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House Price Crash & Btl

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Hi first post, congratulations to everyone regarding the Halifax figures last week. Onwards and downwards.

I have a question for you guys regarding buy to let and its impact on falling house prices. I have noticed most of the forums discussing the impending house price crash are full of 'property investors' armed with large sums of cash from their previous buy to let 'investments' having benefitted from the farce which is non existent interest rates who claim to be waiting for further falls before they pull the trigger on 'x' amount more buy to lets to add to their portfolios.

So my question with this is: Will there need to be new measures introduced to prevent cash rich buy to let speculators from hoovering up cheaper homes and keeping the market artificially high?

I think I've managed to convince Ms W to hold out for two more years in the hope of lower prices but my fear is if there are no new restrictions on BTL, and these people are allowed to use their BTL cash to pick up cheaper homes we will have nothing more than distressed sales being switched from private to rental accommodation with little impact on prices.

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So my question with this is: Will there need to be new measures introduced to prevent cash rich buy to let speculators from hoovering up cheaper homes and keeping the market artificially high?

I think there is alot of false 'mine is bigger than yours' type swaggering going on on many of the BTL forums. I doubt there are enough of them with enough cash to be making cash purchased to really make enough differance. Anyone who needs to borrow to increase their 'portfolio' will find the lending restrictions and rates on offer more onerous than in the past.

Hopefully Iain Duncan Smith will make some changes to the the amount and way housing benefit is paid - that will have a big impact on the viability of much BTL.

Whilst they all talk big, no speculator of any sense (particularly the cash rich ones) will be waiting before piling back into the market why buy one property now when you think that in any likelyhood you could pick up two for the same price later down the line.

So long as the market is falling - and seen to be falling the 'investors' will steer clear.

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Welcome to the forum.

One point is that most of the BTL landlords will not be cash rich and will have relatively little in equity due to the way they instantly MEWed (withdrew) equity to finance their next purchase during the boom.

Say they, optimistically, were operating on a 10% - 20% equity guideline. Much of this would have been eaten up in the falls at the low end since 2007. Probably more if they were in BTL favourites such as HMOs or city centre new build flats.

The mortgage market has also been pulled away from these people. Much harder to get, 40% deposits to get a realistic rate, capital risk. I just don't buy the idea that there are hordes of people willing and _able_ to buy, even though they will all be perceiving falls as 'a good deal.'

Edited by Kyoto

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If you hear/see anyone say they are waiting to "hoover up" anything then they are most likely a sad lonely figure sat in their one and only "BTL" property wondering where it all went wrong.

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Hi first post, congratulations to everyone regarding the Halifax figures last week. Onwards and downwards.

I have a question for you guys regarding buy to let and its impact on falling house prices. I have noticed most of the forums discussing the impending house price crash are full of 'property investors' armed with large sums of cash from their previous buy to let 'investments' having benefitted from the farce which is non existent interest rates who claim to be waiting for further falls before they pull the trigger on 'x' amount more buy to lets to add to their portfolios.

So my question with this is: Will there need to be new measures introduced to prevent cash rich buy to let speculators from hoovering up cheaper homes and keeping the market artificially high?

I think I've managed to convince Ms W to hold out for two more years in the hope of lower prices but my fear is if there are no new restrictions on BTL, and these people are allowed to use their BTL cash to pick up cheaper homes we will have nothing more than distressed sales being switched from private to rental accommodation with little impact on prices.

This is just my opinion... But I rekon that they will not want to buy in a falling market. They will wait till it bottoms out. If there is a massive crash then at the end of it so many people will have been financially annihilated. After they have totted up all the suicides, broken families and lifelong mortgage slaves and realised it was a bubble and not the norm there will be many many people crying NEVER AGAIN! That is the sort of period when real legislation actually is put in place.

As I say this is just my opinion but I would say the BTL cash cow is well and truly over. The next great investment will be something completely different.

R

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A lot of amateur investors are like gamblers.

I spend a bit of time in casinos playing poker, and you see that even when people win, 99 times out of 100, they'll just up their stakes or come back the next time.

The winnners in BTL in the early part of the decade would have done this too. Uppped the stakes again and again, drunk on the high of free money.

Only the very savvy few would have sold up and walked away in, say, 2006, and all credit to them.

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Hi first post, congratulations to everyone regarding the Halifax figures last week. Onwards and downwards.

