14. growler said...
@10. giving the money now might also be a way to avoid inheritance tax....
15. vacuouspolitician said...
...yes it probably is a good old tax avoidance scam...makes yer feel proud to be British...!
Self respect of the children...? "I made it... all on my o...w...n...."....
16. need-a-crash said...
I think this sort of thing is quite common in the South East. Perhaps many middle class parents now just accept that you have to help your children onto the housing ladder, in the way that they now have to pay for university tuition fees, when once upon a time they were free?
As is pointed out above if the parents have the cash earning 0% interest rates they may figure that investing it in property will at least give them the lodgers rental income and they probably reason that house prices won't fall that much further from today's prices so their capital is safe.
I don't like this state of affairs but perhaps we're forgetting that not everyone spent their bonuses and Mew'd money from the boom years on 4x4's and holidays, perhaps quite a number of them saved it??
17. dead spider said...
What's interesting is that this branch of Martyn Gerrard in Kentish Town has 29 properties for sale of which (according to the Bee) 19 were put on the market in January and 2 came to market already "Under offer" ie failed sales .
Bugger must be desperate for a sale .
18. the number cruncher said...
I was chatting to a BBC presenter yesterday after we finished filming an interview (on a non HPC matter)
We got chatting about economics as he does some business news. He told me it would be career death if he tried to say house prices where going to crash! He agrees with much of HPC but cannot voice his concerns, not so much that his editors have a conspiracy to stop talk of a house price crash, but that economics must be presented in the most simplistic of ways, avoiding any complexity. This means it’s limited to industry press releases, Government announcements or human interest.
He told me about a banker he interviewed in June, who gave an excellent interview with regards inflation, his editors pulled the piece and used a different interview with something else, making the piece completely valueless. The reason they did this is that most viewers just do not want to learn anything, they just want a quick emotional fix.
All editors in news media quickly learn that their business model is to play to our prejudices and prevoke emotional responses and not to try an impart news or educate.
Real economics is just not allowed as it’s to complex to broadcast. All media news is in the entertainment business and is not in the education/information business.
Just to bake your noodle; this goes for most of the stuff on HPC.
19. Happyrenting said...
"Last year, we had hordes of people wanting to sell and nobody buying; now it's the exact opposite."
So now we have hordes of people wanting to buy and nobody selling... Interesting to see what will happen when the market is flooded with forced sales - tipping us into the next round of falls... February/March next year latest? Any thoughts people?
20. house said...
@16
You have nailed it on the head. That's the problem. VI's, no need to say anymore.
21. house said...
I meant @15 not @16., sorry.
22. vacuouspolitician said...
need-a-crash @13
...I suspect a large number of 50+ year olds are sat on huge balances...however what I'd like to know is just how many people fall into this category...
the number cruncher @15
...what a totally sad state of affairs! ...they never give the full facts/stats... just glib catchprases. It's really sad ...and very annoying. The "chattering classes" bah (I can't stand that term) ...it's more like the thought police...