Btlers Soon Forced To Sell?

[SHERWICK]

" if a £100,000 home with an £85,000 mortgage falls in value by 10pc the landlord has to find another £8,500 to maintain the lender's maximum 85pc loan-to-value rate - even though there is still £5,000 of equity in the property.[/b]

The revaluation is done when the borrower remortgages and, unlike the mainstream market, is required even if the landlord does not change lenders.

Mike Trippitt, an analyst at Oriel Securities, said: "People right at the edge and highly geared are going to be forced to liquidate."

http://www.telegraph.co.uk/money/main.jhtm...mortgage114.xml

Data from the Council of Mortgage Lenders shows 329,100 buy-to-let mortgages were taken in 2006 and 350,900 in 2007.

Many are around 85pc loan-to-value. Ray Boulger, of brokers John Charcol, said a popular deal two years ago was a 5.25pc two-year fixed rate. Borrowers are now facing rates of at least 6.5pc.

In total, there are over 1m outstanding buy-to-let mortgages in the UK accounting for 11pc of the market, giving buy-to-let a huge influence over prices. Ten years ago, there were just 28,000.

[cityboy]

The joy of gearing.

In a bull market its great. In a bear market it kills you.

[Papitogrande]

Christ this old chestnut. If someone has a BTL mortgage and they are paying that mortgage every month, will the bank come along to them and say "we've re-valued your house and we need £20k, or you have to sell it (for less than what you owe us). The answer is no, no they won't.

I agree that highly geared LLs face big problems as they will not be able to remortgage on favourable deals but if they can make their property work on SVR then they will not be forced into a margin call.

[shindigger]

Christ this old chestnut. If someone has a BTL mortgage and they are paying that mortgage every month, will the bank come along to them and say "we've re-valued your house and we need £20k, or you have to sell it (for less than what you owe us). The answer is no, no they won't.

I agree that highly geared LLs face big problems as they will not be able to remortgage on favourable deals but if they can make their property work on SVR then they will not be forced into a margin call.

But thats it, they wont make it work on the SVR.

Theyve not been working for a while.

Every landlord thats been topping up the shortfall every month, waiting for his capital gain, is fooked backwards.

Very simple.

[beefheart]

But thats it, they wont make it work on the SVR.

Theyve not been working for a while.

Every landlord thats been topping up the shortfall every month, waiting for his capital gain, is fooked backwards.

Very simple.

MARGIN CALLS!!!!

ask paddles....he is the BTL MARGIN CALL KING

[SHERWICK]

Christ this old chestnut. If someone has a BTL mortgage and they are paying that mortgage every month, will the bank come along to them and say "we've re-valued your house and we need £20k, or you have to sell it (for less than what you owe us). The answer is no, no they won't.

HOWEVER, as soon as the fixed rate period is over, the bank will assess the value of the property. Note the following: The revaluation is done when the borrower remortgages and, unlike the mainstream market, is required even if the landlord does not change lenders.

Edited April 23, 2008 by SHERWICK

[Top_Bhoy]

Christ this old chestnut. If someone has a BTL mortgage and they are paying that mortgage every month, will the bank come along to them and say "we've re-valued your house and we need £20k, or you have to sell it (for less than what you owe us). The answer is no, no they won't.

Agreed...banks will have bigger concerns to worry about than a BTL paying the mortgage on time every month, although you may find a jobsworth who has to 'do his/her job'

[SHERWICK]

Agreed...banks will have bigger concerns to worry about than a BTL paying the mortgage on time every month, although you may find a jobsworth who has to 'do his/her job'

This isn't about BTLers who pay their mortgage every month. This is about BTLers coming to the end of their fixed rate period. Whether they go to a new lender or not, the property will be revalued. If it has fallen in value, the bank will require extra capital from the BTLer!

[RobK]

The joy of gearing.

In a bull market its great. In a bear market it kills you.

But those that were highly geared knew that they were taking a risky tranche and hence the high returns, didn't they? Or maybe not.

Why did (or indeed still does) the BTL market think that such high returns were a one way bet? Not my analogy, but picking pennies in front of a steamroller springs to mind.

