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Little Professor

Buy To Let Small Fry On The Run

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http://www.citywire.co.uk/News/NewsArticle...VersionID=97229

Great 6 page article on Citywire today on the unravelling of the housing bubble. You can get a feeling for the tone of the article by its headline ("Mortgages: Here comes the Repo Man") and the sub-headline ("Buy to Let small fry on the run"). :lol::lol::lol:

The property market appears to be unravelling at an increasing pace.

Repossessions are on the up and a growing number of ‘flash sale’ companies are waiting in the wings to prey on fears of negative equity.

The Royal Institution of Chartered Surveyors (Rics) reported a sharp rise in properties sold at auction to 5,120 in the second quarter of 2007, blaming repossessions for the 22% increase on the first-quarter figures.

A Rics economist said repossessions could rise to 45,000 next year. ‘With the full impact of interest rate rises in 2007 yet to filter through into higher mortgage costs, we continue to expect a rise in the number of homes going under the hammer into 2008."

BUY-TO-LET SMALL FRY ON THE RUN

Buy to let could be the first casualty of higher rates and stagnant or falling property prices because landlords can sell relatively easily and don’t have to find somewhere else to live. Many buy-to-let lenders have increased their rates since the credit squeeze took hold and some investors could easily find themselves having to subsidise mortgage repayments out of earned income because the rental no longer covers their outgoings.

According to property website landlord.co.uk, some investors are panic-selling, trying to get out before the market crashes and leaves them with negative equity. Those most vulnerable are landlords with only one or two properties, who bought new flats with very high loans to value. The value of many of these properties has fallen dramatically.

Tim Warrington of landlord.co.uk, which has 14,000 registered landlord users, warns of the buy-to-let market taking a bath. ‘Some landlords have decided that market conditions are looking bleak. Too many landlords selling in the UK could send the property market into freefall.’

A recent auction by Barnard Marcus saw 225 London properties go under the hammer with 61 not sold, many failing to reach their reserve price. If the reserve prices represented the lenders’ mortgages on these properties, then there is real trouble ahead.

NEGATIVE EQUITY

Landlords in difficulties who purchased relatively recently could see all their equity wiped out. For example, a two-bedroom apartment in a luxury waterfront block in Ipswich, sold in April for £279,950. It was then repossessed and auctioned in July for just £140,000. If the original buyer had purchased with an 85% loan, the auction price would not have covered the mortgage of £238,000.

According to David Harber of National Homebuyers, the largest flash sale company in the UK: ‘The property industry has been deliberately hiding the truth from homeowners about the state of the market to protect their own interests. The property crash has already begun.’

National Homebuyers reports a rise in enquiries from distressed homebuyers: ‘We are expecting a big increase in business in the new year. After Christmas when the credit card bills start to mount up some will want a quick sale.’

Edited by Little Professor

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Landlords in difficulties who purchased relatively recently could see all their equity wiped out. For example, a two-bedroom apartment in a luxury waterfront block in Ipswich, sold in April for £279,950. It was then repossessed and auctioned in July for just £140,000. If the original buyer had purchased with an 85% loan, the auction price would not have covered the mortgage of £238,000.

And if he bought with a 125% 6x income loan from Northern Crock, he'd be cacking himself ! No sub prime here, NOT ! Watch the cards fall and the whole stack collapse. TIMBER !!!!!!!!!!!!!!!!!

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Guest grumpy-old-man

Hi LP,

my wifes friend who is a teacher told her that someone she knows who is a recently qualified teacher has just bought a house. The mortgage is £1200 per month :o:o at 9% IR :o:blink: . This is also an IO mortgage :o:blink:

this is a professional, you would have though intelligent person. It just goes to show the power of HPI doesn't it.

I mean what could you rent for £1000 per month let alone sticking another £200 per month on top?

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Landlords in difficulties who purchased relatively recently could see all their equity wiped out. For example, a two-bedroom apartment in a luxury waterfront block in Ipswich, sold in April for £279,950. It was then repossessed and auctioned in July for just £140,000. If the original buyer had purchased with an 85% loan, the auction price would not have covered the mortgage of £238,000.

And if he bought with a 125% 6x income loan from Northern Crock, he'd be cacking himself ! No sub prime here, NOT ! Watch the cards fall and the whole stack collapse. TIMBER !!!!!!!!!!!!!!!!!

Fortunately for NR, though, they have re-packaged that loan and sold it to our pension fund. :(

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Fortunately for NR, though, they have re-packaged that loan and sold it to our pension fund. :(

And this is the worrying thing. Whilst I understand the concept, what are the implications going to be over say, 30 years?

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And this is the worrying thing. Whilst I understand the concept, what are the implications going to be over say, 30 years?

I fear an almighty crash throughout the UK financial system. The city is going to look like a bomb disposal expert that cut the wrong wire. What a mess.

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According to David Harber of National Homebuyers, the largest flash sale company in the UK: ‘The property industry has been deliberately hiding the truth from homeowners about the state of the market to protect their own interests. The property crash has already begun.’

Ha! Reverse VI. "Flash sale" companies would feast on panic selling. :P

However, I do agree, the weak link in the market is BTL. Landlords can sell without moving out so they are much more likely to sell at the first sign of trouble. Also they will feel the need to protect their principal residence by offloading other properties, even at a loss.

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I do agree, the weak link in the market is BTL. Landlords can sell without moving out so they are much more likely to sell at the first sign of trouble.

But, all the surveys show that BTL investors are in it for the long-term, don't they :P

At least that's what Morris Properties were saying before they got pwned by the Serious fraud Office yesterday: :ph34r:

http://www.morrisprops.com/investments/why-property.html

Edited by Little Professor

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Ha! Reverse VI. "Flash sale" companies would feast on panic selling. :P

However, I do agree, the weak link in the market is BTL. Landlords can sell without moving out so they are much more likely to sell at the first sign of trouble. Also they will feel the need to protect their principal residence by offloading other properties, even at a loss.

