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More Evidence On Why High House Prices Are Driven By Credit

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I found this article on twitter, courtesy of the UK Capitalist Party and their very familiar looking hashtags...

By the last three months of 2007, as house prices peaked, the average house was 2.3 times as expensive as in the first three months of 2000. Over that same period mortgage lending outstanding went up 2.2 times. As of the first three months of 2015, house prices were 2.3 times their early-2000 level and mortgage lending was likewise 2.3 times its 2000 level.

It's a good read, it's also inspired me to do some rather rambling maths. The rambling maths may or may not be a good read.

I found a website that lists 'estimated' household income in London based on selectable areas on a map. I picked the Blackheath ward (as I know the area). The household income here is, on average, £58,996 based on all 'taxpayers' in the area.

income.png

I wonder what the average house prices is in this area... off to Rightmove draw-a-search.

houses.png

Not an exact match, but close enough I think. Time to work out the average cost of a property...

£767,516

Now I'm going to pretend to be a couple, earning £30k each. Let's see what Santander (a mainstream highstreet bank) will lend me post MMR.

sant.png

In case the image dies, that's £269,994 Santander are prepared to lend me

269,994

They will offer me a 2 or 5 year fix at 4.49% and 4.99% respectively. That's about £1500 p/m. (FWIW - You can rent a 2 bed asking £400k for about £1400 p/m in this area).

So. Average house price in the area is £767516 which is 2.6 times the average amount of money achievable by two working, no kids couple with a 10% deposit.

What can this couple buy in this area then? They have the choice of a studio (£215k), or a 1bed flat (240k). Maybe with some haggling, they could get this 2bed down from £310k. That's 3 out of the 57 properties on offer. And let's forget stamp duty and other similar costs for now.

How could this resolve itself then? Could the average household income move up to meet the average house price, implying more rich people are moving in to the area (we know it's not going to be wage growth of those already there!)? To get a mortgage for the average house cost with a 10% deposit would need a joint income of...

£77k. Each. A total joint income of £154k. That gives them a mortgage of £690,768 which plus a 10% deposit gives them a housing budget of £767519. Confusingly, whilst Santander say they could lend that much on a joint income on the lending calculator, they don't actually offer any mortgages at that LTV and value when you try and find an actual rate. Popping onto google mortgages shows only 8 mortgages fitting this criteria are available, costs about £3600 p/m.

How many couples could actually afford to buy an average house in Blackheath? Well, according to the gov (https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/399041/Table_3_1_a_13.xls) in tax year 12/13 earning £77k would have put you in the top 4% of earners. The ever reliable ONS say that between January and March 2013 (ref) "There were 29.71 million people in employment aged 16 and over" *. 4% of those would be earning 77k or greater, that's 1.2 million working people (higher than I would have guessed!), 600k couples across the country could afford >= the average in Blackheath. But they're not all living here and I don't see what would cause a sudden migration either - why now all of a sudden?

According to some website quoting the 2011 census, Blackheath has a population across its two wards of 27k, assuming population is equally split between wards then the one I used to establish income would have a population of 13.5k, of whom 538 people (4% - assuming income still follows the bell curve locally) could afford >= average house IF they shacked up with one of the other 537. That's 269 couples capable of purchasing the average. Doesn't take many flat blocks to get to 269 flats and Blackheath has plenty before we even look at the houses!

Questions

Based on the CapX article, credit drives house prices and there isn't enough of it post MMR for people who actually would live in the area to support current prices, so what - if anything can in the long term? Is it the fabled foreign investors? Is it just people selling expensive houses to each other for ever and ever with everyone else shut out? Have either of these things ever happened before?

Is average earning couple (assuming they never have kids) being able to afford the average house in an area a reasonable assumption? Considering houses used to be purchased on one salary I'd say yes, if anything it's over pricing what is reasonable, because most couples have kids and one either stops working or childcare has to be paid, which impairs ability to service a mortgage either way.

