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A few of us got talking over a beer last night. (I was by far the youngest)

Conversation started on business lending (2 banks being very good at the moment) and quickly shifted to BTL - it was brought up by a 60 year old with some slightly younger people working for him who are thinking about going into BTL.

He is of the view that BTL is current bubble asset class and it will all end badly. (breaks a HPC stereotype given his age?)

He is trying to advise his colleagues not too. He has used the description Leeds mark 2 to colleagues (i.e. repeat of the BTL tower blocks building spree in leeds that started 11-12 years ago) to describe the current situation.

Cue detailed discussion of BTL which then shifted to what he had gleaned from the colleagues about current BTL market/ thinking.

Of interest to HPCers (i.e. I haven't seen it commented on HPC - I could always have missed it):

Lenders now focused on 2 bed flats in the Southeast for BTL Lending - ideally off-plan slave boxes in London. The lenders they had been talking to [one is a subsidiary of a very large building society] weren't really interested in loaning on 3 bed family houses etc or outside the SouthEast for BTL.

His view was that this was pumping the London bubble massively (along with buyers from the Far East) and it wouldn't take too much for it to get messy - is this why BoE is getting very strict with NW on capital raising? (i.e. they know NW would be in massive trouble if the London market turns?)

HPCers views sought...

Edited by koala_bear

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Yes, BTL will end badly. I read a comment a few months ago where someone commented that "Most BTLers are screwed but they don't know it yet".

Yes, some people who get into BTL now will be OK - those who buy smaller, cheaper houses and those in areas with constant demand such as close to some unis... as long as the unis do not do massive building.

There are two houses on the market by me being sold by LLs - both are on for silly asking prices compared to what they paid. They are not even getting viewings now that the initial rush is over. Both houses - new builds - were wrecked by the previous tennants on the inside.

Ultimately, I think that BTLers will be screwed when IRs do eventually - when oh when - rise. I also think that BTL will inevitably become a target for some kind of punitive tax from a future government.

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Not at all likely as MPs on both sides are massively into BTL and even more so now the tax payer will not pay the mortgage on their second homes. So they get a BTL and rent out to another MP while renting another BTL from another MP ... rent can be charged to expenses.

The tax people can't even get the capital gains when a BTL is sold and in many cases get no tax from the BTL rental profit either.

Wasn't it a 1/3 of MP`s own BTL properties so that would make it two to one ,but I suppose it's down to who the 1/3 are

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Wasn't it a 1/3 of MP`s own BTL properties so that would make it two to one ,but I suppose it's down to who the 1/3 are

It's not just the politicians but all they associate with.

However the Carney '3 year' statement may be a dog whistle warning for them to get out of that asset class soon - especially if other assets look like they'll perform better now QE is ending.

I think BTL can't be touched currently, but would be a good scapegoat for any property market issues.

The worst case would be that the don't get out and it becomes another TBTF and we start seeing schemes to deliberately rescue it (like nationalising BTLs below 200K as new social housing).

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A few of us got talking over a beer last night. (I was by far the youngest)

Conversation started on business lending (2 banks being very good at the moment) and quickly shifted to BTL - it was brought up by a 60 year old with some slightly younger people working for him who are thinking about going into BTL.

He is of the view that BTL is current bubble asset class and it will all end badly. (breaks a HPC stereotype given his age?)

He is trying to advise his colleagues not too. He has used the description Leeds mark 2 to colleagues (i.e. repeat of the BTL tower blocks building spree in leeds that started 11-12 years ago) to describe the current situation.

Cue detailed discussion of BTL which then shifted to what he had gleaned from the colleagues about current BTL market/ thinking.

Of interest to HPCers (i.e. I haven't seen it commented on HPC - I could always have missed it):

Lenders now focused on 2 bed flats in the Southeast for BTL Lending - ideally off-plan slave boxes in London. The lenders they had been talking to [one is a subsidiary of a very large building society] weren't really interested in loaning on 3 bed family houses etc or outside the SouthEast for BTL.

His view was that this was pumping the London bubble massively (along with buyers from the Far East) and it wouldn't take too much for it to get messy - is this why BoE is getting very strict with NW on capital raising? (i.e. they know NW would be in massive trouble if the London market turns?)

HPCers views sought...