I have a question for you guys regarding buy to let and its impact on falling house prices. I have noticed most of the forums discussing the impending house price crash are full of 'property investors' armed with large sums of cash from their previous buy to let 'investments' having benefitted from the farce which is non existent interest rates who claim to be waiting for further falls before they pull the trigger on 'x' amount more buy to lets to add to their portfolios.

So my question with this is: Will there need to be new measures introduced to prevent cash rich buy to let speculators from hoovering up cheaper homes and keeping the market artificially high?

I think I've managed to convince Ms W to hold out for two more years in the hope of lower prices but my fear is if there are no new restrictions on BTL, and these people are allowed to use their BTL cash to pick up cheaper homes we will have nothing more than distressed sales being switched from private to rental accommodation with little impact on prices.

ignoring the factors that cause prices to drop (changing conditions that make the new lower price look more expensive than the previous higher price )its not how a market works, rising markets attract buyers, falling markets attract sellers, market psychology 101

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Welcome to the forum.

One point is that most of the BTL landlords will not be cash rich and will have relatively little in equity due to the way they instantly MEWed (withdrew) equity to finance their next purchase during the boom.

Say they, optimistically, were operating on a 10% - 20% equity guideline. Much of this would have been eaten up in the falls at the low end since 2007. Probably more if they were in BTL favourites such as HMOs or city centre new build flats.

The mortgage market has also been pulled away from these people. Much harder to get, 40% deposits to get a realistic rate, capital risk. I just don't buy the idea that there are hordes of people willing and _able_ to buy, even though they will all be perceiving falls as 'a good deal.'

of course, most BTL empires are entirely made up of borrowing equity from previous purchases to BORROW to LET.

there are exceptions of course, but, with 1 million odd BTL mortgages,and 3% of them behind...the myth of the BORROW to LET brigade snapping up bargains is just that...a myth.

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So my question with this is: Will there need to be new measures introduced to prevent cash rich buy to let speculators from hoovering up cheaper homes and keeping the market artificially high?

BTL alone cannot keep the market from dropping. In addition, the spectre of margin calls makes BTL a very bad idea in a falling market.

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So my question with this is: Will there need to be new measures introduced to prevent cash rich buy to let speculators from hoovering up cheaper homes and keeping the market artificially high?

I don't think there will need to be, there's a few reasons:

1. Most BTL are levered up to the eyeballs. Any serious correction they'll be wiped out.

2. Any serious correction, banks won't want to touch BTL with a bargepole. Remember it works because banks don't charge an appropriate risk premium. They've been giving 'commercial' loans at little more than 'homeowner, safe as houses' interest rates.

3. The mechanism of any correction is likely to involve high(er) interest rates. BTL will not be very attractive.

4. But mostly I think it'll be bubble psychology. Once a decent number of BTL'ers have been wiped out, the herd won't do it any more.

Also, there is at least some chance of genuine reform. PricedOut are arguing that the BTL tax exemption on mortgage interest needs to go. That would kill BTL dead.

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The longer IR's remain where they are, the longer the BTL gang will believe rates are set to continue to be non existent forever.

I have a friend who is currently making a significant monthly profit on the difference between the rental income and the repayments on his pre credit crunch tracker, so his attitude seems to be 'If prices fall Im still making my money on the rent/loan repayment difference so that sum is cancelling out the depreciation of the asset and means he is in no rush to sell.

I wish they would nudge the IR by a quarter of a point just to prove they are prepared to do it and then this may force a few million BTL people such as this guy into selling up through fear of having this free income evaporate over night.

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snip

Also, there is at least some chance of genuine reform. PricedOut are arguing that the BTL tax exemption on mortgage interest needs to go. That would kill BTL dead.

And so it should...it gives two potential buyers an uneven playing field....one pays net of tax and the other Gross.

I would go further and ban ALL mortgages on residential property.

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The longer IR's remain where they are, the longer the BTL gang will believe rates are set to continue to be non existent forever.

I have a friend who is currently making a significant monthly profit on the difference between the rental income and the repayments on his pre credit crunch tracker, so his attitude seems to be 'If prices fall Im still making my money on the rent/loan repayment difference so that sum is cancelling out the depreciation of the asset and means he is in no rush to sell.

I wish they would nudge the IR by a quarter of a point just to prove they are prepared to do it and then this may force a few million BTL people such as this guy into selling up through fear of having this free income evaporate over night.