Have I cocked anything up in my ramble?

Interest rates don't have to rise for this to be a problematic situation for buyers, thanks to MMR?

I was wondering last week if the madness would ever end and rather despairing, but having done all this I'm firmly back in the "It's a bubble" camp. If prices adjusted to allow the average couple (with free childcare or no kids!) to buy the average house that's a drop in Blackheath of 61%. Does this seem realistic and if not why not - show your working :)?

If looking after kids has to be financially accounted for (which in reality, it does unless you have grandparents handy) would this mean a greater drop?

If interest rates went up, would this mean a greater drop?

Have I missed anything in my ramble?

Is it possible to recreate my calculations for a non-bubblicious time and see if they look sensible?

How do areas well away from London look if this sort of calculation is done?

If housebuilding picks up, as some of political rhetoric suggests it will (Labour London mayor perhaps?) would this mean a greater drop ala Ireland and Spain et al due to increased supply?

And finally the hardest (and I suspect, impossible to answer) - when will it correct? Ah - I'll guess I'll just keep on saving in the meantime!

* It occured to me that workers aren't the same as tax payers, so I went to find out how many income tax payers there were in 12/13. https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/424587/Apr15_Numbertaxpayerstraders_v0.2.xls says it's 30.6 million. I assume the discrepancy is to do with pensioners - I'm not sure how to account for that or which way they will skew my results. Could I assume that pensioners would pull down the average household income and so things are slightly, very very slightly less ridiculous?

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Interesting stuff.

I don't think you mention BTL. If a (bold) BTLer put down 25% on the 767.5k, financing the rest would need c£1,200 pcm I/O at an introductory rate of 2.5%. If you can "rent a 2 bed asking £400k for about £1400 p/m in this area", they might get £2,500 pcm on the 767.5k place. So even with costs and voids, BTLer gets some cashflow. And, of course the leverage - if prices go up 20%, BTLer makes an 80% gross profit on the deposit.

Ultra low rates amplify the % difference between repayment and I/O (on a 25 year repayment term, the above would be c£2,600 pcm).

So there's one idea - the people paying these prices are assuming low interest rates for however long they own the place, and aren't going to pay off any capital until they sell.

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It strikes me that this blather from the govt offering free childcare is just another prop to cushion or prevent house price falls, paid for by everyone

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It strikes me that this blather from the govt offering free childcare is just another prop to cushion or prevent house price falls, paid for by everyone

...true ...Gordo's economic miracle in the good old Liebour days with fake money multiplied house prices ...the 'bust' caused a small ripple downwards but the big spenders of the socialist left put in economic scaffolding to keep HP high to cover up their folly ....to unravel that overnight now would cause a financial tsunami...a leftie time bomb.....but prices have to come down eventually ...the laws of economic gravity demand such...be aware .... :rolleyes:

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The problem is that prices are set at the margins. One idiot with a bank of mum and dad deposit of 300k (does happen) sets the expectations for all other sellers.

I don't know when it will all break - but it will. Unfortunately, many years of pain for all but the very lucky until that day.

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People who can't afford a really pokey little 1 bed flat at £500,000 on the outskirts of London's congestion zone can hardly afford to move out to Blackheath to a pokey 1 bed flat unless they're rich.

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In case the image dies, that's £269,994 Santander are prepared to lend me

269,994

They will offer me a 2 or 5 year fix at 4.49% and 4.99% respectively. That's about £1500 p/m. (FWIW - You can rent a 2 bed asking £400k for about £1400 p/m in this area).

So. Average house price in the area is £767516 which is 2.6 times the average amount of money achievable by two working, no kids couple with a 10% deposit.

What can this couple buy in this area then? They have the choice of a studio (£215k), or a 1bed flat (240k). Maybe with some haggling, they could get this 2bed down from £310k. That's 3 out of the 57 properties on offer. And let's forget stamp duty and other similar costs for now.

