Wednesday, Jul 14, 2010
Tee hee!
Mortgage Strategy: Landlords struggling to cover mortgage payments
"Four out of ten landlords admit they would not be able to cover mortgage payments on their properties if interest rates increased by 2%. A Spareroom.co.uk poll of UK landlords reveals 41% of landlords barely get their mortgages covered by rent payments. And 43% confessed that when interest rates rise by 2%, then the rents would no longer cover their mortgages. A total of 22% of landlords say that a rate rise of just 1% would mean that rents would no longer cover their mortgages, and for 10% of landlords just 0.5% would create a rent-mortgage shortfall..." The expression "very reluctant landlords" springs to mind.
Posted by mark wadsworth @ 01:48 PM (2498 views) Add Comment
26 Comments
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1. Thecountofnowhere said...
Let's be frank....eventually, sooner rather than later...interest rates will go up more than 2%.
It's not a healthy situation for the country not being in the position to be able to raise I.R's
2. techieman said...
Cause a. i like it b. i know how to do it and c. "Johny come lately"
3. 51ck-6-51x said...
41% have a mortgage and would not be able to cover payments under the scenario
Therefore 59% either could cover their payments OR don't have payments to make.
So, how is the 59% divided?
If we know then we get a more meaningful figure.
For example, say 18% do not have any debt here, then 41% can and 41% can't and the figure should be quoted as 50%, not 41%.
Another interesting figure to have would be per habitable unit rather than per landlord.
Can't have everything though.
4. mark wadsworth said...
666, I wouldn't attach too much significance to the figures. they may be lies anyway, i.e. it's The Wilsons & Greenbay & Smugdog etc doing a bit of special pleading so that they are not "forced" to crash the housing market.
5. uncle tom said...
This is because the dash into BTL over-supplied the market, and rents became uneconomic..
Now things are changing, the supply of rental properties is drying up, and rents are on the rise..
..in my part of the world there are fifteen times as many 3 bed houses for sale as there are to let, and rents are up by over 20% this year.
But this is good news, because it shows that the market is at last smelling the coffee. Rents have risen to levels that are almost economic, and that means that those priced out of buying are fast becoming priced out of renting as well.
This will shrink overall demand. Without speculators betting on capital gain to offset meagre rents, the fact that too many people on lower incomes cannot afford a home of their own will start to reduce the demand side of the market, and drive down prices.
As prices dip, their will few punters looking to buy into BTL, and many more looking to get out, so I expect rents to rise even further.
If you are renting now, I would advise trying to fix an extended deal with your landlord..
6. 51ck-6-51x said...
MW - indeed, still nice to have.
UT - nail and head once again mate.
(Oh my, classic reCAPTCHA: rebuild million)
7. estrader said...
"if interest rates increased by 2%"
So, the way the BOE is going, this may be...what..10 or 15 years time?
FTB, priced out of buying AND renting...what next?
RC: be boozers
8. tyrellcorporation said...
I'm experiencing this in Exeter - and keeping very quiet!
I pay £975 a month for my 4 bed town-house. A similar one has come up across the road and is on for £1400 a month. This example is no fluke either as I saw another similar example near by for £1500 a month. Gulp!
I'm looking to buy something soon though guys if my landlord cottons on. I'm sure I'm going to take a hit over the next few years in terms of property value but if my rent goes to £1500 a month that's a whopping £18k a year. If I buy my monthly outgoings would drop by almost 75%.
9. Crunchy said...
How unfeeling of the banks to take all that 'talent' away from gifted landlords gearing up.
Nah mate, it's not your plumbing, some buggers turned off the main supply valve.
£400 plus VAT mate. Would you like me to check your boiler whilst I'm here?
Rechaptcha - 'drain water' love it!
10. braindeed said...
I've always found the notion that a BTL with a small deposit thrown in, could ever even cover the cost of the mortgage an affront - where else do investors get paid to buy assets? This is the fault of unregulated finance - there should have been massive tax dis-incentives to protect the resource that is the nations housing stock. We live in a sick, neo-feudalist society.
11. tenyearstogetmymoneyback said...
In reply to tyrellcorporation
They can ask £1500 a month but is there any evidence they are getting it ?
If people could afford that amount don't you think they would just buy straight away.
For too many landlords all their profit calculations were based on capital gains.
braindeed. The trouble is that in the past there was no need to regulate against stupidity.
Only twenty years ago people used to quake at the thought of having to have a bridging
loan when moving house because borrowing more than 3x salary caused a big increase
in the interest you had to pay.
12. braindeed said...
tenyearstogetmymoneyback @9 said...
braindeed. The trouble is that in the past there was no need to regulate against stupidity.
Only twenty years ago people used to quake at the thought of having to have a bridging
loan when moving house because borrowing more than 3x salary caused a big increase
in the interest you had to pa
I'm old enough to know that, and percieved the bubble and it's causes (btl) before the millenium, but it still sucks.
get this Re atlee tone :-0
13. tyrellcorporation said...
