Thursday, August 17, 2006

When will the buy-to-let bubble burst?

When will the buy-to-let bubble burst?

Minutes from the Bank of England’s August interest-rate setting meeting revealed nothing that we didn’t already know. Gordon Brown’s new man on the Monetary Policy Committee, David Blanchflower, is - surprise, surprise - a dove. He was the only one of the seven-strong committee (it’s two members down at the moment) to vote against a rate hike. Mind you, you can’t expect a great deal of sense from a man whose crowning academic glory is a piece of research that proved that having more sex tends to make people happier. Doubtless the two new MPC members who join in October - both Treasury appointees - will also be doves. But with six members actually worrying about inflation, that still leaves the odds stacked in favour of a rate hike. And that’s bad news for all those new buy-to-let landlords who have jumped on the bandwagon since the start of this year…

Posted by mary @ 10:04 AM (537 views)
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7 thoughts on “When will the buy-to-let bubble burst?

  • That was a fun read 😀

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  • Not a lot to disagree with, apart from the bit about ‘long slow slump’ – the market has gone too high – and with too much speculative investment funded by borrowed money – to deflate gently.

    First, rising interest rates cause the BTL speculators to get cold feet about making further acquisitions, and at the same time the smart money starts offloading property.

    The market swamps, prices begin to ease down slowly.

    MEWers run short of equity to liberate, and the default rate on BTL loans rises sharply.

    The lenders get worried about BTL, and the low rates and incentives disappear.

    BTLers find themselves faced with serious deficits, and growing numbers try to offload.

    Anxiety builds amongst vendors of investment properties, and prices fall faster as they compete for the very few buyers.

    Falling house prices cause consumer confidence to take a big hit, consumer spending falls, and MEWing becomes all but history.

    As the economy heads into recession and unemployment soars, the lenders become preoccupied with minimising their losses – high LTV mortgage packages vanish.

    The property market moves into a twilight zone, where asking prices are not realistic, and transactions plummet. The investments of bankrupt landlords go to auction or sealed bid, and reveal dramatic falls in value.

    The mortgage lenders run short of cash to lend as investers begin to doubt their solvency, and move their savings.

    The property market goes into complete meltdown.

    – Then I think about buying….

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  • Uncle Tom,

    You forgot to add that in a recession the large number of workers from Eastern Europe will return home. This will put further pressure on BTL.

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  • The bubble will burst when house prices have reached unsustainable levels. Exactly when this will be is difficult to say, but it can’t be too far off. When it does occur, we should expect to see property prices drop by around 6% per annum for a period of at least 5 years. I think that this will probably be regarded by most as a ‘long slow slump’ rather than a crash.

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  • had a conversation with a plumber who came to fix our saniflo toilet (crap invention) we are renting, and so is he, since he lost his business and house in the last recession/hpc. 5 bedroom farmhouse with land was valued by an estate agent friend at £350,000. He didn’t want to sell but when the work dried up 6 months later he had to, the property was now valued at only £180,000 this kept going down until an offer was made at £125,000 which eventually fell through, finally the the house was reposessed and sold for £72,000 I think he made £10,000 profit, lost his business, marriage and house, poor bugger. what I was surprised at was the speed at which this happend (within a year) I was under the impression that a HPC can take years.

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  • “Uncle Tom” realistically what is to stop them just keeping interest rates low for as long as they want, since they do not care about inflation, what global pressure would force them to do otherwise…

    I can not think of anything like this artificially low interest rate lunacy being done before.

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  • Saw a house on the way home tonight with ‘to let’ and ‘for sale’ on.

    Might just have well put ‘In debt’.!

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