[...]

Questions

Based on the CapX article, credit drives house prices and there isn't enough of it post MMR for people who actually would live in the area to support current prices, so what - if anything can in the long term? Is it the fabled foreign investors? Is it just people selling expensive houses to each other for ever and ever with everyone else shut out? Have either of these things ever happened before?

Is average earning couple (assuming they never have kids) being able to afford the average house in an area a reasonable assumption? Considering houses used to be purchased on one salary I'd say yes, if anything it's over pricing what is reasonable, because most couples have kids and one either stops working or childcare has to be paid, which impairs ability to service a mortgage either way.

Have I cocked anything up in my ramble?

Interest rates don't have to rise for this to be a problematic situation for buyers, thanks to MMR?

I was wondering last week if the madness would ever end and rather despairing, but having done all this I'm firmly back in the "It's a bubble" camp. If prices adjusted to allow the average couple (with free childcare or no kids!) to buy the average house that's a drop in Blackheath of 61%. Does this seem realistic and if not why not - show your working :)?

Glanced at Blackheath on RM last night, after reading through your analysis. Both sale and rental market.

I've not looked at mortgage rates/deals for some time, but also look at (smart) Nomadd's view, of some of the math and risks.

Let's assume you can continue to roll over a mortgage on the 2 year fix rate, for 25 years. So 4.49%. And that you somehow manage to haggle down the the 3rd property in your list, putting your 10% savings deposit down and borrowing the max that bank has offered to lend you of £269,994 in your mortgage application, to buy it.

£269,994 borrowed at 4.49%. Monthly mortgage payment = £1499.18. Over 25 years.. you'd be in for this, to finish paying it down. £1,499.18 x 12 x 25 years. Total repayment = £449,754.68. Of which £179,760.68 is mortgage interest.

£269,994 borrowed at 4.99%. Monthly mortgage nut is £1576.79. To finish paying it down over 25 years you're in for paying a Total repayment = £473,035.61. Of which £203,041.61 is mortgage interest. (Or you hope market remains this strong/forever HPI/no HPC and can sell into it, as needed).

Let's not lose sight of total repayment for those buying in this market, as those dancing into buying at these prices, in this market, brag their monthly mortgage is cheaper than monthly rent.

We've got btlers on forum proudly buying London flats to hand over to their 2 month old daughters when they reach 21, and claiming the incoming rent is way more than the mortgage. And if it's as good as he claims for rental income, (at this moment) (and seems overly good to me), then goodie for him and his baby... but there is still the full repayment to consider. Just need some sort of trigger, and that may be non-BTL borrowers giving up. Banks are in the lending business; there are two sides to the lending equation, rate ticking up etc.

Welcome back to the 'It's a bubble camp' - I'm wrestling with same questions you are. Also went for a wander, raising the prospect of buying a place if we could get it for 25% below (it's lower end of market... just below Quarter of a Million Pounds, which wouldn't overly stretch me and where could handle Real and Severe HPC anyway, but came back to the wait longer, wait for HPC position. Don't want to be stuck in the type of £250K flat I was looking at post HPC, when could have waited for something better coming in at same price in the HPC.

There are still plenty of places in London where someone on £70k can buy. I bought a 3 bed flat in a leafy part of zone 4 for £270k a couple of months back.

It's also much cheaper to buy than rent. This flat is a BTL, it brings in £1300pm and costs me £580 in mortgage interest, it would be cheaper still with an owner occupier mortgage

Deposit is the standard 25%, rate is 3.5% fixed for 3 years.

We intend to keep it indefinitely, in fact the plan is to hand it to our daughter mortgage free when she is 21 (she is 20 months now!) to help her get a foot on the ladder.

Well, based on the loan value for standard SVR mortgage I've just looked at on my Banks website, you would actually be looking at £400k interest on a £400k loan over the next 25 years (that's if interest rates stay as low as they currently are - which I don't think anyone believes will happen.)

