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40% Of Btl Cannot Cover Mortgage If Rates Rise Just 2%


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Being pedantic, a rise in base rate to 2.5% constitutes a 400% rise...

Just shows how low base rates can lure people into a property trap. All it takes is a small increase in the rate to cause massive ramifications in the ability of the borrower to pay.

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Being pedantic, a rise in base rate to 2.5% constitutes a 400% rise...

Just shows how low base rates can lure people into a property trap. All it takes is a small increase in the rate to cause massive ramifications in the ability of the borrower to pay.

Except that hardly anyone apart from a very few older trackers - and certainly no BTLs - are on 0.5% are they, so it's fairly irrelevant. Presumably most BTLs will be on 3-5% at least.

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But surely they will just be able to raise the rents whenever they fancy?! Isnt that how it works :unsure:

Not that I'm supporting BTLers (far from it), but who says they have to cover the mortgage with the rent ? If you only had one or two, supposedly for your pension (if you believe that old chestnut), what does it matter if the LL has to chip in £100pcm to top up the mortgage. If it's really 'your pension', you don't expect the monthly contributions to be free do you? I can see if you've got 10 BTLs and none are covering mortgage you're in deep sh1t, but for many I think they'll just keep paying whether the rents cover or not, a small monthly shortfall being preferable to a hefty loss if forced to sell.

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Not that I'm supporting BTLers (far from it), but who says they have to cover the mortgage with the rent ? If you only had one or two, supposedly for your pension (if you believe that old chestnut), what does it matter if the LL has to chip in £100pcm to top up the mortgage. If it's really 'your pension', you don't expect the monthly contributions to be free do you? I can see if you've got 10 BTLs and none are covering mortgage you're in deep sh1t, but for many I think they'll just keep paying whether the rents cover or not, a small monthly shortfall being preferable to a hefty loss if forced to sell.

This goes back to something that I have said before, namely many middle class 2nd home owners are unlikely to be forced sellers. Yes there are a few BTL landlords with multiple properties that may be in trouble, but I believe the most common ownership pattern is to have 1 or max 2 investment properties.

When you decide to invest spare cash in properties, it's not normally your last reserve of cash. In fact a lot of people invest when they have little other place to put their money since the returns in other areas were/are so dismal. These sorts of people are not going to be on their uppers yet - not for a long time. They can afford to take a few years of hits only partially paying the mortgage with rent, and then hope that prices will recover. They are unlikely to sell at a huge loss, but will market their properties anyway just in case someone bites.

Some more positive things for HPC'ers are these people are no longer driving demand. Although they are probably in no rush to sell, they are probably in no rush to buy more either given the negative sentiment at the moment, which takes out a large chunk of demand. Secondly they crowd out the market for the people who are really anxious to deal. People who really do want to deal are going to have to drop their prices to make their properties stand out.

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Even at £75/month off, the Landlord will be making more money now than he was 2 years ago if like me he is on the SVR for his mortgage.

If they are good tennants then it is a win:win situation for both.

I'm sure there are plenty of (fortunate/lucky/wise?) people like yourself who bought their BTL as a sensible investment at a good price and arranged a good mortgage rate at an opportune time, who will be able to survive low rental incomes & returns from your investment........

However there are a large amount of BTLs which were bought during the boom at inflated prices, in bad areas, not great mortgage terms etc. where the (unfortunate/unlucky/foolish) landlord is struggling to pay the mortgage, maintenance of the property and is sitting on negative equity yet to be realised.

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Even at £75/month off, the Landlord will be making more money now than he was 2 years ago if like me he is on the SVR for his mortgage.

If they are good tennants then it is a win:win situation for both.

Sure, as long your SVR remains this low for many years to come. :)

:rolleyes:

Just a question:

Supposing you decided to stop gambling, what would be the best 10 years fixed rate you could get for your property(ies?)?

If you move to them, would the rents still cover your mortgages?

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BoE interest rates are irrelevant now since the banks have diverged.

The BoE was able to put them down and take advantage of fixed rate contracts like trackers to steal from savers and give to debtors, but that was only ever going to work for a couple of years before rates diverged and the completely lost any semblance on control.

