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eric pebble

Ft Today: "relaxing Of Buy-to-let Loans Sparks Fears"

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Sorry - can't get the whole article - but the summary says it all......

"The British Property Federation has warned that the latest buy-to-let mortgages being offered by some lenders could lead to borrowers struggling to meet mortgage repayments, which would increase the risk of property repossessions."

http://news.ft.com/cms/s/ba6688fe-5df0-11d...00779e2340.html

[Can this go up into the window webmaster?]

Edited by eric pebble

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could lead to borrowers struggling to meet mortgage repayments

NO, not could, will.

Will also lead to a rush for the exits at some point and builders trying sell new build stock that hasn't been pre-sold against a flurry of defaulters on some developments at a future point in time - lights out for some developers who don't have deep pockets. Big increase in risk, maybe big enough to scare off builders actually acquiring sites and developing in the first place, except they can't for long as their cashflow would reduce and well they would no longer have anything to develop. Maybe we are already seeing this in the increased availability of building plots and part-finished properties up for sale. In fact if people in the beuilding industry are publicly warning about it I wouldn't mind betting that it is already happening to some dgree in certain areas/developments.

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Sorry - can't get the whole article - but the summary says it all......

"The British Property Federation has warned that the latest buy-to-let mortgages being offered by some lenders could lead to borrowers struggling to meet mortgage repayments, which would increase the risk of property repossessions."

http://news.ft.com/cms/s/ba6688fe-5df0-11d...00779e2340.html

[Can this go up into the window webmaster?]

If you`re not registered with FT.com, for full access to the article click here:

http://firstrung.co.uk/articles.asp?pageid...&articlekey=961

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Any BTL with a mortgage where the rental income is not more than the monthly mortgage interest repayments has instant negative cash flow (voids, maintenance, agents fees etc., or an increase in interest rates) whatever the loan to value.

There are only two reasons to buy/borrow on this basis that I can see.

One is the expectation of capital gain, and the other is the hope that the rent will increase.

In 1996, with hindsight, it would have proved to be a wise investment.

Now it seems like complete madness.

"Mortgage providers say the most relaxed levels of rental cover - which often incur higher fees and may demand minimum earnings levels - are generally offered through intermediaries to higher-net worth professional buy-to-let investors who have a portfolio of properties and are comfortable with risk."

You would most certainly need to be comfortable with risk.

Edited by selkirk

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Sorry - can't get the whole article - but the summary says it all......

"The British Property Federation has warned that the latest buy-to-let mortgages being offered by some lenders could lead to borrowers struggling to meet mortgage repayments, which would increase the risk of property repossessions."

http://news.ft.com/cms/s/ba6688fe-5df0-11d...00779e2340.html

[Can this go up into the window webmaster?]

FOOK EM!!!

Cant wait to see some of these smug b@stards in the gutter!

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selkirk,

Thats not true at all. If you buy something that costs £200k with a 100% mortgage (say) and get rent of (made up numbers) £900/month and a mortgage of £1,000/month you are doing very well *in the long term* even without property prices rising. You are getting a £200k asset (assuming price does not change) for (say the mortgage is 25 years) £30k.

The key point is that is can be *very* profitable to rent something for less than you are paying in a mortgage without capital appreciation if you are in this for the long run.

The key of course is to work out the figures. Work out the return vis as vis other investments etc.

The thing about property is its one of the few investments you can get based on debt. You can't get a £200k debt to play the stock market but you can for property.

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selkirk,

Thats not true at all. If you buy something that costs £200k with a 100% mortgage (say) and get rent of (made up numbers) £900/month and a mortgage of £1,000/month you are doing very well *in the long term* even without property prices rising. You are getting a £200k asset (assuming price does not change) for (say the mortgage is 25 years) £30k.

The key point is that is can be *very* profitable to rent something for less than you are paying in a mortgage without capital appreciation if you are in this for the long run.

The key of course is to work out the figures. Work out the return vis as vis other investments etc.

The thing about property is its one of the few investments you can get based on debt. You can't get a £200k debt to play the stock market but you can for property.

That is a slightly simplified view, you need to remember to include the following maintenance likely to be incurred over a twenty-five year period:

The roof overhauled once

The windows replaced once

The kitchen and bathroom(s) refitted twice

The central heating overhauled

The boiler replaced once or twice

Approx 1 mth/year average void

The fact the interest rates may go above the 3.4% necessary to achieve the mortgage you quote

The cost of time taken to manage the property, or the fee charged by the agency for management

All of these things could easily add up to well over £100k expense, and do not account for potential lost capital in a downturn.

