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Buy-to-let Brigade Could Be The Joker In The Homes Pack

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Guest wrongmove

Buy-to-let brigade could be the joker in the homes pack

"In polite circles there is one C-word that remains taboo. Crash. We can whisper it or think it, but anyone saying it aloud faces ostracism from our property-obsessed culture.

We may have to overcome our objections. House price inflation is cooling in England and Wales – but still rising in Scotland and Northern Ireland, although for how long? – and the assumption that property prices can only ever move in one direction may need to be revised.

In April mortgage levels fell to their lowest for a year. It could mark the start of a prolonged cooling-off. Nationwide, Britain’s largest building society, says that house price growth across the country is set to slow further in 2008 to just under 5 per cent. Fionnuala Earley, its chief economist, pointed out that the three-month rate of house price inflation was running at 3.5 per cent in January. By May, that rate had more than halved.

The average price of a home is now about 10.3 per cent more than a year ago, but the underlying picture leads economists to predict that annual inflation will have fallen to between 5 per cent and 8 per cent by December. Price inflation in the North of England has already slowed to 5.3 per cent during the first half of this year. ..... "

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Two years ago some analysts predicted a wave of forced sellers among buy-to-let investors that they said could send house prices crashing 40 per cent. That fear never became reality.

Never became = Hasn't yet become

And 40% was from the prices of two years ago. It's 65% now.

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I think the key is how the BTL or second home owners will behave when interest rates start to rise. We could be looking at 5.75% in July so 6% by the end of the year is a possibility to correct the previous mistakes when rates should have risen but were kept artificially low to attract investment.

I have heard terms such as in it for the long term but how many can really afford to be in it for the long term.

Second home owners where I live have started to sell but there are extenuating circumstances for this as we are going through a freehold purchase and it is proving to be a costly exercise and not for the faint hearted.

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Yeah but , no but... The EAs argue that IR are much lower today as the rest of the bubble world feels the chill wind of Great Crash 2. However, as the article points out:

During the last housing crash, of 1989-94, interest rates spiralled to more than 15 per cent. Yet the price of an average home in Britain today is three times the cost of one 15 years ago. That means that it takes a much smaller rise in interest rates for home-owners to find themselves in difficulties maintaining the bigger borrowings needed today.

IMO, its not the IR as much as it is the P/E ratio. The great corrector of the ages has always been earnings. If you don't earn enough to pay for it and buy it anyway it'll crash.

Edited by Realistbear

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During the last housing crash, of 1989-94, interest rates spiralled to more than 15 per cent. Yet the price of an average home in Britain today is three times the cost of one 15 years ago. That means that it takes a much smaller rise in interest rates for home-owners to find themselves in difficulties maintaining the bigger borrowings needed today.

And, as anyone who was working in the housing industry at that time will tell you, the market died in the Autumn of 1988 - more than a year before interest rates peaked. Property rampers like to make comparisons with the absolute extremes of the last boom’s interest rate cycle in order to paint today’s situation as a lot more benign. It isn’t. Last time 20% of the market wasn’t being propped up by speculators prepared to put up with pathetic yields in the hope of making capital gains. If the MPC’s next couple of rate rises are accompanied by the sort of bearish press coverage we’ve seen in the last couple of months things will get very interesting indeed.

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And, as anyone who was working in the housing industry at that time will tell you, the market died in the Autumn of 1988 - more than a year before interest rates peaked. Property rampers like to make comparisons with the absolute extremes of the last boom’s interest rate cycle in order to paint today’s situation as a lot more benign. It isn’t.

Especially when you compare the capital outstanding :-

cclaim13big.gif

post-2525-1181033340_thumb.jpg

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And, as anyone who was working in the housing industry at that time will tell you, the market died in the Autumn of 1988 - more than a year before interest rates peaked. Property rampers like to make comparisons with the absolute extremes of the last boom’s interest rate cycle in order to paint today’s situation as a lot more benign. It isn’t. Last time 20% of the market wasn’t being propped up by speculators prepared to put up with pathetic yields in the hope of making capital gains. If the MPC’s next couple of rate rises are accompanied by the sort of bearish press coverage we’ve seen in the last couple of months things will get very interesting indeed.

Absolutely correct, at the time I was working for a large well known removals company in sales/estimating, the summer of 88 was really busy, by autumn some branches were struggling with hitting targets, by winter hardly any branches were hitting sales targets. A few months later you had trucks sitting idle, unheard of in recent years before. Anyway, don't know what happened after Oct 89, was given the boot.