Interesting. Nationwide deliberately betting the house on pumping the London bubble via The Mortgage Works [their in-house BTL outfit]. I'm sure it can only end well.

edit busted some acronyms.

Edited by cheeznbreed

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I was doing a search on RM last night and noticed two main things;

1) a substantial increase in student properties that have failed to let now being advertised as 'professional let'.Some of these are in areas that were previously very popular with students.

2) price reductions in mid range housing ie £200k-£300k (Midlands).

Hardly scientific I know.

Edited by Sancho Panza

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Interesting. NW deliberately betting the house on pumping the London bubble via TMW. I'm sure it can only end well.

First interesting point was that a non HPCer was worried about NW betting the house via TMW thought he noted the IRs and T&C charged should put most sensible numerate people off diving in. He noted that BTL was obviously massively profitable and cash generative for NW which is why NW are doing it. (FLS financed)

More interestingly he also had some interesting info on NW getting in trouble for the not going ahead with significant business lending till 2015 (and cover up over the potential fines for not meeting the revised business lending requirements of FLS - Vince Cable's changes this year).

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NW = Nationwide

TMW = The Mortgage Works

Thanks.

I have becoming increasingly worried about Nationwide. It has p*ssed off its core investors in recent years - middle aged and elderly savers - and now is usong loads of govt money to spike housing up. Sounds like another Northern Rock in the making.

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Oh and the reason why the NW has bet the farm on this is because of the margin compression of the guaranteed rates on its back book...they've gone down the higher margin route to counter act its vice like grip (ditto Santander).

It's what banks do at first to try and trade thru' choppy waters. Could work, could signal beginnings of a death plunge if it all turns sour.

Nationwide has totally forgotten its raison d'etre and is only focused on its own survival and best interests like an organism. That is what happens to organisations whether they be the state, charities, companies or mutuals.

OK, you know I understand the above :) but could you explain the bit about the margin compression and higher margin in dummy language for all those on here who haven't a clue ;)

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Thanks.

I have becoming increasingly worried about Nationwide. It has p*ssed off its core investors in recent years - middle aged and elderly savers - and now is usong loads of govt money to spike housing up. Sounds like another Northern Rock in the making.

Don't suppose that there is much money to be made in savings any more, I wonder why that is? Nothing to do with 0% interest rates turning the last of the savers (big spenders) into BTL landlords. :unsure:

As a personal antidote, the mother in-laws less than bright neighbor in his late 40's was looking to buy another house in the road to let out because his savings are making nothing - He got outbid by another armature landlord.

On a London note; I see well paying jobs in and related to the finance sector propping up rents. It is a Ponzi as when the finance (FIRE) jobs vanish again rents will collapse. Interesting rental yields are tending towards zero, so IMO unless people are willing to use negative gearing the end of the London BTL market is very near indeed.

John-D-Wood-yields-Jan-2013.png

http://www.johndwood.co.uk/r/surveyors/pdfs/yields/Gross-Yields-for-Prime-Central-London.pdf

Generally investors with £500,000 will take a quick peak at the yield.

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The noise around Nationwide is burbling on a number of fronts, which is worrying. It was, once, a great mutual. Forgetting it's roots - to help people save MUTUALLY to be able to buy a house, maybe through selfbuild - has, I think, been a great part of the problem. Plus, when the old building societies used to get in trouble, a bigger one would take them over with a backroom deal. Who is bigger than the Nationwide now in the mutual world?

I have an account there (have done for 20 years) and I am running it down to by 75% to hold under 10k at any one time, partially due to risk view and partially as a stand against their BTL work. I said as much to the branch manager when I was in there the other week whilst on holiday back in the UK. Damned shame.

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Thanks.

I have becoming increasingly worried about Nationwide. It has p*ssed off its core investors in recent years - middle aged and elderly savers - and now is using loads of govt money to spike housing up. Sounds like another Northern Rock in the making.

+1

(Sorry should have been clearer NW = NationWide)

The business model as far I can tell is to generate cash to increase capital till the point in time when IRs rise and the lack of SVR floor problem goes away (assuming those 400,000+ borrowers suddenly don't default all when IR's rise!).

Say NW make 3 to 3.5% on the BTL mortgages, given the large deposit requirements and the low risk of BTL mortgages going bad early in the term they probably reckon they will be able to not lose anything on the vast majority of reposessions (i.e borrower equity losses) especially with prices rising where they are lending...