A wiser individual would wait until the house prices fall, and buy then instead, where captial appreciation, yields more than the mortgage repayment etc. are possible, and invest elsewhere in the short term.

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The thing about property is its one of the few investments you can get based on debt. You can't get a £200k debt to play the stock market but you can for property.

This is the problem. Your robbing Peter to pay Paul. If its so easy why don't all the financial institutions buy up all the property. If they prop it up then the bubble cannot burst can it?

I think this is what they are doing. Lending out shit-loads of money on the hope the bubble bursts. Then they will get a house and all the interest payments these suckers are paying in.

Sounds like CAPITALISM to me. Cant wait for the fecking curfew in this shit country we live in!

BTL has done irrepairable damage to this country! Nu-Labour -hope your proud!

Edited by teddyboy

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That is a slightly simplified view, you need to remember to include the following maintenance likely to be incurred over a twenty-five year period:

The roof overhauled once

The windows replaced once

The kitchen and bathroom(s) refitted twice

The central heating overhauled

The boiler replaced once or twice

Approx 1 mth/year average void

The fact the interest rates may go above the 3.4% necessary to achieve the mortgage you quote

The cost of time taken to manage the property, or the fee charged by the agency for management

All of these things could easily add up to well over £100k expense, and do not account for potential lost capital in a downturn.

A wiser individual would wait until the house prices fall, and buy then instead, where captial appreciation, yields more than the mortgage repayment etc. are possible, and invest elsewhere in the short term.

Sure, but then again you still make £70k don't you (on zero investment). Most (sensible) people don't get a 100% mortgage so they would have positive cash flow anyway, but even in a non raising market a negative cash flow can still be a good investment so long you can back the costs along the way.

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padders

My point was really about INITIAL cash flow. It WILL be negative.

selkirk

Right, but you said that is only worth doing for two reasons, capital appreciation or rent increase. My argument was that you wouldn't need either to support a negative cash flow and still have a good investment.

Of course doing so now would be beyond stupid, of that we agree :)

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Right, but you said that is only worth doing for two reasons, capital appreciation or rent increase. My argument was that you wouldn't need either to support a negative cash flow and still have a good investment.

Of course doing so now would be beyond stupid, of that we agree :)

Glad you agree that doing so now would be stupid.

But I don't understand your argument. How can you have a negative cash flow, no capital gain, no rent increase, and STILL have a good investment?

eric pebble is a Troll.

horace.

horace

Why do you think eric pebble is a troll?

You've said this in at least one other thread.

Edited by selkirk

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Glad you agree that doing so now would be stupid.

But I don't understand your argument. How can you have a negative cash flow, no capital gain, no rent increase, and STILL have a good investment?

Because your tenant pays your equity. Look at it this way. The monthly mortage is a mixture of interest payments and equity payments. So you pay £1k a month in a mortgage, say that £500 goes on interest, £500 goes on equity. If your tenant is paying *all* the interest and some of the equity you are making money (equity).

Of course you have to cover expenses etc as well, but that dosen't change how the calculation works, you just need to get the £500 interest, the monthly expenses + some equity to being making an investment. You can have negative cash flow for 25 years but so long your negative cash flow is less than the value of the equity you end up with at the end of the 25 years you made money.

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padders

Read my original post.

I'm talking about a situation where the monthly rent is NOT more than the monthly interest payments. The tenant/rent is not paying off any of the equity.

"A number - including GMAC, the financing arm of General Motors, and Northern Rock - now offer mortgages that allow the expected income from rent to equal just 100 per cent of the monthly mortgage interest, compared with the industry average of 130 per cent."

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Ah, I see what you mean. I don't think they are talking about interest only mortgages though, although I agree that description is worded badly. I believe the 130% rate (which they are talking about as being lowered) is for a normal equity repayment mortgage, not an IR only one. If they are talking interest only mortgages then yes, you are completly correct you need either a rent increase or capital appreciation. Sorry, we where at cross purposes :)

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Apology accepted. :)

The 130% referred to is the rent divided by the interest, whether it is an interest only or a repayment mortgage.

