Telegraph: the full shocking extent of the buy-to-let market collapse

[spyguy]

1 minute ago, One-percent said:

Round the corner from me is an ex council house.  50s/60s built.  Square box rendered type 2 bedrooms.  It is on for 480k. Let's say that slowly. Almost half a million pounds for a two bed plain house.  How many lifetimes will it take to pay that back?  

Madness 

On average London wage of 28k? Lets assume 2 people, household income of 60k.

Tax 20k, living epxenses (and London is cheap, once housing has gone), 20k.

So 20k/year thrown at mortgage @ 0% - almost 30 years.

At 5% IR, that 20K is more than swallowed up by the IRs.

 

 

[Fully Detached]

8 hours ago, Digsby said:

You miss the point. Nobody is bailing anybody out. You buy for £300k, you promise to pay £300k. Your house is now worth £200k but you need an extra bedroom which now costs £300k. You can't move because you don't have £100k.

I don't give a shit about you. If you'd not paid  £300k in the first place, then I might have been able to buy for £200k.

But you have that house, which I'd pay £200k for, but you cannot sell for less than £260k  because that is what you owe on the mortgage.

Rather than the government banging me a £10k loan so I can pay you £260k, I'd rather buy it for  £200k and have the government loan you £60k so that you can sell it to me.

Eventuality you will pay that £60k back. That is your cost for paying £60k more for a house than it is worth. That £60k is your mistake and your burden to bear - not mine through paying you £60k to bail you out of a bad decision, taking the cost upon myself.

These people will take the hit under my suggestion. They just won't the clout to force the government to support prices and so offloading the cost of that poor investment onto you or me, which is currently the case.

Yep, good idea. At the same time, this reduces the amount the banks can lend to the seller, meaning he can't pay as much for his next house as he would have done had he been bailed out by a buyer with an HTB loan.

Given the low interest rates in the past 8 years and the stratospheric HPI in the last few, the number of people who will be pushed into NE by even a significant drop in prices should be very low - only the most recent, or the terminally stupid - probably a much lower total cost than any HTB scheme.

I propose we call it Help To Pay What You Owe.

[LiveinHope]

33 minutes ago, spyguy said:

My opinion?

Find the mean income for your local area. Once you go above that, there's very few people, as a percentage, earnign that.

The are not that many people earning 60k+ in the UK.

 

Average county salary is £25k, which is probably just the floor set by the state's tax credit salary

Edited December 10, 2016 by LiveinHope

[spyguy]

2 minutes ago, LiveinHope said:

 

Average county salary is £25k

I was using rough + ready figures. And that assumes the person works - about 30% of working age adults dont.

[LiveinHope]

2 minutes ago, spyguy said:

I was using rough + ready figures. And that assumes the person works - about 30% of working age adults dont.

Their -ve equity could be huge. I've no sympathy for these idiots.

Edited December 10, 2016 by LiveinHope

[One-percent]

37 minutes ago, spyguy said:

On average London wage of 28k? Lets assume 2 people, household income of 60k.

Tax 20k, living epxenses (and London is cheap, once housing has gone), 20k.

So 20k/year thrown at mortgage @ 0% - almost 30 years.

At 5% IR, that 20K is more than swallowed up by the IRs.

 

 

Thanks for the figures Spy....

but, that's assuming that interest rates are 0 and also that they will not rise. 

It also assumes that the couple will be sensible and pay down the mortgage as you suggest.  I would assume that anyone willing to buy a two bedroom ex council house for half a million quid is not sensible enough to do that.  More likely interest only and matching BMWs on lease cluttering up the road outside 

 

[frederico]

Those who are mortgage free, most likely not going to sell any way.

Ability to pay, most if not all those hoping buy will be on the lower end of the pay scale .

We all know that value depends on supply and demand, that balance is changing, we don't know how far it will go, watch the big short and then have a think, BTLers mostly have to remortgage every 2 years.

[doomed]

8 hours ago, Digsby said:

You miss the point. Nobody is bailing anybody out. You buy for £300k, you promise to pay £300k. Your house is now worth £200k but you need an extra bedroom which now costs £300k. You can't move because you don't have £100k.

I don't give a shit about you. If you'd not paid  £300k in the first place, then I might have been able to buy for £200k.

But you have that house, which I'd pay £200k for, but you cannot sell for less than £260k  because that is what you owe on the mortgage.

