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OnlyMe

Gmac Poison Pill

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Wow.

http://www.guardian.co.uk/money/2008/mar/2...investmentfunds

Buy-to-let investors who fear they may be left homeless

They face personal ruin after losing the properties they thought would be their pension. As Tony Levene reports, their story is far from unique

...........

Miller, 52, a qualified solicitor who specialised in property work, lives in Bedford. He says: "I bought into this as everyone else was doing it, including the other directors. Even as a director of a firm selling flats, I could not see the game being played. And if I could not see it, then how could you expect the investors we attracted in with our marketing, to understand what was going on?"

He now alleges the expected rents - and hence the valuations based on them - were grossly over-optimistic. Valuers told him to expect monthly rents as high as £855 for a one-bed flat, when, in reality, they never got more than £400-£500.

A valuation survey for a one bedroom flat in Cardiff in August 2006 showed a £209,800 price tag. Yet the valuer said that similar flats in the same block were selling at £177,000.

"The gap of around 15% was a 'gifted deposit'. The value was pushed up artificially so I could get an 85% mortgage on the £209,800. The reality was that I got 100% of what I actually spent - around £177,000. The gifted deposit scheme meant I did not need to put down a penny of my own money."

The valuer quoted an expected £855 a month rental income on the Cardiff flat if "let to a corporate client", less to an individual. The £855 was almost exactly the monthly mortgage interest on the buy-to-let loan.

Agents in Cardiff now cite rents in a similar flat in the same block at £475 a month - little more than half Miller's promised income.

Miller also used gifted deposits on the other 30 properties, almost all with loans from buy-to-let specialist GMAC.

"In all, I owed GMAC £6.4m. My monthly interest was £29,252 but all I ever cleared a month after costs was around £15,000. What we had expected was that interest would be covered by the rent - while the capital values would produce profits when we sold."

GMAC passed most of the loans on to others including offshoots of Bradford & Bingley and Britannia.

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Guest Bart of Darkness
And if I could not see it, then how could you expect the investors we attracted in with our marketing, to understand what was going on?

Look matey, I may be as thick as a whale omelet but I could see through the smoke and mirrors. The fact that you couldn't just makes me despair.

The two men are not after sympathy. While both say they were deceived by developers, lenders, lawyers and, above all, valuers, they accept that ultimately they have only themselves to blame.

Yes, they certainly do.

He now alleges the expected rents - and hence the valuations based on them - were grossly over-optimistic.

No sh*t Sherlock!!! :o

The valuer quoted an expected £855 a month rental income on the Cardiff flat if "let to a corporate client"

:lol:

Agents in Cardiff now cite rents in a similar flat in the same block at £475 a month - little more than half Miller's promised income.

:lol:

The monthly loss from the low rents was unsustainable. Now two properties have been sold; 28 repossessed; and the other flat is in the repossession process.

:lol:

I admit I threw all caution to the wind. I assumed others would do the due diligence for me

:lol:

Now I realise I substantially overpaid.

:lol:

Now some of you might think that I'm being a tad less than sympathetic, indeed you might accuse me of willfully indulging in a great big dollop of schadenfreude, but this is not the case.

Many months ago I said that I would extend exactly the same amount of sympathy to the fly-by-night BTL empire building "millionaire" spiv "investors" as they extended to me for being a priced out FTB.

And so I have.

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snip

"In all, I owed GMAC £6.4m. My monthly interest was £29,252 but all I ever cleared a month after costs was around £15,000. What we had expected was that interest would be covered by the rent - while the capital values would produce profits when we sold."

GMAC passed most of the loans on to others including offshoots of Bradford & Bingley and Britannia.

As is usual with most articles, the financial line is always ambiguousor just plain idiotic as is the above.

GMAC 6.4m good

monthly interest £29252 excellent.

cleared after costs per month £15,000 wow hes making 174k pa

so whats the problem?

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GMAC passed most of the loans on to others including offshoots of Bradford & Bingley and Britannia.

Hmmm. This may explain why Britannia have hiked their rates by 1% recently and also upped their fees and slapped early repayment charges on their mortgages as well. I was a bit taken aback to see their 3% fee for early repayment on a mortage where only a free valuation was being offered. Looks like they are discouraging any further lending which, given that they are a building society and lend mostly based upon deposits leaves me a bit worried. Hopefully they are just being prudent and rebuilding their assets before the real **** hits the fan.

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The only course of action for those in the situation is to sell the main house, keep any equity and leave the debts behind by emmigrating. (or change name by Deed Poll to avoid being found)

The BTL debts will not be secured on the main house until the point of bankrupcy.

VMR.

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I particularly loved the final comment:

Others include doctors, lawyers, and retired people - all normal people trying to make money

Personally, I'd rephrase that statement as "just normal people, trying to make millions from doing nothing, other than finding an insane lender, prepared to throw buckets of money at us, whilst we simply sat on our collective fat arses and didn't even bother to check out the numbers properly!"