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BoE interest rates are irrelevant now since the banks have diverged.

The BoE was able to put them down and take advantage of fixed rate contracts like trackers to steal from savers and give to debtors, but that was only ever going to work for a couple of years before rates diverged and the completely lost any semblance on control.

That is interesting. Whenever you have a little time, please explain a little more.

Also, any news on the political side of it? I mean, extension of those "liquidity" schemes?

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BoE interest rates are irrelevant now since the banks have diverged.

Do you really believe that or do you believe that the banks will use the base rate as an excuse to up peoples payments.

I beleive the banks will think people are gullible and rip them off.

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Even at £75/month off, the Landlord will be making more money now than he was 2 years ago if like me he is on the SVR for his mortgage.

If they are good tennants then it is a win:win situation for both.

But he might not have been making money two years ago. When i look at the rent's being paid in East London and Docklands , matched with what people paid for the flats ,from day one the landlords were making heavy losses . Their mortgage payments might have dropped but service charges have gone up way above inflation and in the last few months rents have taken a massive dive. Had a friend who owned a flat in a good development in Canary Wharf , two years ago he was getting £550 per week , today £350 . His mortgage has not dropped that much to compensate for the drop in rent.

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I just cannot understand why anyone would choose to go into BTL if, to do so, they need a big mortgage, that barely covers any rent they are getting?

Id hazard a guess that its something to do with having an asset work hundreds of thousands at the end of the mortgage that hasnt cost them a penny?

Especially if the mortgage was for £200k and in 25 years the house is worth £400k or £600k. Quite easy really. Ask your mum how much they paid for your house when you was a kid, I think ours was £13k and it sold for £200k recently.

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Sure, as long your SVR remains this low for many years to come. :)

:rolleyes:

Just a question:

Supposing you decided to stop gambling, what would be the best 10 years fixed rate you could get for your property(ies?)?

If you move to them, would the rents still cover your mortgages?

Part of the culture of speculating on rising asset (especially property) prices is the "fact" that the term structure of interest rates is "always" punitive as the compounded equivalent of short term rates is "always" lower than equivalent long term rates.

The speculative crowd never imagine a circumstance where their liquidity position will cause them to be blown out of the market.

The specualtive crowd are correct just often enough that their actions always result in the eventual transfer of wealth from them to the prudent in the long run despite their imaginary short term successes.

For clarity, the short term is 5 to 10 years while the long term is 15 to 30 years.

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Except that hardly anyone apart from a very few older trackers - and certainly no BTLs - are on 0.5% are they, so it's fairly irrelevant. Presumably most BTLs will be on 3-5% at least.

No it's not irrelevant. People who get into property and pay close to peak prices when base rates are at all time lows are just setting themselves up for a very nasty fall. Even small (0.5%) increases in base will translate into hefty increases in the amount of interest they must pay once they are off a fix - even if the increase isn't as dramatic as the 400% increase from 0.5% to 2.5% base rates.

There are also quite a few out there (esp. BTLers) on older trackers who at the moment are paying quite astonishingly small amounts of interest courtesy of a low margin over the base rate. That's a lot of property that by rights should have been on the market and will yet be.

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Sure, as long your SVR remains this low for many years to come. :)

:rolleyes:

Just a question:

Supposing you decided to stop gambling, what would be the best 10 years fixed rate you could get for your property(ies?)?

If you move to them, would the rents still cover your mortgages?

I'm guessing around 7% (if available) in todays market.

When I went into BTL, 8% mortgage interest rate was where I would have started to watch income closely. I've been on SVRs for a few years (3 mortgages are on Libor +0.95%) and able to pay down the mortgages from both rental income and day job income.

I don't see myself as a gambler as I know I have to pay down the mortgages while the sun is shining on me with these ridiculously low SVRs.

In 12 months time my current batch of BTLs are paid off and I'll be looking at the next half dozen.

The speculator BTL landlords with +20 properties on 15% deposit that have been flipped in a rising market are the ones I also am going to enjoy their demise .... hopefully in a year or two I'll be picking up some of their properties when they go bust.

