Jump to content
House Price Crash Forum
Sign in to follow this  
Realistbear

New Craze To Keep H P I Going: "let To Buy"

Recommended Posts

http://money.independent.co.uk/property/mo...icle2770930.ece

15 July 2007 09:29 Home > Money > Property > Mortgages
Owners warm to renting out and trading up
Published: 15 July 2007
More homebuyers are switching to a "let to buy" home loan to allow them to keep their existing property while buying a new one.
Broker My Mortgage Direct reports a sizeable increase in the number of people using this type of mortgage over the past six months. LTB allows people to trade up to a new home and let their old one out.
"A property bought three or four years ago is likely to represent a sizeable chunk of equity which represents a golden egg - and people don't want to let that go," said Cath Hearnden, a director at My Mortgage Direct.
Lenders offering LTB deals include Northern Rock, Abbey and Birmingham Midshires.

Debt, debt, debt and even more debt to keep Gordon's miracle alive. :lol::lol:

Share this post


Link to post
Share on other sites
http://money.independent.co.uk/property/mo...icle2770930.ece
15 July 2007 09:29 Home > Money > Property > Mortgages
Owners warm to renting out and trading up
Published: 15 July 2007
More homebuyers are switching to a "let to buy" home loan to allow them to keep their existing property while buying a new one.
Broker My Mortgage Direct reports a sizeable increase in the number of people using this type of mortgage over the past six months. LTB allows people to trade up to a new home and let their old one out.
"A property bought three or four years ago is likely to represent a sizeable chunk of equity which represents a golden egg - and people
can't sell it at the ridiculous asking price
don't want to let that go," said Cath Hearnden, a director at My Mortgage Direct.
Lenders offering LTB deals include Northern Rock, Abbey and Birmingham Midshires.

Debt, debt, debt and even more debt to keep Gordon's miracle alive. :lol::lol:

Share this post


Link to post
Share on other sites

I'm confused, how does this work.

A property bought 4 years ago goes from say £200K to £300K, the owner then wants to move up a notch so needs to buy at say £400K, but now instead of cashing in on the £100K equity and moving and borrowing just another £300K, they keep the old house and borrow an additionaly £400K to add to the exisitng £200K (assume IO on first house).

But this now means they have now twice as much debt with the rent not even covering the mortgage on the first house, this is beyond stupid. :blink::blink:

Share this post


Link to post
Share on other sites
I'm confused, how does this work.

A property bought 4 years ago goes from say £200K to £300K, the owner then wants to move up a notch so needs to buy at say £400K, but now instead of cashing in on the £100K equity and moving and borrowing just another £300K, they keep the old house and borrow an additionaly £400K to add to the exisitng £200K (assume IO on first house).

But this now means they have now twice as much debt with the rent not even covering the mortgage on the first house, this is beyond stupid. :blink::blink:

The usual reason for doing this is that people can't sell. Of course we have a new spin on it now 'golden eggs' and all. From a trading point of view, they are running their open position whilst opening a new position at a much higher level and no doubt using some of the profit from the first position to open their second position. As you rightly say, "beyond stupid".

Share this post


Link to post
Share on other sites
I'm confused, how does this work.

A property bought 4 years ago goes from say £200K to £300K, the owner then wants to move up a notch so needs to buy at say £400K, but now instead of cashing in on the £100K equity and moving and borrowing just another £300K, they keep the old house and borrow an additionaly £400K to add to the exisitng £200K (assume IO on first house).

But this now means they have now twice as much debt with the rent not even covering the mortgage on the first house, this is beyond stupid. :blink::blink:

I know someone who 'let to buy'. This lasted about 12 months - after tenants trashed the let property they decided it was too much hassle and sold it.

I know a complete muppet who's about to 'let to buy' - he has one of the biggest ego to IQ ratios I've ever encountered. But Mummy and Daddy have loads of money, so no doubt they'll bail him out when it all goes t1ts up.

Share this post


Link to post
Share on other sites

Sounds laughable...

God it's frustrating at the moment though trying to gauge the progress of the property market.

There was so much bear food a couple of days back, now I'm getting hungry again.

:(

Share this post


Link to post
Share on other sites
The usual reason for doing this is that people can't sell. Of course we have a new spin on it now 'golden eggs' and all.

Of course, we now have a new spin on that - "can't sell" actually means "won't sell"

Share this post


Link to post
Share on other sites
The usual reason for doing this is that people can't sell. Of course we have a new spin on it now 'golden eggs' and all. From a trading point of view, they are running their open position whilst opening a new position at a much higher level and no doubt using some of the profit from the first position to open their second position. As you rightly say, "beyond stupid".

Yes indeed. One of the clearest indicators of a deteriorating market is the growth of "FOR SALE/RENT" signs.

This is just EAs trying to keep the train on the track. Watch out EAs buffers ahead!

Share this post


Link to post
Share on other sites

As others have pointed out, this is doubling exposure to risk and yet I can't help but imagine someone doing this and feeling that they have secured their future by doing it.

Incidentally, I came across this on ebay today:

"Selling my beloved MG due to unforseen money shortage during house purchase."

I'd guess that an unforseen shortage would involve either having to accept a lower offer on the old house, or perhaps covering a void period if they are trying to let it out.

If someone's selling a sports car to afford their dream home then they usually say just that.

Share this post


Link to post
Share on other sites
As others have pointed out, this is doubling exposure to risk and yet I can't help but imagine someone doing this and feeling that they have secured their future by doing it.