Now, look at some of the daft £450k terraced houses in Hale we've been discussing on the Hale & Alty thread. I can easily see those dropping by at least 10-20% in value over the next 5 years; maybe much more. But even at just over a 10% fall and no rises in interest rates, that's your £50k deposit gone (plus the loss of the interest it could have earned in an ISA/etc..) And in the first 5 years of mortgage payments, at £2.6-2.7k per month? Well, you've only paid off £26k of your house. But remember the interest on the loan? That's cost you another £121k in just the first 5 years. So, after 5 years, you are ~£180k down on a £450k house - if interest rates don't go up at all and your house only drops in value by about 12%. The reality is likely to be something much more severe, IMHO - a 30% fall in prices and interest rates at just 2% higher than today gives a loss of over £300k on a £450k house in just five years. And what have you got for that £180k-£300k of investment? Just £26k worth of equity in a house (and minus all your other costs for 5 years - moving costs, stamp duty, maintenance, etc., you don't even have that!)

So that, to me at least, is what is so frightening about buying in the current market. Not a single young person under the age of 35 I speak to can afford to buy at current prices. And for those that do, the doubling and trebling of houses prices needed to wipe out the enormous amount of interest they'd paid in the first 5-10 years of ownership is just not going to happen. Scary stuff indeed.

Hence why I rent cheaply and push cash onto the "buy-outright when prices fall-back" fund.

Good tool here for working out mortgage payments and interest.

http://www.drcalculator.com/mortgage/uk/

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Interesting stuff.

I don't think you mention BTL. If a (bold) BTLer put down 25% on the 767.5k, financing the rest would need c£1,200 pcm I/O at an introductory rate of 2.5%. If you can "rent a 2 bed asking £400k for about £1400 p/m in this area", they might get £2,500 pcm on the 767.5k place. So even with costs and voids, BTLer gets some cashflow. And, of course the leverage - if prices go up 20%, BTLer makes an 80% gross profit on the deposit.

Ultra low rates amplify the % difference between repayment and I/O (on a 25 year repayment term, the above would be c£2,600 pcm).

So there's one idea - the people paying these prices are assuming low interest rates for however long they own the place, and aren't going to pay off any capital until they sell.

I agree with your thinking but am surprised that you can get any BTL mortgage at 2.49%, especially for only a 75% LTV.

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I agree with your thinking but am surprised that you can get any BTL mortgage at 2.49%, especially for only a 75% LTV.

Maybe the bank need to be convinced of excellent credentials for any deal like that?

Can the BTLers really still get interest only mortgages fgs? Even so... let's say someone qualifies for BTL interest only 2.5% introductory rate + deposit... these house prices... you're not talking value when you discuss it in same breath as buying it for £767,500 for a BTL.

Wotnocrash just bought BTL, £270,000 at 3.5% (fixed 3 years) on 75% LTV.

There are still plenty of places in London where someone on £70k can buy. I bought a 3 bed flat in a leafy part of zone 4 for £270k a couple of months back. It's also much cheaper to buy than rent. This flat is a BTL, it brings in £1300pm and costs me £580 in mortgage interest, it would be cheaper still with an owner occupier mortgage.

Deposit is the standard 25%, rate is 3.5% fixed for 3 years. We intend to keep it indefinitely, in fact the plan is to hand it to our daughter mortgage free when she is 21 (she is 20 months now!) to help her get a foot on the ladder.

Doc Housing Bubble - USA Prime Markets (2013)

What is going on in the current environment is a confirmation bias. Everyone is a genius and timed the market correctly. Nassim Taleb has a good story about a turkey enjoying every dinner and thinking it hit the jackpot, until the day before Thanksgiving when the lights go out. A Black Swan event. That was 2007. All the experts from 1997 to 2007 in real estate suddenly were rushing out the doors. Keep in mind that before the last crash, real estate never saw a one year decline going all the way back to the Great Depression.

