F. T. : Property Deals Being Cancelled In Bonus Fallout

[Realistbear]

http://www.ft.com/cms/s/0/50d93c16-5d75-11...00779fd2ac.html

City bonus fears hit prime market

By Jim "James" Pickard and Sharlene "Shar" Goff

Published: September 7 2007 20:16 | Last updated: September 8 2007 05:18

Property purchases are coming under pressure in the wealthier London districts after gloomy forecasts for end-of-year City bonuses.

Estate agents have reported some deals falling through

, while mortgage brokers have seen a number of active buyers put their property searches on hold, for fear they will not receive the bumper payouts they had hoped for...../

“We have had seen larger City clients who were actively looking for properties three or six months ago putting off their purchases. They are adopting a ‘wait and see’ approach,” he said.

Those who took out large loans last year and are relying on future bonuses to pay off chunks of their debt, could also fall into difficulty.

r Bailey said: “Houses between £1m and £2.5m are most at risk because they are the people who have borrowed a lot, relying on bonuses and they could be hurt,”

This is significant. Big money appears to be turning away from property as the sure-win vehicle to even more riches. Some will get out in time but those who wait lose.

The key for the London speculators is not to lose sight of the maxxim: buy low but for heavens sake sell when its high. Snooze you lose.

The banks are not lending to the rich London speculators as readily:

http://www.ft.com/cms/s/0/8f729b4a-5d82-11...00779fd2ac.html

Supersize loans face lending hurdle

By Sharlene Goff in London

Published: September 7 2007 22:47 | Last updated: September 7 2007 22:47

City high-flyers are struggling to obtain mortgages for multi-million pound property purchases as banks show a greater reluctance to lend on future bonuses.

Mortgage brokers have seen a number of applications from wealthy clients returned, which they believe weeks ago would have been approved without fuss. Lenders have also reneged on loans that had already been agreed.

Banks are reining in their lending

Looks like its over.

Edited September 8, 2007 by Realistbear

[@contradevian]

http://www.ft.com/cms/s/0/50d93c16-5d75-11...00779fd2ac.html

City bonus fears hit prime market

By Jim "James" Pickard and Sharlene "Shar" Goff

Published: September 7 2007 20:16 | Last updated: September 8 2007 05:18

Property purchases are coming under pressure in the wealthier London districts after gloomy forecasts for end-of-year City bonuses.

Estate agents have reported some deals falling through

, while mortgage brokers have seen a number of active buyers put their property searches on hold, for fear they will not receive the bumper payouts they had hoped for...../

“We have had seen larger City clients who were actively looking for properties three or six months ago putting off their purchases. They are adopting a ‘wait and see’ approach,” he said.

Those who took out large loans last year and are relying on future bonuses to pay off chunks of their debt, could also fall into difficulty.

Mr Bailey said: “Houses between £1m and £2.5m are most at risk because they are the people who have borrowed a lot, relying on bonuses and they could be hurt,”

This is significant. Big money appears to be turning away from property as the sure-win vehicle to even more riches. Some will get out in time but those who wait lose.

The key for the London speculators is not to lose sight of the maxxim: buy low but for heavens sake sell when its high. Snooze you lose.

oh dear all that bonus money invested tied and up in inflated London property...

**puff!**

gone..

Estate agents should put a giant advert in the Evening Standard...

"Bigger Fools Required Urgently!"

You know what they say about "ill gotten gains."

[Bri2]

I was told that finance for high LTV is dead at mo. This won't help any. I guess London which has flown so high has further to fall now. The only hope is that some more Asset Stripping Russki's materialise from somewhere to save the bubble.

[Scunnered]

I particularly liked this bit:

Those who took out large loans last year and are relying on future bonuses to pay off chunks of their debt, could also fall into difficulty.

One tends to get the impression that these bonus-funded city workers feel they're invulnerable to the problems that face the little people, but it looks as if that might not be the case at all.

[Realistbear]

I was told that finance for high LTV is dead at mo. This won't help any. I guess London which has flown so high has further to fall now. The only hope is that some more Asset Stripping Russki's materialise from somewhere to save the bubble.

ohhhhhhhhhhhhhh yeah:

http://www.ft.com/cms/s/0/8f729b4a-5d82-11...00779fd2ac.html

[LittleBro]

Will it turn into a panic?