Rather than the government banging me a £10k loan so I can pay you £260k, I'd rather buy it for  £200k and have the government loan you £60k so that you can sell it to me.

Eventuality you will pay that £60k back. That is your cost for paying £60k more for a house than it is worth. That £60k is your mistake and your burden to bear - not mine through paying you £60k to bail you out of a bad decision, taking the cost upon myself.

These people will take the hit under my suggestion. They just won't the clout to force the government to support prices and so offloading the cost of that poor investment onto you or me, which is currently the case.

Why does the government need to lend them the £60k? If they are in a position to repay an extra £60k the banks can lend it, if not it is a bailout.

[Fully Detached]

2 minutes ago, doomed said:

Why does the government need to lend them the £60k? If they are in a position to repay an extra £60k the banks can lend it, if not it is a bailout.

You can level exactly the same question at HTB.

Like it or not the tax payer is in some cases going to be the lender of last resort - whether it's right or wrong is immaterial. The question is would you prefer to be the lender in a scheme that helps house prices rise, or helps house prices fall? I'll take the latter.

[BorrowToLeech]

10 hours ago, Venger said:

LOL "If you have two homes, someone, somewhere goes without."

I have 4 cars, two bikes and 10 suits are people having to walk and going around naked.....

Mines a Peroni but is someone going thirsty....?

It's Important to reiterate that this is absolutely true.

If you buy two houses, then someone else gets none.

We just arent building enough homes for some people to have two, or three or more.  

If we were, then there would be no tenants to go in the houses, because everyone who wanted one would have their own.  

And we can't build enough anyway because the supply of land is fixed and scarce. 

Housing behaves like the art market, or the classic car market, it doesn't behave like the market for caravans. 

Edited December 10, 2016 by BuyToLeech

[stormymonday_2011]

1 hour ago, BuyToLeech said:

It's Important to reiterate that this is absolutely true.

If you buy two houses, then someone else gets none, putting them in a position where they can be exploited.  Landlording is the exploitation of people you have made homeless.

Simplistically, it is because we just arent building enough homes for some people to have two, or three or more.

More fundamentally, land is fixed, owned, and controlled with planning permission.  Good land, near jobs and schools, is scarce because of geometry.  The market cannot respond to increased demand by increasing the supply, and this flows through to the housing market.  New entrants can't undercut the existing suppliers with innovative production methods. All the market can do is push up the cost of the existing land.

It absolutely isn't true for most other assets which are made on demand.  If everyone got into, say, rock-climbing Asda would pretty soon be selling £1.99 crampons.

If this wasn't true, landlords wouldn't exist.  Theres money to be made hoarding assets that are scarce and cannot be replaced - art, classic cars, diamonds - and no money to be made by holding assets that can be produced at cost - new cars, computers, artificial diamonds.  We take for granted that housing, which looks like a consumer good, behaves like art, and yet we pretend that somehow it is otherwise.  As if monet paintings are scarce because we just aren't producing enough monet paintings.

Any decent parent teaches their child not to grab all the sweets for themselves.  Children have to learn to share.  Landlords, presumably, teach their children to grab everything for themselves at any given opportunity.

As I said on another thread UK Housing is a text book example of a failure of  supply side economics.

It holds that taxes should be reduced on formation of capital and the suppliers of goods and sevices

In practise the tax relief to landlords generated almost no growth in house building as it essentially all ended  up on demand side and simply allowed landlords to outbid owner occupiers for the existing supply  as they essentially competed in the same market. This is why house prices and rents are so inextricably linked. Worse because of the way the market works the tax relief allows prices to bid up by precisely the amount of relief that was available. What happens when the tax relief is cut off can be seen from the crash in house prices in the UK in the early 1990s a couple of years after MIRAS was finally abolished

The current system is barking which benefits no one but over levered rentier landlords

One really does wonder how it has gone on so long or the mentatlity of those who permitted it. If unleft this machine would simply has consumed all the spare capital in the UK. As it is it has got pretty near that situation in the South East of England. Once that inflection point is reached the bubble would have collapsed anyway tax relief or no tax relief since ther would be nothing left to sustain it.

 

Edited December 10, 2016 by stormymonday_2011

[BorrowToLeech]

5 minutes ago, stormymonday_2011 said:

As I said on another thread UK Housing is a text book example of a failure of  supply side economics.