Of course, many baby boomers that timed a purchase are suddenly market experts. But I go back to all those cases of failure that now remain silent licking their wounds. That is how markets work. The bravado is loudest when you are riding the wave.

Edited by Venger

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what is the point of this post ?

its like saying water is wet if you touch it !

To the HPC crowd it is obvious, it is interesting non the less, especially to those more transient visitors to the forum who may still believe the supply and demand fallacy of UK HPI.

Edited by JustAnotherProle

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Zero Hedge and others reported the bond market has some serious convulsions recently and if yields rise, BTLers could be toast :P

BoE data showed that around 40% of all credit creation by private banks in 1997-2007 was pumped into the housing market. 97% of money in our economy is created by private banks. Credit is the main cause of housing boom, but people aren't dragged into the bank to sign away to 25 years of debt slavery.

The housing ponzi scheme must continue to keep the recovery illusion alive. All the debt/deficit manta ignores the private which peaked in 2008 and caused the financial crisis in the first place.

I've come to the assumption that our political masters are either incredibly stupid or are very good liars, and know what's going on. The latter gives them to much credit IMO.

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Guest UK Debt Slave

To the HPC crowd it is obvious, it is interesting non the less, especially to those more transient visitors to the forum who may still believe the supply and demand fallacy of UK HPI.

House price inflation is definitely a function of available credit at historically low interest rates + planning controls that maintain a chronic shortage of land available for development + mass immigration.

Forget market fundamentals. The market has been manipulated beyond all comprehension. Every time I get into a discussion with people about house prices, they shake their heads in disbelief that their home is "worth so much money." There is a realisation among many not so well informed people that something isn't quite right, particulalry if they have kids living with them at home because they are unable to raise a big enough deposit to buy a one bedroom flat above the local crack den.

They are kind of missing the point really, since "price" and "value" are not the same thing.

House prices are denominated in a currency system that has quite simply departed from any reasonable interpretation of the real value of assets such as property. We are living in the midst of collective insanity. People I know have taken out huge mortgages to participate in this "one way ticket" to prosperity and they are going to crash and burn spectacularly when the whole $hitfest collapses into the big pile of self contradictionary pooh that it is.

This same madness has spread into other assets such as classic cars and motorcycles. I restore old motorbikes for a hobby and the same thing has happened to this market. People will pay absurd prices for absolute junk. It's quite amazing. Stuff that people were throwing away for peanuts 20 years ago is suddenly worth good money.

Politicians however, are quite happy to string out the property madness for as long as possible.

The illusion of wealth and prosperity where none exists is one of the few remaining things left that prevents western civilization from collapsing altogether. The Ponzi scam must be kept going at all costs.........and man, it is going to cost HUGE.

We are constantly told how wealthy and prosperous this country is. It reminds me of the fuel cell company i worked for a few years ago. A year before i joined the company, the shares were worth £3 a shot. A few lucky people including the previous dolly bird who worked in reception cashed in their shares at the top and made a killing. I believe the receptionist became a millionare.

When i left the company in 2012, the share price was 0.05p

That's what going to happen to the UK one day soon.

Edited by UK Debt Slave

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Who can afford these prices, and where the money comes from is indeed an ever increasing mystery.

My only observations would be:

  • This is still (apparently, and sadly) within the realm of "viable" for BTL. Indeed, it could still be cashflow +ve, and if people truly believe in forever HPI then this could go on for a lot longer.
  • It only takes a single buyer at the bottom of the chain to facilitate perhaps 3-4 exchanges - so this can be BTL, stretched FTB (BOMAD), foreign purchaser.
  • The rest of the money in the chain is magicked into existence by HPI - the whole system relies on current valuations to give participants the equity they need to trade up. Most participants in the chain can only be such because of current valuations, and current valuations can only exist because of the former. It's a circular system that could implode dramatically when it goes down, because there is nothing real to back it up.
  • Transactions are low, so even if the above doesn't add up to a huge number it is still enough to support current sales volumes. Until we get a situation where people need to sell, I don't see things changing here. What/when/if I have no idea - interest rates I guess, but when will that happen?

meh.