No.

The current situatuion has to be prolonged to there to be a substantial, long lasting affect on London, there's simply too much money about, still.

[Realistbear]

Will it turn into a panic?

No.

The current situatuion has to be prolonged to there to be a substantial, long lasting affect on London, there's simply too much money about, still.

The problem is that perception becomes reality not the other way around.

[housesforcourses]

Will it turn into a panic?

No.

The current situatuion has to be prolonged to there to be a substantial, long lasting affect on London, there's simply too much money about, still.

Will a few million mortgage resets in the Uk and Us do you?

[Realistbear]

Will a few million mortgage resets in the Uk and Us do you?

I think it will be the general agreemtn among the majority of "experts" that the resets caused the crash.

They begin this month and Nationwide have revealed they have 250,000 on their books due for reset before winter sets in.

So far repossessions have been growing slowly--up about 30% YoY. We could see triple figures very soon.

Edited September 8, 2007 by Realistbear

[dellboy]

Steady income, steady rental, steady full credit card clearances, steady bill payments. When the lending starts to loosen up eventually, these are the characteristics that will buy you a good rate. Oh, and having survived the GC2 in the first place, ofcourse.

[LittleBro]

The problem is that perception becomes reality not the other way around.

Agreed. I just dont thinks it is considered to be 'serious' just yet. This is not my opinion, but the opinion of a lot of guys on a non-related forum (many of which are city bankers) - their feeling was that the whole credit crunch is just a hiccup.

Will a few million mortgage resets in the Uk and Us do you?

Its a good start, yes

[BandWagon]

Agreed. I just dont thinks it is considered to be 'serious' just yet. This is not my opinion, but the opinion of a lot of guys on a non-related forum (many of which are city bankers) - their feeling was that the whole credit crunch is just a hiccup.

Which forum is this?

[bomberbrown]

I've been very consistent with my prediction. London is massively over-priced, IMO, and it will be the catalyst for GC2 (thanks RB ). The first boroughs to be hit will be the unsavoury ones, Hackney, Tower Hamlets etc.

Basically, London prices appear to have levelled out over the past three years across all the boroughs. What I mean by this is you can buy a very nice 1 bedroomed flat in leafy Dulwich for the same price as one in Hackney! There are no more areas left in London where its relatively cheaper to buy?

[bomberbrown]

I rest my case. Where would you prefer to buy?

E5 - 1 Bedroom - £210,000

SE26 - 3 bedrooms - £210,000

Gah!!! I must stop doing this, that SE26 flat looks like a bargain! Arrggghh!!!

[silver surfer]

I think it will be the general agreemtn among the majority of "experts" that the resets caused the crash.

They begin this month and Nationwide have revealed they have 250,000 on their books due for reset before winter sets in.

So far repossessions have been growing slowly--up about 30% YoY. We could see triple figures very soon.

In the last crash it was unemployment that forced overstretched homeowners into repossesion. As long as someone is in employment there's every chance that they'll keep their home, especially in the UK where the gap between teaser rates and current rates isn't quite so massive as in the US.

However, I still believe a severe reduction in nominal house prices will happen in the UK. Two reasons,

1. BTL is the unprecedented new factor in the UK property market. And in work or not overstretched and inexperienced new BTL landlords will be forced to sell or be repossesed in their hundreds of thousands. Furthermore, to burst the housing bubble they don't even have to sell, they just have to stop buying which will remove 30% or more from the demand side of the equation. This is a racing certainty.

2. Sadly unemployment is likely to rise, a recession looks more likely every day.

[ruggedtoast]

I'm worried about my future. I dont have 10 million in equity that I can sell for 5 million and still live like a king but also precipitate a house price crash. The fact is these corporate idiots have screwed us all over for the myth of prosperity,

By hoarding money themselves and causing massive inflation theyve taken the best of the boom and theyll suffer least from a crash.

[dogbox]

Just keep in mind the City downturn following the DOTCOM bust when lays - offs were high, did not impact the property market generally.

[thecrashingisles]

Just keep in mind the City downturn following the DOTCOM bust when lays - offs were high, did not impact the property market generally.