As all billionaires invariably do, of course.............................

:rolleyes:

Edited by Prescience

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The only course of action for those in the situation is to sell the main house, keep any equity and leave the debts behind by emmigrating. (or change name by Deed Poll to avoid being found)

The BTL debts will not be secured on the main house until the point of bankrupcy.

VMR.

another guess on the financials here im afraid.

The bank may have taken a "margin call" as teh guy is in trouble in the form of "hey you are behind, but thats Ok, we'll let you carry on through this blib if you let us have the second charge on your house.

this is another "what if" guess of course.

Like most "news" stories, the facts are not available sufficientyl except to help with the "angle" of the article.

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He now alleges the expected rents - and hence the valuations based on them - were grossly over-optimistic. Valuers told him to expect monthly rents as high as £855 for a one-bed flat, when, in reality, they never got more than £400-£500.

A valuation survey for a one bedroom flat in Cardiff in August 2006 showed a £209,800 price tag. Yet the valuer said that similar flats in the same block were selling at £177,000.

"The gap of around 15% was a 'gifted deposit'. The value was pushed up artificially so I could get an 85% mortgage on the £209,800. The reality was that I got 100% of what I actually spent - around £177,000. The gifted deposit scheme meant I did not need to put down a penny of my own money."

The valuer quoted an expected £855 a month rental income on the Cardiff flat if "let to a corporate client", less to an individual. The £855 was almost exactly the monthly mortgage interest on the buy-to-let loan.

Well ,well. And WHO was the surveyor/valuer might I ask? We don't actually know, but the vast majority of Surveyor/Valuers are members of that esteemed, upright, heavily regulated, clean as a whistle, beyond reproach, towering rectitude of an establishment: RICS

Surely some mistake! Surely RICS surveyors couldn't be involved in false valuations could they? After all, they said they cleaned up their act years ago...so they said. Surely they can't be involved in price fixing can they? No, impossible, they promised this was cleaned up too. And, surely they can't be involved in "gifted deposits" can they? Again no, since they clamped down on this way back, didn't they?

VP

Edited by VacantPossession

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Miller also used gifted deposits on the other 30 properties, almost all with loans from buy-to-let specialist GMAC.

"In all, I owed GMAC £6.4m. My monthly interest was £29,252 but all I ever cleared a month after costs was around £15,000. What we had expected was that interest would be covered by the rent - while the capital values would produce profits when we sold."

I can't really understand this. You might buy one and realise that you can't cover the costs with the rent you obtain, but 30? Hello?

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Bloo Loo

Overstated rents, gifted deposits, bulk 100% financing by fudging figures, net negative monthly returns at the end it - I read it that the "owner" is only getting half the net income to cover the mortgage.

All highly believable, as it has been reported here that these things have been occurring for ages and are endemic in the new build sector.

"second charge on your house" - Pissing in wind unless he has a multi mullion pound gaff with no mortgage.

That's the point about BTL, where investors have pyramided up there is no collateral big enough to offset the liabilities.

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Even as a director of a firm selling flats, I could not see the game being played. And if I could not see it, then how could you expect the investors we attracted in with our marketing, to understand what was going on?"

This makes me soo angry :angry: :angry: :angry:

Understandable as he's trying to head off the possibility of legal action from others, but please if anyone else sees him at least give him a wedgie from me, but preferably a charley horse or something stronger.

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Guest Shedfish
I particularly loved the final comment:

Personally, I'd rephrase that statement as "just normal people, trying to make millions from doing nothing, other than finding an insane lender, prepared to throw buckets of money at us, whilst we simply sat on our collective fat arses and didn't even bother to check out the numbers properly!"

As all billionaires invariably do, of course.............................

:rolleyes:

:lol:

maybe what he meant was

Others include doctors, lawyers, and retired people - all normal people trying to make money out of the growing serf underclass of butchers, bakers, candlestick makers, nurses, secretaries, postal workers, miners, coppers...everyone else really

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I can't really understand this. You might buy one and realise that you can't cover the costs with the rent you obtain, but 30? Hello?

Never mind going to the drastic lengths of, well, buying a local paper and looking at the 'To Let' section? Not that you have to do that now given that you can just look on rightmove...

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Bloo Loo

Overstated rents, gifted deposits, bulk 100% financing by fudging figures, net negative monthly returns at the end it - I read it that the "owner" is only getting half the net income to cover the mortgage.

All highly believable, as it has been reported here that these things have been occurring for ages and are endemic in the new build sector.

"second charge on your house" - Pissing in wind unless he has a multi mullion pound gaff with no mortgage.

That's the point about BTL, where investors have pyramided up there is no collateral big enough to offset the liabilities.

ONLY ME

now dont get me wrong and suggest I am at all bullish about the article, and I beleive the essence of what you say is absolutely, 100% correct.

my gripe is with the journolism

If my business clears 15k per month, thats what I would call my income. Id pay tax on that.