It's true that many existing BTL mortgage holders have been lucky with interest rates - I thing both the big BTL mortgage providers (NR and Mortgage Express) had no floors on their trackers so many BTLers have been raking it in on rental income. However they won't get such generous terms on new mortgages - they'll need to put at least 30% down, which will quickly eat up any money they've made from rental income. You have to remember that after about 2002 BTL only survived on a business model that assumed prices only ever went up - the "money" that was made was made through house price inflation. Without that fantasy world of endless house price inflation the BTL model needs to revert to about 10% yields on new purchases to be viable. For that to happen either rents have to go up quite a bit or house prices have to come down. Personally I think it'll be the latter.

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...the BTL model needs to revert to about 10% yields on new purchases to be viable. For that to happen either rents have to go up quite a bit or house prices have to come down. Personally I think it'll be the latter.

Did the BTL maths about 4 years ago and believe 13% gross yield* is needed to:

. not worry which way the capital moves

. be a good landlord

. cover voids

. make a substantial profit after tax

Until then the man from Gloucester he say 'No'.

An amateur landlord said that was nuts and 10% would be fantastic. I asked how her numbers stacked up in the event of her flat depreciating 20-25%. She looked at me like I had suggested that tomorrow the sun would rise in the west and turn bright green.

Having risen initially, her flat will now be about what she paid for it in 2005 and heading down.

Shall I ask her about yield again or remain friends?

Edited by xux42

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margin calls, lackof finance, and sh*t yields

to quote a student I spoke to on the train to Leeds yesterday 'the university lettings people (UNIPOL) say that Leeds has more rented properties than tennants'

it was a speculative asset bubble. to repeat that: it was a speculative asset bubble. Speculators won't be returnign any time soon.

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They are people. Just like anyone else. And like most people - they will be scared to buy something that is falling in price.

I had this chat with people on another forum years back when certain small Edinburgh 1 bedders, in a classic FTB area, were selling for 120-130k. When I said I thought they would go down to 60-70 k ? Apart from the scoffing, most also said that if they got under 100k 'They would be snapped up by savvy investors'.

Today there are about 40 you could get for less than 100k. And these canny savvy 'investors' ? Nowhere to be seen. It is all talk. Fear is in charge today. And it will take a LOT to turn that beast around.

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Did the BTL maths about 4 years ago and believe 13% gross yield* is needed to:

. not worry which way the capital moves

. be a good landlord

. cover voids

. make a substantial profit after tax

Until then the man from Gloucester he say 'No'.

An amateur landlord said that was nuts and 10% would be fantastic. I asked how her numbers stacked up in the event of her flat depreciating 20-25%. She looked at me like I had suggested that tomorrow the sun would rise in the west and turn bright green.

Having risen initially, her flat will now be about what she paid for it in 2005 and heading down.

Shall I ask her about yield again or remain friends?

We already have a case study in the USA, I think people who do BTL (of which I formally am) get a bit confused and say they are investors but they are not they are speculators and should understand what they are.

I think there are three types of property buyer

a) Speculator = Buys to gain from capital appreciation yield not important ergo loads when prices go up none when prices go down. These people get very rich and as a segment can pull money from other businesses/abroad etc etc ergo when things get out of hand nothing can stop it short of direct intervention.

All property

B) User= They want to buy to use, they can overpay as they may fall in love with the property. This is reflected in the higher priced properties still selling at the moment. These people always max themselves out borrowing what they can afford. they can be controlled by bank lending.

desirable property, family units

c) The investor= Not to be confused with a the investor buys to make a yield ie a positive cash return or to change the use to something else "adding value". When you are a real Investor you do not really bother with properties desired by group b since they don't care about profit thus family houses normally make woeful investment properties. Just as money appears to flood into the market when a bubble is formed, money will flood into the market when properties go for bargain prices. This buyer is influenced by investment alternatives and interest rates however they will always buy if the price is right even if it means knocking down and building something else.

This is why we have a "Black Swan" really what is a property worth to the three buyers? in many cases the gap between a and c is vast

Take the 200k (800pcm) two bed exec flat market nobody really wants to stay in one aside from singles for example

buyers a = 200k

buyers b = 25k x 4/5/6 = 100/125/150

buyers c = 5%/8%/10% = 192000/115000/96000

There will be no filling up on property, the market will continue to fall until we get a huge drop (houses) and half price (flats)........or free mortgages

This "floor" does exist but around 50 percent of current values............but then again will rents stay the same? If I buy my flat for 90k I can undercut your rent will people stop paying their rents as the economy goes down the hole?

Scary times indeed

Edited by Fromage Frais

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Hi first post, congratulations to everyone regarding the Halifax figures last week. Onwards and downwards.