That's a good point but remember that at that time the property market wasn't in a bubble state. Also this time the very reason for the problems is a bust in asset backed investment vehicles.

[nic]

this took annual growth from 36.4 per cent to 37.9 per cent

yay it's slowing!!

[bomberbrown]

Assuming the same flat in each of those locations, Hackney for me no contest.

The SE26 flat is just down the road from crystal palace where the guy was murdered for challenging yoof who threw litter in his car so not so differrent on that score. Much more violence and armed-chav-estate-types in sarf london anyway.

the difference between the two is that hackney is much more central, SE26 takes an hour+ to get to central London, especially at night.

You are having a laugh, surely. I put it to you that Sydenham is no more violent than Hackney, probably less so. As for transport, you can be into London Victoria in just over 15 minutes from Sydenham Hill BR! Oh, then there's also the case that you get an extra 2 bedrooms, comparitively larger living/kitchen space and a tree lined outside balcony space at the SE26 property.

I'm sorry, Hackney had its day 8 years ago, I know, I lived there. Would I live there now? Not when I'm faced with the two property choices I posted prior. Prices in some parts of Hackney would have to fall 50% in order to attract me back to the area.

[R K]

1. BTL is the unprecedented new factor in the UK property market. And in work or not overstretched and inexperienced new BTL landlords will be forced to sell or be repossesed in their hundreds of thousands. Furthermore, to burst the housing bubble they don't even have to sell, they just have to stop buying which will remove 30% or more from the demand side of the equation. This is a racing certainty.

I believe it could be far worse than that.

Many BTLers are amateurs who have raised the deposit for their BTL by MEWing on their first property (home).

They are effectively leveraging on leverage. If we see sustained higher interest rates, coupled with falling prices and a credit crunch, then not only will they have to sell their BTLs but if they go into neg. equity on the BTL sale/repo they will also be facing a "margin call" on their main home (or other BTLs), at a time when the int. repayments on their main home are rising too. It doesn't matter how much equity they have in their main home if they can't release it due to higher rates and an inability to remortgage to MEW further. They will either have to sell or get reposessed. I personally think this cascade effect (if it comes to pass) is underestimated. Not just in the UK market either, but also where MEWers have used the money as deposits to buy "holiday" (haha) homes/rentals.

Edited September 8, 2007 by Red Kharma

[Fergie]

They are effectively leveraging on leverage.

As are the financial institutions. Debt has been being used as an asset to secure more debt - that's the problem. Debt is an asset, of course, that's where it sits on a balance sheet. But if it's being used as collateral to fund yet more debt and large chunks of it is worthless, that's a horrible pyramid system.

Also this time the very reason for the problems is a bust in asset backed investment vehicles.

Yup, and many city bonuses were apparently not paid in cash but - much like Enron shares before them - in asset backed investments which traders could then use to sercure mortgages So debt collateralized on debt collateralized on debt to some infinity somewhere...

I'd like to believe that the financial sytems is secure enough and regulated enough that all of this isn't the absolute nightmare scenario it appears to be. Sadly, I simply don't believe that.

[ruggedtoast]

You are having a laugh, surely. I put it to you that Sydenham is no more violent than Hackney, probably less so. As for transport, you can be into London Victoria in just over 15 minutes from Sydenham Hill BR! Oh, then there's also the case that you get an extra 2 bedrooms, comparitively larger living/kitchen space and a tree lined outside balcony space at the SE26 property.

I'm sorry, Hackney had its day 8 years ago, I know, I lived there. Would I live there now? Not when I'm faced with the two property choices I posted prior. Prices in some parts of Hackney would have to fall 50% in order to attract me back to the area.

Yes, lifes too short. The property prices in horrible boroughs like Hackney are insane, especially when you look at the costs in nicer areas. Theyre also build on the speculation that these areas will continue gentrifying and therefore no matter how much the prices are now, theyll only go up in tandem.

I have a friend who brought a horrible studio in a private block in a horrible part of Stratford which apparently, over the last 7 years hes had it is "worth" £70,000 more than what he bought it for.

Well screw that. Hes had the last 7 years with hoodies breaking into the block to smoke drugs in the hallway outside his door and the police saying theres nothing they can do about it. 7 years of running a gauntlet of crime to get to the tube station and back and 7 years of having absolutely nowhere to go within walking distance of his flat that I would want to spend 3 seconds in.