Edited by selkirk

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selkirk,

Thats not true at all. If you buy something that costs £200k with a 100% mortgage (say) and get rent of (made up numbers) £900/month and a mortgage of £1,000/month you are doing very well *in the long term* even without property prices rising. You are getting a £200k asset (assuming price does not change) for (say the mortgage is 25 years) £30k.

Err... what if your £200k assumption is wrong, gold peaked nearly 20 years ago, only now has it managed to match nominal highs and in real terms it hasn't broken previous highs yet, $500 was worth a lot more in '87. Maybe if we had roaring (official) inflation your plan could work, but I wouldn't rely on that bailing you out, not least because the IR's would go through the roof on your IO loan and even at the end of the term you end up with no equity, you've just rented the money from the bank.

If property prices come down there's nothing to say rents wont be affected, lots of people who currently rent will realise after a while that they can afford a repayment mortgage for less than your £900 rent, other new BTL landlords (if the banks will allow them to exist by then) could offer lower rents because their mortgage liabilites will be lower... you on the otherhand will be stuck with a £1k repayment for merely renting the money off the bank.

Sounds like a lot of risk without the reward to me, taking on greater risks doesn't automatically mean greater reward, nor does it mean a one-way bet just because you're using the banks money. Playing with highly geared derivatives could potentially return much more given those risks, and it would be liquid too.

Edited by BuyingBear

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Sounds like a lot of risk without the reward to me, taking on greater risks doesn't automatically mean greater reward, nor does it mean a one-way bet just because you're using the banks money. Playing with highly geared derivatives could potentially return much more given those risks, and it would be liquid too.

The BTL phenomena is a huge scam: Buy properties by the 100,000's with pretend "money" supplied by VI Moneylenders - and in doing so create the World's Biggest Ever Pyramid Selling Scam - who benefit by subsequently lending "money" to all players of Said Pyramid Scam [in their 1,000,000's] - and keep the ball rolling by allowing 'Buy-to-lie'/Mortgage Fraud - thereby fuelling an even bigger take up of the Pyramid Selling Scam...... ad-infinitum....

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Because your tenant pays your equity. Look at it this way. The monthly mortage is a mixture of interest payments and equity payments. So you pay £1k a month in a mortgage, say that £500 goes on interest, £500 goes on equity. If your tenant is paying *all* the interest and some of the equity you are making money (equity).

Of course you have to cover expenses etc as well, but that dosen't change how the calculation works, you just need to get the £500 interest, the monthly expenses + some equity to being making an investment. You can have negative cash flow for 25 years but so long your negative cash flow is less than the value of the equity you end up with at the end of the 25 years you made money.

Padders,

Are you having a laugh?

Heres a little test for you:

Q1. In the first year of a 25 year mortgage what percentage of the monthly repayment (assuming a repayment mortgage) is comprised of actual capital repayments?

I can guarantee you that if you are paying £1000 pcm in mortgage payments, then you will actually be paying off less than £100 capital per month in the first few years.

You have been talking some b0ll0x on this thread.

If its such a great investment then go fill yer boots :D:D

This strategy is lunacy even if you could manage to have a property for a reduced cost at the end of the 25 year mortgage. Why not just wait for property prices to fall, and get a discount against todays prices that way??

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Sounds like a lot of risk without the reward to me, taking on greater risks doesn't automatically mean greater reward, nor does it mean a one-way bet just because you're using the banks money. Playing with highly geared derivatives could potentially return much more given those risks, and it would be liquid too.

The BTL phenomena is a huge scam: Buy properties by the 100,000's with pretend "money" supplied by VI Moneylenders - and in doing so create the World's Biggest Ever Pyramid Selling Scam - who benefit by subsequently lending "money" to all players of Said Pyramid Scam [in their 1,000,000's] - and keep the ball rolling by allowing 'Buy-to-lie'/Mortgage Fraud - thereby fuelling an even bigger take up of the Pyramid Selling Scam...... ad-infinitum....

I read an article in a US property magazine that suggested that the VIs are caught in a trap of their own making. In order to perpetuate their income (commissions) they must continue loaning money regardless of any slowing in demand for loans. Thus, borrowing standards must be constantly lowered to keep demand alive and to avoid, at all costs, the drying up of demand. The VIs become, in effect, victims of their own success. Without any restraint from government the VIs will go on lending until they go bankrupt--there is nothing for them to lose because it is the institutuion that loses the money not the employees seeking the commissions on the loans.

The VIs will continue to prop the housing market up until their source of funds dries up and then they may turn to the Shies for even more creative financing. We have seen the madness of interest only mortgages who knows what else is in store.