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I've not looked at mortgage rates/deals for some time, but also look at (smart) Nomadd's view, of some of the math and risks.

apart from being completely wrong hes a genius.

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It's so frustrating Matty, especially for my generation. I'm 26. Home ownership seems a fantasy to me. Currently with the global financial situation lots of people agree that have entered the terminal phase of this post 1971 ponzi scheme. I'm happy in the knowledge that this is only temporary and sadly lots of fantasy HPI buyers are going to be wiped out.

We reached peak private debt in 2008 and since then they've pulled some many rabbits out of the hat keeping the whole thing afloat. Surely there can't be many bullets left to use with IR's so low and QE having limited effect.

All of this makes me realise why they don't teach economics in school anymore as most people would realise how stupid and unnecessary the whole situation is.

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Interesting stuff.

I don't think you mention BTL. If a (bold) BTLer put down 25% on the 767.5k, financing the rest would need c£1,200 pcm I/O at an introductory rate of 2.5%. If you can "rent a 2 bed asking £400k for about £1400 p/m in this area", they might get £2,500 pcm on the 767.5k place. So even with costs and voids, BTLer gets some cashflow. And, of course the leverage - if prices go up 20%, BTLer makes an 80% gross profit on the deposit.

Ultra low rates amplify the % difference between repayment and I/O (on a 25 year repayment term, the above would be c£2,600 pcm).

So there's one idea - the people paying these prices are assuming low interest rates for however long they own the place, and aren't going to pay off any capital until they sell.

Fair point, I hadn't really looked at BTL. I'll take the £400k flat with £1400pm rent as my test case as I know both numbers.

Smallest amount down I could find on google mortgages required a £60k deposit.

Best repayment deal (There's only 10 options) starts at 4.79% then becomes 6.58% after 2 years. Initial payments are £1,947 per month and the product fee is... £6,800!!! This is from Kent Reliance Bank (who?) who are the only institution willing to offer at this deposit level. For true comedy, if you want to fix for 5 years (£2,066 per month) the product fee is £8,500. Can't see anyone doing this and making money, even with HPI!

It seems all Kent Reliance mortgages can be had in IO flavour, fee's and rates exactly the same but the monthly payment comes down to £1,358 which is roughly the same as the rent but on cashflow basis considering costs a landlord would be losing money every month and reliant on HPI to make the investment worthwhile plus he's on the hook for the capital part of the mortgage. Of course, to get HPI someone's going to have find more money than the landlord managed in order to be the greater fool. If/when HPI ends if this is what's happened, there will be a stampede to the exits I would have thought.

How about for a £100k deposit, 459 results now - best is RBS starting at 2.49% then going to 4% after 2 years, monthly payments are £1,345 and the product fee is £1,995. From a cashflow/investment point of view it's pretty much identical to the £60k IO scenario, but with a less comedy product fee.

RBS also offer the same mortgage as IO, this time it's £623 per month so there's enough rent coming in to cover the mortgage and the costs and still have positive cashflow. If they can't remortgage at the end of the teaser period (say because they no longer qualify for the rate due to change in LTV) then monthly payments go up to £1000 pm, which is probably just about cashflow positive after costs.

So yeah, IO teaser rate and a big (£100k) deposit does seem to work, at least in the short term. Taking the deposit down to 90k heads back into subprimish BTL territory at £1000 pm IO with a £4650 fee so 25% down does seem to be the magic number. How many people have a £100k deposit floating around though? And what will it take to stop them, more HPI to the point where even this doesn't work and/or an interest rate hike?

PS - at least according to google mortgages, even if my annual income is only £5k I can still get these mortgages - is that right!?