Incidentally, I came across this on ebay today:

"Selling my beloved MG due to unforseen money shortage during house purchase."

I'd guess that an unforseen shortage would involve either having to accept a lower offer on the old house, or perhaps covering a void period if they are trying to let it out.

If someone's selling a sports car to afford their dream home then they usually say just that.

A sign of the times. How sad.

Share this post


Link to post
Share on other sites

The girl featured on the BBC was doing this the other week. BUT her rental on the flat wouldn't pay the mortgage so it was costing her silly money ...

It is SO stupid.

Share this post


Link to post
Share on other sites
I'm confused, how does this work.

A property bought 4 years ago goes from say £200K to £300K, the owner then wants to move up a notch so needs to buy at say £400K, but now instead of cashing in on the £100K equity and moving and borrowing just another £300K, they keep the old house and borrow an additionaly £400K to add to the exisitng £200K (assume IO on first house).

But this now means they have now twice as much debt with the rent not even covering the mortgage on the first house, this is beyond stupid. :blink::blink:

Almost, property 1 now worth 300k would be remortgaged for the maximum the lender allows say 90% giving them an additional £70k. The new property would then be mortgaged for purchase price less equity released from property 1, they would in your example have £330k worth of debt on property 2. It is a double leveraged investment in that they've leveraged property 1 to enable them to leverage property 2. So a total of 600k worth of debt leveraged off 700k worth of assets.

Then in the new transient relationship environment another classic scheme is for both members a newly formed couple to let-to-buy their existing properties, MEW them and use the MEW finance a deposit on a place together. Works just like above only with three properties in the pyramid rather than two. mmmm triple leverage. :rolleyes:

I guy at work incidentally did this with his then new girlfriend about a year ago and is now seriously over his head in debt with the rent on both LTB's not covering the IO mortgages. The main property is also IO. He is completely s**ting himself about they will afford it all when their current fixed rate deals expire at the end of the year. :blink:

Share this post


Link to post
Share on other sites
http://money.independent.co.uk/property/mo...icle2770930.ece
15 July 2007 09:29 Home > Money > Property > Mortgages
Owners warm to renting out and trading up
Published: 15 July 2007
More homebuyers are switching to a "let to buy" home loan to allow them to keep their existing property while buying a new one.
Broker My Mortgage Direct reports a sizeable increase in the number of people using this type of mortgage over the past six months. LTB allows people to trade up to a new home and let their old one out.
"A property bought three or four years ago is likely to represent a sizeable chunk of equity which represents a golden egg - and people don't want to let that go," said Cath Hearnden, a director at My Mortgage Direct.
Lenders offering LTB deals include Northern Rock, Abbey and Birmingham Midshires.

Debt, debt, debt and even more debt to keep Gordon's miracle alive. :lol::lol:

Might it just be that EAs and other VIs are encouraging this in the hope of slowing the increase in the number of properties on their books? An attempt to curb supply in their continued efforts to prop prices up.

Share this post


Link to post
Share on other sites
I know someone who 'let to buy'. This lasted about 12 months - after tenants trashed the let property they decided it was too much hassle and sold it.

Surely then the problem is componded. On top of all the hassle they'll have to pay tax on the profits made on the original house as it's no longer their principle residence.

Won't they?

Share this post


Link to post
Share on other sites
Surely then the problem is componded. On top of all the hassle they'll have to pay tax on the profits made on the original house as it's no longer their principle residence.

Won't they?

As I understand, if the proprty has been your actual primary residence, the last 3 years of ownership are considered as primary residence whether you live there or not so no CGT problems for 3 years. Not that CGT will be a problem in 3 years anyway...

Probably not the best description but I doubt people would consider CGT on property or even if they knew about the "loophole" they probably think another 3 yrs will be work £30K+ profit to them.

Share this post


Link to post
Share on other sites
The usual reason for doing this is that people can't sell. Of course we have a new spin on it now 'golden eggs' and all. From a trading point of view, they are running their open position whilst opening a new position at a much higher level and no doubt using some of the profit from the first position to open their second position. As you rightly say, "beyond stupid".

Spot on! This happened a lot just before the last housing last crash. I was in London at the time and many couples my age had bought a flat together in the late 80s but found that they wanted to trade up after a few years (e.g children on the way, new job, aspirations, etc.) but they found that if they sold the flat they lived in they would not get enough left over after costs to buy the over valued house down the street so instead of selling the flat they got it valued so they could borrow against it. Problem was that the market was already drying upand prices were just beginning to drop and the value that had been put on their old flat was much higher than the price they could really sell at so they ended up in negative equity on their first and second property. I know a couple who ended up in negative equity on three properties. They believed house prices would never fall.

Kris metioned bridging loans in another post. I well remember this happening a lot just before the last housing crash too. Again this was due to the market stalling but people diving in anyway to buy but unable to sell their existing property. One guy I knew, City trader bought a massive house (a totally ego driven purchase) in summer 1989 and then the market dried up completely almost overnight and he could not sell his old house. City bonuses dried up and he ended up paying two mortgages before he was forced to sell the first house for a lot less than he hoped.

Edited by Wad

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 355 The Prime Minister stated that there were three Brexit options available to the UK:

    1. 1. Which of the Prime Minister's options would you choose?


      • Leave with the negotiated deal
      • Remain
      • Leave with no deal



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.