Edited by A_Landlord
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That is interesting. Whenever you have a little time, please explain a little more.

An example. Lloyds used to guarantee that when your fixed/discout term ended, you would revert to SVR which would be BoE base + 2%.

They kept that up for a while but with wholesale funding getting expensive, they have dropped that guarantee and its now BoE base + 3.5% for new mortgages.

So lenders are moving to free-market prices for credit rather than BoE base-rate linked prices.

Also, any news on the political side of it? I mean, extension of those "liquidity" schemes?

There doesn't seem to be any further extension to SLS/CGS. The discount window facility is supposed to take over to some degree and was extended to take all sorts of cr4p (including RMBS) but there are much larger fees for this (fees depending on classification into A-D bands for the security). I think the discout window provides gilts for securities, but those gilts are not supposed to be sold for cash. Merv seems to be making the banks suffer a bit more than before but as far as I can see, they still dont have to pay market rates for cash.

VMR.

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Nice though it sounds, you do realise that you can make an excellent tax-free profit if you have a BTL where the rent doesn't cover the mortgage?

(your debt is inflated away and you are left with a free house + rent coming in)

Although if there are capital gains, you may be liable for 28% tax on the nominal increase.

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I just cannot understand why anyone would choose to go into BTL if, to do so, they need a big mortgage, that barely covers any rent they are getting?

It depends when people got into it.

And what they bought, in terms of rental yields.

New-builds were usually overpriced, but people were drawn to them because they were sold the "capital appreciation and no maintenance worries" line, combined with dodgy dealings involving cash-backs, "free" legal costs, deliberate overvaluing etc.....

Our big old student houses in Canterbury made money even when rates were at more "normal" levels of 6 - 7%.

We only ever bought places, even the last two in 2006, on the basis that we made a few hundred quid over the morgage payment each month.

We borrowed a maximum of 75% LTV at the time of purchase.

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I think the housing benefit cap will be the big one that will cause the most "damage".

If a whole slew of houses are suddenly no longer being rented that will cause some pain.

...will help to bring rents down....lower rents mean smaller mortgages = lower house prices = more disposable income able to be spent in the wider economy, more able to save now and for the future. ;)

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...will help to bring rents down....lower rents mean smaller mortgages = lower house prices = more disposable income able to be spent in the wider economy, more able to save now and for the future. ;)

And that's the argument that will stop opposition to the LHA cap and lowering.

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An example. Lloyds used to guarantee that when your fixed/discout term ended, you would revert to SVR which would be BoE base + 2%.

They kept that up for a while but with wholesale funding getting expensive, they have dropped that guarantee and its now BoE base + 3.5% for new mortgages.

So lenders are moving to free-market prices for credit rather than BoE base-rate linked prices.

I see. Thanks.

It would be interesting to see some chart with some kind of average IR charged for mortgages. I guess these "averages" will be a bit difficult to determine, as there are many mortgage types, varying with deposit sizes, terms, etc.. Still, it should be possible. There must be some charts about that around.

There doesn't seem to be any further extension to SLS/CGS. The discount window facility is supposed to take over to some degree and was extended to take all sorts of cr4p (including RMBS) but there are much larger fees for this (fees depending on classification into A-D bands for the security). I think the discout window provides gilts for securities, but those gilts are not supposed to be sold for cash. Merv seems to be making the banks suffer a bit more than before but as far as I can see, they still dont have to pay market rates for cash.

VMR.

Supposing the Gov/BoE is doing the rational thing (BIG supposition), they would have to try to bring HP down as fast as the banking system can bear. I remember that in a recent stress test the banks could cope with a maximum of only some 15% fall. But I am not sure if i understood that well, and if I remember that well. (Sorry, bit fuzzy, I know.)

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The attached article shows that the BTL market is perilously close to the line. This obviously has huge implications for the future of house prices generally and supports the argument that easy BTL mortgages have been a serious factor in pushing up prices. www.mortgagestrategy.co.uk/1015181.article

I don't consider this a valid survey for the simple reason that I'll bet >50% of landlords don't know how much a 2% rise in IR would cost them.

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  • 417 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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