It holds that taxes should be reduced on formation of capital and the suppliers of goods and sevices

In practise the tax relief to landlords generated almost no growth in house building as it essentially all ended  up on demand side and simply allowed landlords to outbid owner occupiers for the existing supply  as they essentially competed in the same market. This is why house prices and rents are so inextricably linked. Worse because of the way the market works the tax relief allows prices to bid up by precisely the amount of relief that was available. What happens when the tax relief is cut off can be seen from the crash in house prices in the UK in the early 1990s a couple of years after MIRAS was finally abolished

The current system is barking which benefits no one but over leverered rentier landlords

One really does wonder how it has gone on so long or the mentatlity of those who permitted it. If unleft this machine would simply has consumed all the spare capital in the UK. As it is it has got pretty near that situation in the South East of England. Once that inflection point is reached the bubble would have collapsed anyway tax relief or no tax relief since ther would be nothing left to sustain it.

 

Apologies for editing my post, I am a terrible writer and I'm trying to improve!

Agree with everything you say. 

[spyguy]

7 minutes ago, stormymonday_2011 said:

As I said on another thread UK Housing is a text book example of a failure of  supply side economics.

It holds that taxes should be reduced on formation of capital and the suppliers of goods and sevices

In practise the tax relief to landlords generated almost no growth in house building as it essentially all ended  up on demand side and simply allowed landlords to outbid owner occupiers for the existing supply  as they essentially competed in the same market. This is why house prices and rents are so inextricably linked. Worse because of the way the market works the tax relief allows prices to bid up by precisely the amount of relief that was available. What happens when the tax relief is cut off can be seen from the crash in house prices in the UK in the early 1990s a couple of years after MIRAS was finally abolished

The current system is barking which benefits no one but over leverered rentier landlords

One really does wonder how it has gone on so long ore the mentatlity of those who permitted it. If unleft this machine would simply has consumed all the spare capital in the UK. As it is it has got pretty near that situation in the South East of England. Once that inflection point is reached the bubble would have collapsed anyway tax relief or no tax relief since ther would be nothing left to sustain it.

 

And at great expense toe the UK taxpayer, who had to back stop the banks. Which, if you need reminding, failed due to the amount of debt on mainly real estate.

And that failure wwas not one or two banks, its was ~80% of the banks FFS

Outside of OO, real estate loans are very risky. A fact hat Basel  seem to be recognising/admitting at long last.

Having a regular/bankstopped bank issuing IO loans is beyond fcking nuts. Its fcking insane.

Non amortising loans should be left to specialist lenders, with specialist IR costs.

The cost of commercial real estate loans i.e anything non OO is going to to go very high.

The UK will move from a situtation, post MMR/PRA, where a LL can outbid a OO by twice the sum, to one where the a LL can only pay 1/3 what the OO can.

Ive pointed the last thing out, in various versions.,on various threads. I still expect to see 'Im a poor LL, I cannot sell my BTL and my IO BTL Mortgage ha gone from 2% to 8% and I have to repay the capital back.'

 

 

[doomed]

1 hour ago, Fully Detached said:

You can level exactly the same question at HTB.

Like it or not the tax payer is in some cases going to be the lender of last resort - whether it's right or wrong is immaterial. The question is would you prefer to be the lender in a scheme that helps house prices rise, or helps house prices fall? I'll take the latter.

I am sorry but I think both are terrible and unjust. I will certainly not be cheering from the sidelines if the government decides on more bailouts, regardless of who receives them.

[One-percent]

There is no shortage of property.  Large swathes of newbuild in large cities, london and Cambridge especially have been bought up by overseas and other investors.  Wander round at night and see how many have lights on.  Not a lot.

look on rightmove and many properties look empty.  Probate? Second homes no longer required? Empty lets?  I don't know, maybe a mix of all three, but there are lots being put up for sale empty.  

[spyguy]

10 minutes ago, One-percent said:

There is no shortage of property.  Large swathes of newbuild in large cities, london and Cambridge especially have been bought up by overseas and other investors.  Wander round at night and see how many have lights on.  Not a lot.

look on rightmove and many properties look empty.  Probate? Second homes no longer required? Empty lets?  I don't know, maybe a mix of all three, but there are lots being put up for sale empty.  

Once you stop paying people for them esp. in London, and make them pay for it out of their own wages, youll find theres even more.

All those people in social housing will suddenly find they dont need to be in London any more,

Cap housing benefit at £500/month.

Change benefits to contribution based and time limited.