Edited by Realistbear

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Padders,

Are you having a laugh?

Heres a little test for you:

Q1. In the first year of a 25 year mortgage what percentage of the monthly repayment (assuming a repayment mortgage) is comprised of actual capital repayments?

I can guarantee you that if you are paying £1000 pcm in mortgage payments, then you will actually be paying off less than £100 capital per month in the first few years.

You have been talking some b0ll0x on this thread.

If its such a great investment then go fill yer boots :D:D

This strategy is lunacy even if you could manage to have a property for a reduced cost at the end of the 25 year mortgage. Why not just wait for property prices to fall, and get a discount against todays prices that way??

Crikes, some of you are so desperate to see property fall you do come up with the most bizarre arguments.

I completly agree property will fall and I think buying now is beyond rediculous - I was just arguing that you don't need to cover the mortgage payments with your rental income to have a good investment. I was talking about payments where some of the equity is paid back though, not interest only hence the previous confusion.

But yes, you are right you don't pay of much equity early on, dosen't matter so long some of the equity is paid of during 25 years.

Look, its really simple. People have and still do make lots of money from property and lots of people are in this for the long run. Lots of investors will not care that much if the market falls - those that have rents convering all the properties and not looking to buy and sell. Prices fall and they will be the ones that buy more property.

The reason to not buy now is because property is over priced and buying now is stupid because you will get asset depreciatrion. However you do *NOT* need asset appreciation to make buying property a good investment.

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"People have and still do make lots of money from property and lots of people are in this for the long run"

EXAMPLES PLEASE!

What I have seen on Sad-Pig is a widespread delusion:

+ People negotiate a discount to the buyer's asking price, and think they are buying "Below Market",

+ They finance 80-90%, and then put in a bit more money to tart the place up,

+ They get a new appraisal saying it is worth more than what they paid for it,

+ They gear-up, by getting a new loan for more than they paid for it,

+ If they are lucky, they get a tenant paying enough to service an interest-only loan.

THEY THINK that they have made money, because they have extracted their cash, and have a tenant servicing the interest.

The risk is fairly evident, isnt it?

What would happen if they had a long void, if rates rise, if they had to be a forced seller at the same time as their other highly geared brethren?

Are you really trying to say there are not lots of people out there with multiple properties earning decent returns on their investment.

Most landlords are not hugely concerned about the actual value of their property, they are interested in the rental income they get from it. If they get offered a good price on something above the rental return they sell, if they see a property they can rent at a good return - they buy. They are not necessary looking for capital appreciation at all.

These type of people are not going to be burnt in a crash - in fact a crash will be good for them, they can buy lots more. A crash is going to destroy the people who have a single BTL and have no idea what they are doing, property flippers (and "doer upers") and those who have re-mortgaged.

Oh, and do you really think those who actually make lots of money in property (or anything) are going to be on S-Pig? Laughable.

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What I am saying is the real pros are selling / or have sold.

Yields have fallen to miniscule levels.

There are fools out there that will buy at 4-5% yields, and some will even accept less than that

on "new" properties or off-plan, which is very foolish since they will not stay new.

Why hold on, when you can sell, and reinvest the proceeds in Gilts and get a higher return,

or get a much higher return in trdaing stocks or commodities, if you have a knack for trading.

What foold would want to hold onto an asset yielding 5% or less when there is now a BIG risk

of capital losses?

What amazed me about S-Pig is how many share a delusion that the game is still worth playing

when the music has already stopped.

I think one factor is people do what they know. Someone who has rented property for 20 years and this is their business wants to stay doing that. They don't care about the actual value of the property particularly, just interested in the income it generates. They thus prefere to stay doing that instead of playing the stock market etc something they probably have absolutly no idea about.

Sure they should sell all their property and buy it back 4 years later, but most won't. You add risk by doing that, and if you have decent monthly incomes coming, good tenants and little worries, why bother.

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The thing about property is its one of the few investments you can get based on debt. You can't get a £200k debt to play the stock market but you can for property.

Not strictly true. I trade the stock and futures market on 5% margin i.e. if I have 50k in my account then I can trade to a leveraged account size of 1M. The beauty is that I don't pay interest or get penalised unless I default on my margin position. I even get 1% below base interest on cash in my account.

A mortgage is just leveraged money on your salary; or if you really are a muppet, on your self cert income you don't really have.

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  • 301 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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