@ tenyearstogetmymoneyback
'They can ask £1500 a month but is there any evidence they are getting it ? '
I have no idea, I just had a Stella Artois moment when I saw the price in the EAs window.
14. mr g said...
"The trouble is that in the past there was no need to regulate against stupidity.
Only twenty years ago people used to quake at the thought of having to have a bridging
loan when moving house because borrowing more than 3x salary caused a big increase
in the interest you had to pay."
That's us boomers exonerated then!
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16. braindeed said...
Nasty @ 12...
That phenomenon owes much to fiscal laxity - what was the alternative......tents?
Paraphrased best by the saying...'I'M alright Jack'
17. estrader said...
Mr.g, I have nothing against boomers, at least you people know the difference between “Your” and “You’re”.
Braindeed “where else do investors get paid to buy assets?” There are margin loans which allow people to buy Stocks using leverage, essentially the same thing as buying a house but you borrow to buy shares and use the shares as collateral. The major difference is that with a margin loan, the margin must always be maintained. There is no such thing as negative equity. This means that if you borrow 90% of the value of your portfolio then the 90% LTV ratio must be maintained. If the value of your shares falls you must either deposit more money into your account or sell a proportion of your shares. If they applied this rule to property investments things would be very different. I understand that a person can’t sell a proportion of their property, but maintaining a margin would make people less stupid and reckless about borrowing.
RC:geologic old
18. mark said...
just received my auction catalogues in mail this morning, there are a lot of rental properties in it up for auction, most of the rental figures don't stack up to even the guide prices.
19. techieman said...
EST - yes, but how can you mark to market an individual property? Thousands of homogeneous investments exchange daily - i.e. shares, but in the property market where is the homogeneity?
Good in theory but cant happen in practice IMO. Unless you can expand on your cunning plan!! You can only have Nequity if you either liquidate or have a valuation done, how will valuations be undertaken, or are you going to come up with a formula.
Although (i really do) hate to say it, i do think Bdeed has a point. You have just confirmed it really.
20. estrader said...
Hi Techie,
My reply was in response to being able to buying shares with leverage. An investor will earn dividend income on the 100% of the portfolio even though they may have only put down a 25% deposit.
As far as mark to market on property, the same thing can be said about negative equity, it is an abstract concept in that way isn't it?
RC: seekers doing
21. mark wadsworth said...
@ Techie, Estrader has explained how brokers mark stuff to market.
1. As you well know, the price of shares or bonds etc tend to yo-yo in fairly narrow bands, so tomorrow you might be able to withdraw the margin payment you made yesterday.
2. The margin is a largely arbitrary figure based on (bitter) experience. AFAIAA, the system works fine.
3. Each individual house may be more difficult to value at any split second than a share or bond, but property prices in any area tend to move in line, and there are are sufficient actual sales to give the bank an idea of what it might be worth.
4. The banks are happy to go along with paying out your surplus margin payments, i.e. allowed MEWing, based on approximations of value, so why shouldn't this work in reverse?
22. techieman said...
Mark points 3 & 4 - fair comment.
the point though about 4 is:
"4. The banks are happy to go along with paying out your surplus margin payments, i.e. allowed MEWing, based on approximations of value, so why shouldn't this work in reverse?"
Do they have an incentive to do that en block? If someone MEWs they take a decision to do so and then they get the valuation.
should the banks want to secure the Nequity, then yes they could value, but how would that work in practice? Does the mortgage agreement allow them to ask for more collateral? I think this was raised before on here before Gordon stepped in to save the world!
Where is Jack C when you need him!?!?
23. braindeed said...
Braindeed “where else do investors get paid to buy assets?” There are margin loans which allow people to buy Stocks using leverage, essentially the same thing as buying a house but you borrow to buy shares and use the shares as collateral. The major difference is that with a margin loan, the margin must always be maintained. There is no such thing as negative equity. This means that if you borrow 90% of the value of your portfolio then the 90% LTV ratio must be maintained. If the value of your shares falls you must either deposit more money into your account or sell a proportion of your shares. If they applied this rule to property investments things would be very different. I understand that a person can’t sell a proportion of their property, but maintaining a margin would make people less stupid and reckless about borrowing.
'
yeh yeh, but that's another wheeze isn't it? - and not totally unconnected to the sort of 'instruments' that the Theivery Corporation was flogging pre pop. No wonder the boyz like to talk about the roses coming up. I'm talking the red and black economy - that's to do with the brown economy.
24. estrader said...
I don’t know what you mean by “wheeze” braindeed. Margin loans have been around for decades thay are not a fancy new instrument. This is why stock markets unusually crash more rapidly and severely than the property markets. On the way down, one margin call triggers another and another etc. Brokers will automatically liquidate positions if margin calls aren’t met.
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