They won't be able to.

Highly geared BTLers with multiple properties or smug homeowners who have thought they might dabble in BTL for their pension and have bought using small deposits are going to find out what margin trading is all about. When the leveraged asset doesn't cover the loan they will get a knock at the door. This idea that they can just hand the keys back and the lender will write off his loss is rubbish. The lender will pursue him against his other assets, including his main home through bankruptcy court if necessary.

This is where the real damage is likely to come from, not just in the BTLs themselves.

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They won't be able to.

Highly geared BTLers with multiple properties or smug homeowners who have thought they might dabble in BTL for their pension and have bought using small deposits are going to find out what margin trading is all about. When the leveraged asset doesn't cover the loan they will get a knock at the door. This idea that they can just hand the keys back and the lender will write off his loss is rubbish. The lender will pursue him against his other assets, including his main home through bankruptcy court if necessary.

This is where the real damage is likely to come from, not just in the BTLs themselves.

I'd agree that anyone who BTLed since 2005 on a 100% IO mortgage is fooked big time. They'll probably lose their principal residence unless they have enough income to subsidise the renter for the next 5 or 10 years.

But someone who BTLed in 2000 and put 10% down is still sitting very pretty. However they need to get out ahead of the herd or they won't be getting out at all. Which is where "flash sale" comes in - 20% below market value is no problem if your property has doubled in value. Alternatively they are well placed to sit out any downturn. The property really is their pension. But it was a one-shot deal. You had to be there at the right time. And I don't know where the cut off is, but it's not likely to be later than 2002, I'd say.

Edited by Nationalist

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I'd agree that anyone who BTLed since 2005 on a 100% IO mortgage is fooked big time. They'll probably lose their principal residence unless they have enough income to subsidise the renter for the next 5 or 10 years.

But someone who BTLed in 2000 and put 10% down is still sitting very pretty. However they need to get out ahead of the herd or they won't be getting out at all. Which is where "flash sale" comes in - 20% below market value is no problem if your property has doubled in value.

Lets' not forget that it will be 20% off their version of market value, which in itself is probably 10-20% less than an EAs. :)

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Hi LP,

my wifes friend who is a teacher told her that someone she knows who is a recently qualified teacher has just bought a house. The mortgage is £1200 per month :o:o at 9% IR :o:blink: . This is also an IO mortgage :o:blink:

this is a professional, you would have though intelligent person. It just goes to show the power of HPI doesn't it.

I mean what could you rent for £1000 per month let alone sticking another £200 per month on top?

A 5 bed detached on a nice estate worth about £475K

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and some investors could easily find themselves having to subsidise mortgage repayments out of earned income because the rental no longer covers their outgoings

Falling capital value and a negative income. Could an investment be any worse?

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I mean what could you rent for £1000 per month let alone sticking another £200 per month on top?

I'll tell you what - We just rented a £1000 pcm place due to expecting a baby. It is a 3-bedroom house in a very nice little cul-de-sac, hidden away in the dead-centre of town - shangri la to be honest.

Of course £1000 pcm is A LOT of money. But wait, let's have a look at the value of the house shall we? The one next door to us is the middle one of three, and sandwiched betwen ours and the next one - think of it as a 3-house terrace. It is also smaller than ours, and was recently sold in June for....£325k. Another one opposite ours which is slightly bigger went 1 year ago for £420k.

This tells me that our place has a current market 'value' of something like £350k. To 'buy' our house with a 100% IO mortgage would cost us around £2000 a month.

WE RENT THE PLACE FOR HALF THE AMOUNT YOU CAN RENT THE MONEY TO BUY THE PLACE.

Is there a better way to demonstrate the bubble? :blink:

TIIIIIMBEERRR!!!

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I'll tell you what - We just rented a £1000 pcm place due to expecting a baby. It is a 3-bedroom house in a very nice little cul-de-sac, hidden away in the dead-centre of town - shangri la to be honest.

Of course £1000 pcm is A LOT of money. But wait, let's have a look at the value of the house shall we? The one next door to us is the middle one of three, and sandwiched betwen ours and the next one - think of it as a 3-house terrace. It is also smaller than ours, and was recently sold in June for....£325k. Another one opposite ours which is slightly bigger went 1 year ago for £420k.

This tells me that our place has a current market 'value' of something like £350k. To 'buy' our house with a 100% IO mortgage would cost us around £2000 a month.

WE RENT THE PLACE FOR HALF THE AMOUNT YOU CAN RENT THE MONEY TO BUY THE PLACE.

Is there a better way to demonstrate the bubble? :blink:

TIIIIIMBEERRR!!!

Of course there's also the cost of repairs and maintenance, supposedly 1 to 2% of the 'value' of the house annually.

You don't pay it but if you rented from the bank (I.O.), you would.

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I'd agree that anyone who BTLed since 2005 on a 100% IO mortgage is fooked big time. They'll probably lose their principal residence unless they have enough income to subsidise the renter for the next 5 or 10 years.

But someone who BTLed in 2000 and put 10% down is still sitting very pretty. However they need to get out ahead of the herd or they won't be getting out at all. Which is where "flash sale" comes in - 20% below market value is no problem if your property has doubled in value. Alternatively they are well placed to sit out any downturn. The property really is their pension. But it was a one-shot deal. You had to be there at the right time. And I don't know where the cut off is, but it's not likely to be later than 2002, I'd say.

I thought it was nigh on impossible to get a 100% BTL mortgage?

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