They are rapidly increasing market share (NR comparisons? Also see Halifax and BoS and later HBoS in Ireland) and probably reckon they will be in line for bigger salary / bonus etc as a result. (Their cost structure seems relatively good so if they can maintain that, they probably reckon not much can go wrong).

The problem comes if they don't realise the dangers of being a big player / market leader and the negative feedback loops that occur if stuff starts to drop.

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Conversation started on business lending (2 banks being very good at the moment) and quickly shifted to BTL - it was brought up by a 60 year old with some slightly younger people working for him who are thinking about going into BTL.

Like you I'm surrounded by BTL discussions (I'm a trustee of our company pension scheme, so I hear from lots of people considering BTL as an alternative to a traditional pension).

However, I was surprised in a recent thread to learn just how few people actually are BTL landlords, the fairly recent statistics that were posted indicated only 3% of the population actually own a BTL property. Maybe the ones that do own a large number?

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Thanks both for the explanations.

There is a good chance that NW will be OK even if things do go wrong. (their situation is bit different to most other FIs in the UK). Those making the decisions could have exited long before it might go wrong.

Potential issues where that wouldn't be the case (just to kick off I'm sure there are plenty of others)

- FLS ends and there is a significant gap till BoE IRs rise gap? Also with divergence of BoE and market IRs?

- China syndrome ends (i.e rate of new overseas BTLers decreases) and NW discovers that they can't keep pushing London up alone (I suspect this may not be high on their internal risk register). Foreign BTLers selling up is a whole lot worse.

- QE tapering or partial unwinding (pre any IR increase) improving returns on other asset classes leading to less new BTL and some existing BTLers exiting

- BTL net yield collapse

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Like you I'm surrounded by BTL discussions (I'm a trustee of our company pension scheme, so I hear from lots of people considering BTL as an alternative to a traditional pension).

However, I was surprised in a recent thread to learn just how few people actually are BTL landlords, the fairly recent statistics that were posted indicated only 3% of the population actually own a BTL property. Maybe the ones that do own a large number?

There is a difference between BTL landlords and non-mortgaged landlords in general (of which there are several times more).

Total BTL mortgages = 1.48m [CML] (9.82m non BTL)

Total BTL mortgage outstanding balance = £168bn [CML] (£1tn+ non BTL)

Net balance / loan £113.8k [calc based on CML]

3% of population 63.182m [census] is 1.89m which can't be right...

3% of adult population? (48.1m) is 1.44m

Banks now seem to cap BTL at around 10 properties max (some as low as 3) so no Fergus style 700+ properties any more.

Many obviously look and then do not touch.

PS I think there is also another category of stealth BTLers.

Original Mortgage paid off move to new bigger house (in the country), rent out original house and use income to subsbide large mortgage payments on home in the country... This of course won't show up in BTL stats but is happening.

Edited by koala_bear

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I was doing a search on RM last night and noticed two main things;

1) a substantial increase in student properties that have failed to let now being advertised as 'professional let'.Some of these are in areas that were previously very popular with students.

2) price reductions in mid range housing ie £200k-£300k (Midlands).

Hardly scientific I know.

Has there been a Brandeaux thread...?

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It was 200 plus MPs IIRC so 1/3 have BTL in their own name. I guess many others have property in partner's name rather than their own name.

A quick read of the register of interests for my local councillors tells a similar story (I was initially looking into a number of suspect planning applications and one thing led to another...) - it would seem that the MAJORITY have beneficial interests in multiple properties - some have upwards of 10, excluding any investments via companies (which I didn't bother to check out) – I find it hard enough to keep on top of the maintenance for 1 house (which I live in) - I’m surprised they have any time left for “councilling”

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The noise around Nationwide is burbling on a number of fronts, which is worrying. It was, once, a great mutual. Forgetting it's roots - to help people save MUTUALLY to be able to buy a house, maybe through selfbuild - has, I think, been a great part of the problem. Plus, when the old building societies used to get in trouble, a bigger one would take them over with a backroom deal. Who is bigger than the Nationwide now in the mutual world?

I have an account there (have done for 20 years) and I am running it down to by 75% to hold under 10k at any one time, partially due to risk view and partially as a stand against their BTL work. I said as much to the branch manager when I was in there the other week whilst on holiday back in the UK. Damned shame.

Love to know what he said in reply!

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