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Welcome back to the 'It's a bubble camp' - I'm wrestling with same questions you are. Also went for a wander, raising the prospect of buying a place if we could get it for 25% below (it's lower end of market... just below Quarter of a Million Pounds, which wouldn't overly stretch me and where could handle Real and Severe HPC anyway, but came back to the wait longer, wait for HPC position. Don't want to be stuck in the type of £250K flat I was looking at post HPC, when could have waited for something better coming in at same price in the HPC.

I've been round this loop a couple of times - unfortunately the ultimate conclusion always seems to be that it would have been a good idea in 2009 had I been in the same financial situation then I am now. If only I'd been born 5 years earlier :rolleyes:.

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what is the point of this post ?

its like saying water is wet if you touch it !

Au contraire.

There are STILL posters who scream build more bcos that will bring down prices. HAHAHAHAHAHAHAHA

As the man says: #banHTB if you want to achieve that. Or bring on the next global econ shock. Can't slash rates. Recession turns Depressionary.

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Fair point, I hadn't really looked at BTL. I'll take the £400k flat with £1400pm rent as my test case as I know both numbers.

Smallest amount down I could find on google mortgages required a £60k deposit.

Best repayment deal (There's only 10 options) starts at 4.79% then becomes 6.58% after 2 years. Initial payments are £1,947 per month and the product fee is... £6,800!!! This is from Kent Reliance Bank (who?) who are the only institution willing to offer at this deposit level. For true comedy, if you want to fix for 5 years (£2,066 per month) the product fee is £8,500. Can't see anyone doing this and making money, even with HPI!

It seems all Kent Reliance mortgages can be had in IO flavour, fee's and rates exactly the same but the monthly payment comes down to £1,358 which is roughly the same as the rent but on cashflow basis considering costs a landlord would be losing money every month and reliant on HPI to make the investment worthwhile plus he's on the hook for the capital part of the mortgage. Of course, to get HPI someone's going to have find more money than the landlord managed in order to be the greater fool. If/when HPI ends if this is what's happened, there will be a stampede to the exits I would have thought.

How about for a £100k deposit, 459 results now - best is RBS starting at 2.49% then going to 4% after 2 years, monthly payments are £1,345 and the product fee is £1,995. From a cashflow/investment point of view it's pretty much identical to the £60k IO scenario, but with a less comedy product fee.

RBS also offer the same mortgage as IO, this time it's £623 per month so there's enough rent coming in to cover the mortgage and the costs and still have positive cashflow. If they can't remortgage at the end of the teaser period (say because they no longer qualify for the rate due to change in LTV) then monthly payments go up to £1000 pm, which is probably just about cashflow positive after costs.

So yeah, IO teaser rate and a big (£100k) deposit does seem to work, at least in the short term. Taking the deposit down to 90k heads back into subprimish BTL territory at £1000 pm IO with a £4650 fee so 25% down does seem to be the magic number. How many people have a £100k deposit floating around though? And what will it take to stop them, more HPI to the point where even this doesn't work and/or an interest rate hike?

PS - at least according to google mortgages, even if my annual income is only £5k I can still get these mortgages - is that right!?

Interesting reading. I'm going to rely on your initial findings above, but I would hope an income of £5K doesn't qualify someone for BTL (as per google mortgages) - I thought more lenders were insisting on BTL applicants having minimum income of £25K+.

I just can't bring myself to directly search BTL finance, even though it may hint towards future outcomes. A failing in me; can bring myself to try and look at all sides with other financial markets, not BTL though, where my fingers can't type it into a search engine, although I can read it calmly on HPC.

At least KR have some form for keeping it hard-business if/when their landlord borrowers start mucking them around. REPO.

What will it take to stop them (new BTLers)? Let's hope we find out, and soon. The get rich quick scheme is our oldest trick, and it has never failed suck up an abundance of money. The only people getting rich from the dream are the ones who made it up.