[Nationalist]

This isn't about BTLers who pay their mortgage every month. This is about BTLers coming to the end of their fixed rate period. Whether they go to a new lender or not, the property will be revalued. If it has fallen in value, the bank will require extra capital from the BTLer!

They don't have to re-mortgage; they can just slide seemlessly into the same lender's SVR.

Of course, if they can't afford the SVR, then they're fooked.

Although another way of looking at this is that they'll all decide to raise the rents to cover their costs and since they will all be doing it the poor tenants will have no choice but to pay up.

[cityboy]

But those that were highly geared knew that they were taking a risky tranche and hence the high returns, didn't they? Or maybe not.

Why did (or indeed still does) the BTL market think that such high returns were a one way bet? Not my analogy, but picking pennies in front of a steamroller springs to mind.

Short memories. They some how believed the "house prices always rise" so it didn't look so risky.

They bought the "stability and prudence" of Gordon Brown.

Even I can remember the last crash even though I was a young teenager during it.

[sossij]

Although another way of looking at this is that they'll all decide to raise the rents to cover their costs and since they will all be doing it the poor tenants will have no choice but to pay up.

... or move out.

[Papitogrande]

This isn't about BTLers who pay their mortgage every month. This is about BTLers coming to the end of their fixed rate period. Whether they go to a new lender or not, the property will be revalued. If it has fallen in value, the bank will require extra capital from the BTLer!

Sherwick it doesn't happen. Do you really think that banks habitually pay for valuers to re-asses a property's value just because a deal has come to an end. If the customer goes on to SVR then they will keep quiet and see if the money keeps coming in at 7.5%.

I am not disputing the fact that lots of highly geared BTLers will be bankrupted by SVR payments because their properties were barely profitable on 5% rates. However to say that margin callls will automatically happen without borrowers going into default is just wrong - IMO

[DrGUID]

> Sherwick it doesn't happen

I have to agree with this. I have a BTL, and remortgaged last month till July 2010. They didn't ask me a single question when I remortgaged, in fact having hiked the spread on their tracker they were probably more than happy with my business :angry: .

[Cityfool]

> Sherwick it doesn't happen

I have to agree with this. I have a BTL, and remortgaged last month till July 2010. They didn't ask me a single question when I remortgaged, in fact having hiked the spread on their tracker they were probably more than happy with my business :angry: .

I agree it is unlikely there will be widespread margin calls. The bank's themselves will be reluctant to be seen as piling the pressure though. There may be some though. A fair number of BTL mortgages will have been securitised. Faced with rising LTV's and so a potential default on the bond covenants Security Trustees may well order margin calls if it looks like the landlord is good for the cash. They aren't allowed to give a sh1t what it looks like, they are obliged to act in the best interests of the bond holders...

[ReggiePerrin]

" if a £100,000 home with an £85,000 mortgage falls in value by 10pc the landlord has to find another £8,500 to maintain the lender's maximum 85pc loan-to-value rate - even though there is still £5,000 of equity in the property.[/b]

The revaluation is done when the borrower remortgages and, unlike the mainstream market, is required even if the landlord does not change lenders.

If this causes BTL'ers to wet their pants then what will happen when ...

a £100,000 home with an £85,000 mortgage falls in value by 10pc and the lender reduces the maximum LTV from 85% to 65%.

My mistake.. it is happening.

Edited April 23, 2008 by ReggiePerrin

[Papitogrande]

If this causes BTL'ers to wet their pants then what will happen when ...

a £100,000 home with an £85,000 mortgage falls in value by 10pc and the lender reduces the maximum LTV from 85% to 65%.

My mistake.. it is happening.

If you're talking about the LL's ability to re-finance then it screws them, but they already were screwed because rents won't work at the higher rate even if you could get the loan which you can't because the house is in neg eq. Therefore it makes sod all difference

If however you're saying that the margin call would be more severe then I'd say you're wrong. I don't think a bank can accept your business on certain terms (85%LTV) and then after you have made this huge financial commitment turn round to you and say we only do 65% now so give us some money. It's retrospectively changing the T&Cs and would be very bad practise.