I have a question for you guys regarding buy to let and its impact on falling house prices. I have noticed most of the forums discussing the impending house price crash are full of 'property investors' armed with large sums of cash from their previous buy to let 'investments' having benefitted from the farce which is non existent interest rates who claim to be waiting for further falls before they pull the trigger on 'x' amount more buy to lets to add to their portfolios.

So my question with this is: Will there need to be new measures introduced to prevent cash rich buy to let speculators from hoovering up cheaper homes and keeping the market artificially high?

I think I've managed to convince Ms W to hold out for two more years in the hope of lower prices but my fear is if there are no new restrictions on BTL, and these people are allowed to use their BTL cash to pick up cheaper homes we will have nothing more than distressed sales being switched from private to rental accommodation with little impact on prices.

I expect you get an exaggerated impression of the numbers waiting in the wings there.

I'm sure some are genuine, and they are indeed a perfectly valid part of the market. Don't fight it, go with it, they're in the same position as the rest of us, and if they buy too high it's them who'll suffer, now that there are no longer easy capital gains to be had. They're facing serious headwinds with reduced amounts of taxpayer money going into propping up both house prices and rental yields, so those with the business sense to last aren't going to buy unless they find a real bargain.

Like the price-sensitive owner-occupier. Only more so, because there's not the subjectivity of choosing one's own home.

The real enemy isn't BTL, it's empty homes, and the system that encourages them and fails to incentivise owners to put them on the market, whether for sale or rent.

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It’d not surprise me that the falling market might attract some BTL, but there are very few with high equity levels in their portfolios. I know of one that has 3 rented properties owned outright, they refused to “invest” in the rising market despite their banks advice. They have been cheered by the falling market, but worry about pressures on rentals, especially as their portfolio is in London. It’s the fear of interest rates rising and rents softening that is dampen this sentiment. The danger in the BTL sector has to be that so many of them are starting to see drops in value and at some point that will spook them, most have only known a rising market. As has been mentioned most have very little equity and so are unable face high interest rates.

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You have to remember that after about 2002 BTL only survived on a business model that assumed prices only ever went up - the "money" that was made was made through house price inflation.

This is rubbish.

We have bought loads of places since that date where we were making a considerable monthly income over mortgage payments, even when base rates were between 4.5 - 6%.

We're making even more now on most of them, due being on BASE + 1.x trackers, but that's not the point.

Even the last two places, bought summer 2006, were profitable from day one. We only bought houses where we could make money on the rent, as opposed to on future price rises.

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This "floor" does exist but around 50 percent of current values............but then again will rents stay the same?

I expect rents will drop, but not by as much as prices, just as they haven't increased as much as house prices. So taking your 200k/800pcm example then something in the ballpark: 650pcm/65k would make some sense. In a correction I would expect properties to undershoot the value suggested by the current long term yield due precisely to falling rents.

But there is certainly a demand for property, both to buy and rent, in the UK and there is a price where professional investors will re-enter the market even though those in your case 2 (residential punters) in your example are fearful or unable to get back in.

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But there is certainly a demand for property, both to buy and rent, in the UK and there is a price where professional investors will re-enter the market even though those in your case 2 (residential punters) in your example are fearful or unable to get back in.

this will be severly tested by the downturn - potential investors just won't have access to the funds

you really are not considering sentiment and liquidity

also demographically, there just won't be many of them about - look at the huge baby bust in age groups between 40 years old and 5

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ignoring the factors that cause prices to drop (changing conditions that make the new lower price look more expensive than the previous higher price )its not how a market works, rising markets attract buyers, falling markets attract sellers, market psychology 101

That is nonsense. For every buyer there is a seller, price simple varies to maintain this perfect ratio of 1:1

If there are significant drops I suspect you may see SOME owners buying a second house with an eye to their future housing needs (eg retirement) while prices are low.

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That is nonsense. For every buyer there is a seller, price simple varies to maintain this perfect ratio of 1:1

If there are significant drops I suspect you may see SOME owners buying a second house with an eye to their future housing needs (eg retirement) while prices are low.

of course its not nonsense, prices move based on sellers outnumbering buyers or buyersw outnumbering sellers, supply and demand. Transactions are clearly 1 to1 but that doesnt determine market direction or markets would never actually move, excess demand or supply does and when i say demand i mean in the market demand, 10 hobos may want to buy a ferrari, but it wont increase the price,

If there are significant drops i suspect youll see a damn site less second home purchases than if there are significant rises or perhaps youd like to explain the anomoly of why there are less second home purchases now or 18 months ago than in 2006/7

Edited by Tamara De Lempicka

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  • 145 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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