Monday, Nov 06, 2006

Hey big spenders ó it's time to get real

The Sunday Times: Merryn on Money: Hey big spenders ó it's time to get real

Another Merryn mortar slams into BTL camp incoming:

"But when prices arenít going your way, it all becomes a nightmare. In a flat or falling market you canít sell without making a loss. Even if prices stay steady, you still have to carry the cost of your stamp duty and all the transaction fees. If you are stuck with a house you canít really afford or can afford only under certain circumstances, all the choices that make life tolerable are gone. You canít leave a job you hate, canít scale back your hours and, in a partnership, canít decide that one of you should stay at home with the children."

Posted by doomwatch @ 02:02 PM (370 views)
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9 Comments

1. monty said...

Merryn's article is written about the rise of the credit card, must-have-it-all-now culture. The quote above refers to the average home-owner and not BTL - in fact there are no references to BTLers at all.

There's got to be a lighter side to the egg lady though - how's about
"you can't make a non-debt without broking eggs" ?
:-)

Monday, November 6, 2006 04:39PM Report Comment
 

2. Surfgatinho said...

Apparently it's all supply and demand. So that explains the 300% rise!

Monday, November 6, 2006 05:05PM Report Comment
 

3. kpjcomp said...

monty..

Yeah, there was no direct BTL slamming, but she does go on about the prospects of house price's falling, and that does effect BTL'ers even if she does'nt mention it. And the reference to selling without making a loss is more BTL orientated, as somebody who has bought a house to live in should'nt be thinking in those terms anyway.

Monday, November 6, 2006 05:32PM Report Comment
 

4. paul said...

I'm still not convinced of the surge in demand for property.

I'm convinced that the surge in lending has fuelled HPI inflation (just like revving up the Bank of England printing presses does for inflation) - I just don't see Polish people new off the coach rushing to buy property when the average wage in Poland is an eighth of the UK.

Monday, November 6, 2006 10:37PM Report Comment
 

5. monty said...

Paul

HPI is not the result of any particular factor in isolation. I'm stating the obvious here but there is increased demand - which is why pricedout, firstrung and this site have such a large audience. The government is still behind on their promised 200k houses per year. Immigration aside, the population will carry on growing until we stop having our 2.4 children.

The latest surge in lending, I believe, is just the lenders trying to squeeze the last drops out of an overtapped market. Relaxing the lending criteria is about the last thing they can do - and it's not a wise move.

Where the Poles new off the coach come into the picture is not their purchasing power but the fact that they will be renting in the short term. This means they are effectively propping up the BTLs at the entry-level end of the market. After a few years, they'll either head back to Poland or become FTBs themselves.

Tuesday, November 7, 2006 09:34AM Report Comment
 

6. Chillilizard said...

Polish renters proping up the entry level market? Hell - when I first arrived in london I stayed in a 3 story terraced house that had 28 people staying there (aussies mostly). Believe me, it doesn't matter how much the polish people actually have, they are propping up the rental market across the board. (And the landlord drives a ferrari - there is money to be made there)

Tuesday, November 7, 2006 11:06AM Report Comment
 

7. inbreda said...

For every pole that comes here and rents, they not only prop up BTL, they also suppress salaries (not that I am against this).

This results in a two class society - those that have multiple houses and those that have none.

It is socially unacceptable, and given the tax benefits of BTL, it should be urgently reviewed in terms of tax liability.

Tuesday, November 7, 2006 11:47AM Report Comment
 

8. paul said...

Yes, I can see the Poles stoking the BTL market but the lax lending criteria has "enabled" the BTL market. Without the lax lending, BTL for the Poles would never have been all that profitable in the first place.

I still think that in years to come, this won't be regarded as a consequence of a surge in housing demand but as the consequence of a surge in cheap lending.

Tuesday, November 7, 2006 01:21PM Report Comment
 

9. monty said...

Paul

You seem to be using the terms "lax lending" and "cheap lending" synonymously. IMHO, the former is obviously the decision of an individual lender (such as Abbey's 5x deal) and the latter is up to the BoE.

As far as I know most BTL lending still requires 85% LTV and a rental to interest payment ratio of 120%-130%. That's hardly lax. What has kept the BTL boat afloat *in many areas* is that market rents are able to cover interest rates+20%. This is the result of cheap money which is soon to get a whole lot more expensive.

I still think that the current phase of HPI cannot be ascribed to a single factor but is rather a combination of consistent high demand for residential properties, low interest rates (resulting in more MEW and BTL), lax lending (more MEW?) and healthy economic growth - everyone still has a job. That's quite a few coconuts to knock down before you get the teddy bear.

Tuesday, November 7, 2006 04:15PM Report Comment
 

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