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Especially when you compare the capital outstanding :-

cclaim13big.gif

It strikes me, looking at your graph, that cpi seems to lag behind interest rates much of the time, eg rates go up cpi goes up, rates come down cpi comes down. That's not how it's supposed to be?

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Guest X-QUORK

In polite circles of the increasingly listened to forum, HousePriceCrash, there is one C-word that remains a little risque. C**ting-BTLers. We can whisper it or think it, but anyone typing it out without using an asterisk or two to fool the anti-obscenity software faces having it changed automatically and thereby leaving the reader to guess what foul slur has been used.

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Guest Yeahbutnocrash
I think the key is how the BTL or second home owners will behave when interest rates start to rise. We could be looking at 5.75% in July so 6% by the end of the year is a possibility to correct the previous mistakes when rates should have risen but were kept artificially low to attract investment.

I have heard terms such as in it for the long term but how many can really afford to be in it for the long term.

Second home owners where I live have started to sell but there are extenuating circumstances for this as we are going through a freehold purchase and it is proving to be a costly exercise and not for the faint hearted.

I think you are doing the right thing in asking the question about how btlers will react rather than assuming anything

Really that was what the article was saying - The BTL factor is currently larger than in the past and to an extent they are an unknown quantity in terms of how they would react if prices were to head south (hence the joker in the pack)

But as prices are not falling significantly in particular compared to all the HPI this is hypothetical

I expect it's btlers who bought over-valued flats, bought in areas of over-supply, are highly geared and started out in the last couple of years who may be having problems

If there is little or no growth whilst the cost of repayments are growing there is nothing in it for new btlers

However it may be a different story for the btlers who have been in the game for longer than 2 or 3 years and are established

Many of these will have equity and be able to see it out over the long-term if their rents more or less cover the mortgages

So I think it's largely a case of how highly geared individual btl's are

We'll have to wait & see...

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Guest wrongmove
No-crash-yet-means-no-crash-ever was the rallying cry of this "last gasp" rally since late 2005

I'm obviously not in the "no crash yet = no crash ever camp" :blink: but with all respect, can two years be written off as a rally? Let alone a last gasp rally? That's a very long gasp!!

edited - what is the accepted definition of a market rally? Doesn't a rally come after falls, rather than after rises?

Edited by wrongmove

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I'm obviously not in the "no crash yet = no crash ever camp" :blink: but with all respect, can two years be written off as a rally? Let alone a last gasp rally? That's a very long gasp!!

in the context of a 10 year bull run, maybe.

in the context of a 35 year bull run, certainly!

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BTW, loving the Times' single handed attempt to tip over the housing market and get labour kicked out at the next election.

It's classic VI manipulation, but this time they are on our side! :P

I see that CAMBO has appointed the chief editor of the news of the world to be his spin doctor.

...as the paper is in the same stable as "THE SUN"

can we expect the crash to be the work of these fine bunch of tabloids(it will be if this guy pulls a string or two)

......HOMEOWNERS HOLOCAUST!!!!.....IT'S THE SUN WOT DONE IT!!!!

ps,sorry about the grammar......it's too posh!

Edited by oracle

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I think you are doing the right thing in asking the question about how btlers will react rather than assuming anything

Really that was what the article was saying - The BTL factor is currently larger than in the past and to an extent they are an unknown quantity in terms of how they would react if prices were to head south (hence the joker in the pack)

But as prices are not falling significantly in particular compared to all the HPI this is hypothetical

I expect it's btlers who bought over-valued flats, bought in areas of over-supply, are highly geared and started out in the last couple of years who may be having problems

If there is little or no growth whilst the cost of repayments are growing there is nothing in it for new btlers

However it may be a different story for the btlers who have been in the game for longer than 2 or 3 years and are established

Many of these will have equity and be able to see it out over the long-term if their rents more or less cover the mortgages

So I think it's largely a case of how highly geared individual btl's are

We'll have to wait & see...

Yes I agree

I have a few acquaintances who work in the EA field (I would not say friends) and I have been told that the hot topic in leasing is Collective Enfranchisement. This is something I am involved in at the present time but as you state there are a number of highly geared BTL owners so if suddenly hit with a 17K or 25K then this can lead to enforced sales. Due to a landmark case in leasing these are actual figures.

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