Apparently it has a "vibrant community" though.

[silver surfer]

I believe it could be far worse than that.

Many BTLers are amateurs who have raised the deposit for their BTL by MEWing on their first property (home).

They are effectively leveraging on leverage. If we see sustained higher interest rates, coupled with falling prices and a credit crunch, then not only will they have to sell their BTLs but if they go into neg. equity on the BTL sale/repo they will also be facing a "margin call" on their main home (or other BTLs), at a time when the int. repayments on their main home are rising too. It doesn't matter how much equity they have in their main home if they can't release it due to higher rates and an inability to remortgage to MEW further. They will either have to sell or get reposessed. I personally think this cascade effect (if it comes to pass) is underestimated. Not just in the UK market either, but also where MEWers have used the money as deposits to buy "holiday" (haha) homes/rentals.

I've a lot of sympathy with this view, especially if the BTL landlords that I know are in any way representative! However, this scenario is largely speculative, and I tried to base my post on the published facts, the 940k BTL mortgages with nearly half taken out in the last three years.

I don't believe we actually have to go beyond this pool of recent evidence to produce the ingredients for a crash. Over the past few years 30% or more of house purchasing has been by BTL landlords, to precipitate a crash all that needs to happen is for BTL demand to dry up. All the pyramid and ponzi schemes in history have collapsed not because the holders of these dubious assets tried to sell, they collapsed when there were no more "greater fools".

And that's where we are today, the increasingly shrill noises coming from BTL VI's like Paragon (whom I'm shorting by the way) tells us all we need to know about the desperate view over the precipice that they're currently enjoying!

[Guest wrongmove]

Bit of a selective cut and paste from RB

"Property purchases are coming under pressure in the wealthier London districts after gloomy forecasts for end-of-year City bonuses.

Estate agents have reported some deals falling through, while mortgage brokers have seen a number of active buyers put their property searches on hold, for fear they will not receive the bumper payouts they had hoped for.

House prices in areas popular with City professionals, such as Mayfair, Kensington and Chelsea, rose at their slowest pace for a year last month as the impact of the credit crunch took hold.

The Prime Central London index from Knight Frank rose by 2.1 per cent in August, down from 3.9 per cent in July. Liam Bailey, head of research at Knight Frank, said that while this took annual growth from 36.4 per cent to 37.9 per cent it was the slowest monthly growth rate since last August.

News that lenders are now being more cautious when basing loans on future bonuses could send further tremors through the prime market.

Most at risk of price pressure are houses in areas such as Wandsworth and Fulham, according to Richard Donnell, director of research at Hometrack, the property research group. These are popular with City workers who depend on bonuses and may spend between £1m and £2m.

“If mergers and acquisitions dry up and credit markets remain suppressed, there will be an impact,” said Mr Donnell. “Buyers may have good credit histories but it may be harder to find the equity than before.”

Figures from Hometrack show that prices in Fulham rose 1.6 per cent in August – after leaping by 5.9 per cent and 5.3 per cent in June and July respectively. A similar story can be seen in Wandsworth, where price inflation dropped to 2 per cent last month from 3.5 per cent and 5.3 per cent in the previous two months.

This still represents strong growth on an annualised basis, reflecting how hot London’s property market is compared with the rest of the country. But the trouble in financial markets may bite in these boroughs.

Ian Gray, sales director at Clegg Gifford Private Clients, a high-end mortgage broker, said some clients had shelved plans to buy property until they had a clearer idea of what bonuses they would get.

“We have had seen larger City clients who were actively looking for properties three or six months ago putting off their purchases. They are adopting a ‘wait and see’ approach,” he said.

Those who took out large loans last year and are relying on future bonuses to pay off chunks of their debt, could also fall into difficulty.

Mr Bailey said: “Houses between £1m and £2.5m are most at risk because they are the people who have borrowed a lot, relying on bonuses and they could be hurt,”

Further up the housing ladder, prices for the most expensive homes are still racing ahead. Mr Donnell said the £2m-plus market was less dependent on the City given how many buyers were from overseas. “As long as the global economy grows that market is less affected,” he said."

Interesting article, but no need to overplay it IMHO.