[Fully Detached]

35 minutes ago, doomed said:

I am sorry but I think both are terrible and unjust. I will certainly not be cheering from the sidelines if the government decides on more bailouts, regardless of who receives them.

I completely agree with you - things should never have got to this state in the first place. But they have, so now we're here, and we're not coming out of it any time soon without someone getting helped out. If I've got to take a kick in the nuts one way or the other, I'll choose the way that helps bring house prices down sooner, and ideally in a way that doesn't destroy the entire economy and my chance of buying a house into the bargain.

It sucks, but I think the alternatives would suck worse.

[Digsby]

1 hour ago, doomed said:

Why does the government need to lend them the £60k? If they are in a position to repay an extra £60k the banks can lend it, if not it is a bailout.

Because that would be a 120% or similar LTV mortgage, and we kind of don't want to go back there these days.

[Digsby]

1 hour ago, Fully Detached said:

You can level exactly the same question at HTB.

Like it or not the tax payer is in some cases going to be the lender of last resort - whether it's right or wrong is immaterial. The question is would you prefer to be the lender in a scheme that helps house prices rise, or helps house prices fall? I'll take the latter.

You get it

[spunko2010]

Not sure if already posted on here, but: https://www.theguardian.com/money/2016/dec/09/buy-to-let-landlord-days-numbered-fergus-wilson-tax-changes-mortgage-rules

[doomed]

35 minutes ago, Fully Detached said:

I completely agree with you - things should never have got to this state in the first place. But they have, so now we're here, and we're not coming out of it any time soon without someone getting helped out. If I've got to take a kick in the nuts one way or the other, I'll choose the way that helps bring house prices down sooner, and ideally in a way that doesn't destroy the entire economy and my chance of buying a house into the bargain.

It sucks, but I think the alternatives would suck worse.

I disagree with this. The banks and builders got bailed out because they fund the government; I do not believe the fools that paid ridicolous multiples of income for a house have the same political capital.

[Fully Detached]

1 hour ago, doomed said:

I disagree with this. The banks and builders got bailed out because they fund the government; I do not believe the fools that paid ridicolous multiples of income for a house have the same political capital.

Fair enough, and there are plenty of people here who see it the same way as you do. I'm not saying that you're wrong, just that from my perspective what matters is that house prices become sensible again as quickly as possible. If a few dumbasses get lucky along the way, then so be it.

[Digsby]

2 hours ago, doomed said:

I disagree with this. The banks and builders got bailed out because they fund the government; I do not believe the fools that paid ridicolous multiples of income for a house have the same political capital.

It's not the fools that are the problem, it's their sympathisers. When prices go up 10% in a year, the property owning masses celebrate, with no lip service to those that don't own who now face having to pay 10% more. If prices fall 10% (or it's suggested that might be good) there is a huge outcry "who will think of the poor souls in negative equity" . Loss aversion - a group of people lose whether the prices go up or down but it's only perceived as a loss on the way down. I don't want a correction halted because of public pressure to protect recent buyers from negative equity. I want prices to be allowed to fall, and if there is pressure due to fools sob stories, then it can be handled through support in the form of a loan.

[Frugal Git]

8 minutes ago, Digsby said:

It's not the fools that are the problem, it's their sympathisers. When prices go up 10% in a year, the property owning masses celebrate, with no lip service to those that don't own who now face having to pay 10% more. If prices fall 10% (or it's suggested that might be good) there is a huge outcry "who will think of the poor souls in negative equity" . Loss aversion - a group of people lose whether the prices go up or down but it's only perceived as a loss on the way down. I don't want a correction halted because of public pressure to protect recent buyers from negative equity. I want prices to be allowed to fall, and if there is pressure due to fools sob stories, then it can be handled through support in the form of a loan.

Hmm. a pragmatic approach, but not one I'm comfortable with. 

We need to purge the system of the debt.

Bankruptcy feels to me the better option, because then both the creditor and the debtor take the haircuts both, morally, need to take. The debtor loses their 'assets' - which they borrowed excessively to get,  and the creditor can try and recover some of their 'money' through the sale of seized assets at the probable new lower market rate. their fault for lending it.

The rest is written off, disappearing into the ether from whence the fake credit money came. if the banking systems balance sheet are hit because their 'assets' were created using excessive risk so be it.

[Digsby]

Then they'll just stay put for as long as can can pay the mortgage, and if they can't they will get generous forbearance from the lender until they can.