The article says the guy clears 15K (at best)

what it should have said, and because they didnt say it, one can only assume, is that the gross income from the tenants was onyl about 15K, yet he then still had to pay Gmac 29K

now losing 15K a month is a very serious issue unless he earns like Cherie Bliar, but the article doesnt say that, one can only infer as he goes on to say he expected the rents to cover the interest payments. He could just be moaning his capital value in the flats is dropping more than 15K per month due to HPC.

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This is the clue

''Agents in Cardiff now cite rents in a similar flat in the same block at £475 a month - little more than half Miller's promised income.''

We passed the point at where rents could actualy pay the interest on the mortgage many years ago, not only that, at the time we reached that point we were very much at the bottom of the interest rate so called cycle. From that point on any so called investor became nothing more than a speculator hoping that interest rates dont go up. Seems the only thing that hasn't been elastic is the ability of non-executives to pay more rent, after all £900 pm is around take home pay for many workers in these cities. How many 'Executive' style flats as they like to call them can actually be filled by 'Executives'. not many, in fact these flats are little more than a substitute for social housing.

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This is the clue

''Agents in Cardiff now cite rents in a similar flat in the same block at £475 a month - little more than half Miller's promised income.''

We passed the point at where rents could actualy pay the interest on the mortgage many years ago, not only that, at the time we reached that point we were very much at the bottom of the interest rate so called cycle. From that point on any so called investor became nothing more than a speculator hoping that interest rates dont go up. Seems the only thing that hasn't been elastic is the ability of non-executives to pay more rent, after all £900 pm is around take home pay for many workers in these cities. How many 'Executive' style flats as they like to call them can actually be filled by 'Executives'. not many, in fact these flats are little more than a substitute for social housing.

A figure I've seen around gives a sane valuation for a rental flat at around 100 times actual monthly rent. This gives stupid-looking valuations if you apply it here - the flat would be circa £50k. But if that means £3k per year in interest, 1k on service costs, £500 on voids and £500 on repairs, you'd be left with £700 per year at that price.

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ONLY ME

now dont get me wrong and suggest I am at all bullish about the article, and I beleive the essence of what you say is absolutely, 100% correct.

my gripe is with the journolism

If my business clears 15k per month, thats what I would call my income. Id pay tax on that.

The article says the guy clears 15K (at best)

what it should have said, and because they didnt say it, one can only assume, is that the gross income from the tenants was onyl about 15K, yet he then still had to pay Gmac 29K

now losing 15K a month is a very serious issue unless he earns like Cherie Bliar, but the article doesnt say that, one can only infer as he goes on to say he expected the rents to cover the interest payments. He could just be moaning his capital value in the flats is dropping more than 15K per month due to HPC.

The 15k per month would be consistent with letting 30 flats at £500 pcm, which is what the article says the expected rental income is.

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How long until this greed orgy lands on the floor of the taxpayer ? Perhaps it already has. B&B are dead in the water - they already had a pile of crap on their loan book, now its going to get worse !

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ONLY ME

now dont get me wrong and suggest I am at all bullish about the article, and I beleive the essence of what you say is absolutely, 100% correct.

my gripe is with the journolism

If my business clears 15k per month, thats what I would call my income. Id pay tax on that.

The article says the guy clears 15K (at best)

what it should have said, and because they didnt say it, one can only assume, is that the gross income from the tenants was onyl about 15K, yet he then still had to pay Gmac 29K

now losing 15K a month is a very serious issue unless he earns like Cherie Bliar, but the article doesnt say that, one can only infer as he goes on to say he expected the rents to cover the interest payments. He could just be moaning his capital value in the flats is dropping more than 15K per month due to HPC.

It's the old EBITDA accounting fudge used so effectively to bamboozle the gullible during the dotcom/telecom fiasco.

http://en.wikipedia.org/wiki/EBITDA

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A figure I've seen around gives a sane valuation for a rental flat at around 100 times actual monthly rent. This gives stupid-looking valuations if you apply it here - the flat would be circa £50k. But if that means £3k per year in interest, 1k on service costs, £500 on voids and £500 on repairs, you'd be left with £700 per year at that price.

Why do you think that is a stupid valuation? £50k is 3 times income for someone earning £17k a year and many full time jobs pay less than that. Personally given the management charge many of these flats have £50k is still far too much.

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It's the old EBITDA accounting fudge used so effectively to bamboozle the gullible during the dotcom/telecom fiasco.

http://en.wikipedia.org/wiki/EBITDA

Thanks, that would explain it very nicely, but you shouldnt need to be a crooked accountant to understand an article.

also for the wiki article: Warren Buffet famously asked, "Does management think the tooth fairy pays for capital expenditures?" For many companies, capital expenditures (for example) may be required at a consistent level; excluding the associated accounting allocation may overstate the company's profitability. Similarly, amortization (write-downs of goodwill) may reflect important changes in the company's business prospects

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  • 293 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
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      • Even
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      • up 5%



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