[SHERWICK]

If you're talking about the LL's ability to re-finance then it screws them, but they already were screwed because rents won't work at the higher rate even if you could get the loan which you can't because the house is in neg eq. Therefore it makes sod all difference

If however you're saying that the margin call would be more severe then I'd say you're wrong. I don't think a bank can accept your business on certain terms (85%LTV) and then after you have made this huge financial commitment turn round to you and say we only do 65% now so give us some money. It's retrospectively changing the T&Cs and would be very bad practise.

The banks can do what they like once you come to the end of your fix (if you don't want to go onto the SVR).

[Papitogrande]

The banks can do what they like once you come to the end of your fix (if you don't want to go onto the SVR).

Quite, if you want a new product then you would need to abide by the T&Cs of that deal. However if you don't and are going to sit it out on SVR then what I'm saying is that they will not come to you and say "we're a 65% lender now so cough up some cash".

Maybe we're just saying the same thing here Sherwick because I'm not presenting an 'all is well' view BTL borrowing, just that margin calls are very unlikely without default and massive margin calls due to new criteria are just silly talk

[Zzzzzzzzzzzzzzzzzzzzzzzzzz]

What do you mean SOON? It's happening here in Wales - turning into a complete bloodbath. And I'm glad!

And now we're suddenly gonna get a whole lot poorer:

MORE than a quarter of a million people in Wales will be worse off as a result of the scrapping of the 10p income tax rate!

Edited April 23, 2008 by gruffydd

[shindigger]

MARGIN CALLS!!!!

ask paddles....he is the BTL MARGIN CALL KING

MARGIN CALLS? MARGIN CALLS?

There wont be time.

ONE FLUSH.......GONE!!

[Cityfool]

Plainly they can't change the T&C's!

BTL mortgages are contracts!

[lets get it right]

Christ this old chestnut. If someone has a BTL mortgage and they are paying that mortgage every month, will the bank come along to them and say "we've re-valued your house and we need £20k, or you have to sell it (for less than what you owe us). The answer is no, no they won't.

I agree that highly geared LLs face big problems as they will not be able to remortgage on favourable deals but if they can make their property work on SVR then they will not be forced into a margin call.

Of course they will. Banks have shareholders to answer to. They can't just choose to wait a couple of years and see if the market recovers. If the LTV goes below the minimum requirement the banks will ask you to make it up, regardless of whether you're paying the mortgage or not. It's a matter of risk management. When capital values are rising a bank's attitude to risk is a lot different.

[Papitogrande]

Of course they will. Banks have shareholders to answer to. They can't just choose to wait a couple of years and see if the market recovers. If the LTV goes below the minimum requirement the banks will ask you to make it up, regardless of whether you're paying the mortgage or not. It's a matter of risk management. When capital values are rising a bank's attitude to risk is a lot different.

So let's take the following scenario:

£100k mortgage on (2006 price) £120k flat.

end of 2008 and the flat is worth £90k

The customer is paying 7.5% on SVR, it's their only investment and are subsidising heavily from their income, they're not happy but they're not going to default.

Are you seriously suggesting that the bank will insist that they sell the flat at less than it's mortgage and then what? Take out a personal loan, go bankrupt, sell their own house?

[Bloo Loo]

Of course they will. Banks have shareholders to answer to. They can't just choose to wait a couple of years and see if the market recovers. If the LTV goes below the minimum requirement the banks will ask you to make it up, regardless of whether you're paying the mortgage or not. It's a matter of risk management. When capital values are rising a bank's attitude to risk is a lot different.

Banks, they are quick to profit where they can.

If they can get a margin call out at renewal time, they will. They dont want risky debt anymore.

I suspect the WIlsons of Ashford are finding themselves on the wrong end of this, hence their "BUY A BOND" scheme. They may need it to raise capital for the resets/fees.

To think a bank will just let you carry on losing them collateral, you got another think. Especially if they are using that collateral for a BoE Loan.