24 January 2014 Last updated at 21:53 GMT

Bank dispute 'left Kent landlord nothing'

Four years ago, buy-to-let landlord Joan Keeley had a home worth half a million pounds and a property portfolio worth more than a million pounds. Now, after a dispute with her bank, she is living on benefits in a one-bedroomed flat in Gillingham, Kent.

She told BBC South East business correspondent Mark Norman she also owes the former Kent Reliance Building Society more than £300,000.

---

more, including the satisfying iplayer video of millionaire landlord turned tenant http://www.bbc.co.uk/news/uk-england-kent-25889308

http://www.housepricecrash.co.uk/forum/index.php?/topic/196280-bleating-landlord-bbc-southeast-today/

OneSavings Bank Plc is a British banking company that has been formed by Kent Reliance Building Society and JC Flowers.[1] OneSavings Bank Group operates through its brands Kent Reliance,[2] InterBay Commercial, Reliance Property Loans, and Prestige Finance.

Buy-To-Let Boom: One In Five Homes Now Owned By Landlords

Started by Scunnered, Oct 22 2014 07:10 PM

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apart from being completely wrong hes a genius.

He's still positioned for HPC. Has a great landlord in London, who doesn't try to rinse him for max rent - great deal in fact, for the landlord not greedy and values having good tenants.

Wrong until he's right imo, via HPC. And he's positioned for where the main HPC will hit hardest, for property at the higher end of the market. Not the £50K-£150K-£200K HPC window for buying I'm hoping to see on personal level, but for serious savings vs higher end HPC.

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Interesting reading. I'm going to rely on your initial findings above, but I would hope an income of £5K doesn't qualify someone for BTL (as per google mortgages) - I thought more lenders were insisting on BTL applicants having minimum income of £25K+.

I just can't bring myself to directly search BTL finance, even though it may hint towards future outcomes. A failing in me; can bring myself to try and look at all sides with other financial markets, not BTL though, where my fingers can't type it into a search engine, although I can read it calmly on HPC.

At least KR have some form for keeping it hard-business if/when their landlord borrowers start mucking them around. REPO.

What will it take to stop them (new BTLers)? Let's hope we find out, and soon. The get rich quick scheme is our oldest trick, and it has never failed suck up an abundance of money. The only people getting rich from the dream are the ones who made it up.

Buy-To-Let Boom: One In Five Homes Now Owned By Landlords

Started by Scunnered, Oct 22 2014 07:10 PM

That inspired me to do a bit more digging. It's not a complete list of criteria but here are KR's details. Points that caught my eye, with the first being the most interesting:

  • For most cases (including the 400k flat example), 125% rent coverage is needed at the highest of 5% or pay rate. Seemingly, IO here makes NO DIFFERENCE
  • Max age is 85 at end of mortgage term
  • Payslips, bank statements, p60s etc. are required for LTV > 80%

So how does rental coverage impact the 400k flat? At the teaser rate rent required is £1770. The actual rent is over £350 per month too low, so this mortgage can't actually be used to buy the example flat. At the non-teaser rate, just for giggles, the rent required is £2330. If the rent was £2330 per month that's still only a gross yield of 7% - actual gross yield is actually 4% (with between 4% and 5% being available on Zopa).

RBS aren't so forthcoming on their rental coverage, but I'm going to assume NatWest's criteria are representative of the wider group. Here the rate is assumed to be 5.5% and 125% coverage is needed. I'm assuming the calculation is the same as that published by KR ((value of mortgage * rate)/12)*1.25. RBS requires rent of £1718, so still ~£300 higher than the rent.

Doesn't that rather put the kibosh on BTL buying at current prices unless they're putting down a mahoosive deposit? In fact, to meet the RBS rent coverage limits they would need to put down £244k. So does BTL in Blackheath only become possible at 39% LTV? Who's getting in to BTL at the moment!?

Maybe there's some subprime-esque looser rent coverage mortgages out there, I'll look into that at some point over the long weekend.

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